chap 2 - regulation of intermediaries Flashcards
2 european directives in uk law
implications for intermediaries carrying on regulated business
- eu insurance mediation directive
- eu directive on the distant marketing of consumer financial services
criminal offense to do so without authorisation
regulated firms need to ensure other brokers they deal with are regulated or exempt
firms and approved persons may be subject to fca enforcement action
general insurance classes excluded from general ins contracts statutory regs
1 engineering inspection service contracts
2 extended warranties
fca intermediary definition
complaint definition
defines insurance mediation as; activities of introducing, proposing or carrying out other prepatrory work to the conclusion of insurance contracts
any oral or written expression of disatisfaction whether justified or not.. relating to activities of a firm
brokers must be regulated by the fca if they are
- arranging the purchase of general ins policies (providing factual info- facts and figures)
- advising on insurance policies & (introducing- display promotional material but do not provide and opinion on the product - introducers are usually considered to be appointed representatives of those whose products they are promoting)
3dealing as agent (including operating a binding auth)
assisting in admin and performance of ins policies
fca- regulator for the conduct of business - regulates intermediaries- takes action before detriment occurs- thematic reviews, market review analysis will ban products if sees fit.. the pra alternatively…
sits with BoE- responsibility for the stability of the uk financial system, banks, insurers, life insurers- it wont seek to prevent failure of firms but will seek to prevent firms bringing down the system as a whole- emphasis on judgement based approach to supervision, governess, liquidity
fca - consumer protection - integrity - competition
pra primary objective- promote safety and soundness of pra regulated persons, the 2 secondary objectives are:
cp- securing an appropriate degree of protection for consumers
i- protecting and enhancing the integrity of the uk fin system
c promoting effective competion in the interests of consumers for regulated financial services
-
1 - ensure pra authorised persons carry on business in a way that avoids adverse effects of stability on uk fin system
2. minimise effect failure of pra authorised person could have on the stability of the uk fin system
& ins specific- contribute to ensuring protection of consumers
fca's 11 principles for business int sk man fin mar ci comm coi cust ca regs
1 integrity
- skill, due care and dilligence
- management and control (steps to organise controls reasonably)
- financial prudence
- market conduct
- customers interests (tcf)
- communication with clients (communicate fair and not misleading)
- conflicts of interest
- customers - r.ships of trust (suitability of advice
- client assets
- relationships with regulators
traning and competence- competence should be
eff
up to,,,
eval…
- assessed at recruitment, 2 skills their application and development, 3 at reg intervals to maintain competence
training should be effective, up to date and evaluated- taking into account 1, tech knowledge and application 2 skills, changes in the market, legislation,
be of good repute
definition of eligible complainant- eg consumer -micro enterprise <1m
fscs- limits for general insurance
- comp general insurance (individs and small businesses) - 100% of stat limit
2, all other gen insurance - 90% no upper limit
also covers brokers advising and arranging
regulation in action
contract certainty- achieving contract certainty can be assessed against at least 5 of the fca’s principles
- mngmt 5 mc 6 ci 7 cwc 9 cr t
(example wtc had no completed docs at time of disaster- fsa wanted to end deal now, detail later
3- mangement and control 5 market conduct 6 customers interests 7 communications with clients 9 customers r.ships of trust
key mrket rule is that contract certainty must be in place by inception - issue docs promptly is now 7 days for conumers and 30 days for commercial consumers
Regulation and negligence
transparency
regulator encouraged market to take review on comm transparancy in the same way as contract certainty
the review findings
- law of agency requires brokers to disclose earnings before conclusion of contract, eg client fee, brokerge or combo.
- spitzer review on contingent comm - spitzer against marsh and overriders- aon stopped taking contingent commissions, since then it has been agreed that brokers can take profit commission
review findings
- lack of transparancy in comm paid
- business custs most at risk-medium size firms as they buy more complex producs
- lack of disclosure meant customers did not know how much comm they were paying and they understimated the cost
regulator requires brokers currently of their RIGHT to be informed of commission levels
regulation under the fca - not reg through the rear view mirror but forward looking regulation that asks
- current and future trends that might impact broker model
- key drivers of profitability
- what lines of activity are growing or shrinking
4 where is product change or innovation driving]
5 what does it mean for customers are they at the heart of the business
tcf! - principle 6 - customers interests- has the broker paid due regard to their customer and treated them fairly? links to
principle 2, due skill care and dilligence
principle 3 management and control
principle 7 communications with clients
extends to implementation with the fcas 6 key outcomes for firms to focus on;
1. tcf corporate culture
2. products marketed to right groups
3. clear info before during and after point of sale
4. where advice given it is suitable for customers and their circumstances
5, consumers provided with products as firms have led them to expect
6, no unreasonable post sale barriers
2 important themes;
firms need to demonstrate that accountability for tcf is lodged with senior level/board
tcf must be measurable/reportable within management reports
fsap- EU financial services action plan
3 objectives
- a single market for wholesale fin services
- open and secure retail markets
- state of the art prudential rules and supervision
1eu insurance mediation directive
2
eu business insurance service enquiry 20071
- does not apply to ins/reins mediation for risks outside of uk
- ins/reins int must be registered with local authority in their home state
- protect customers
- sanctions
- complaints - allow consumers to register
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1 allignment of premiums in co-insurance/re-insurance sector
2. transparancy of remuneration and conflicts of interest
