5. Mandatory risk frameworks

Question 1

List some of the prudential supervisory processes

Answer 1

• Oversight
• Licensing
• Requirement to maintain min standards
• Procedures for monitoring compliance with standards and licenses
• Processes to take action against non-compliance

Question 2

List examples of supervisors

Answer 2

• Government
• Professional bodies
• Professional regulators e.g. CFA or FRC
• Industry bodies e.g. British Bankers Association (BBA) / British Sandwich Association and Association of British Insurers (ABI)
• Industry regulators e.g PRA, FCA, LSE

Question 3

What are the roles of professional bodies

Answer 3

Ensure:
 Members adequately trained usually through exams
 Maintain competence- CPD
 May have power to discipline members who fail to maintain standards

Question 4

What are the roles of professional regulators

Answer 4

Maintain public confidence:
 Set standards
 Monitor adherence to standards
 Discipline non-compliance

Question 5

What are the roles of industry bodies

Answer 5

 Promote interest of members through lobbying and other activities e.g. shared research projects

Question 6

What are the roles of industry regulators

Answer 6

 Act on behalf of govt to protect public by controlling firm activity and individuals operating in industry

Question 7

Outline the two forms of regulation

Answer 7

• Functional – different bodies oversee different activities
• Unified – one regulator oversees range of activities e.g. Aus

Question 8

What are the advantages of unified regulation

Answer 8

• Easier to regulate financial conglomerates
• Consistent approach across financial services activities
• Limits incentive for regulatory arbitrage
• Economies of scales
• Better sharing of ideas between reg staff
• Improved accountability- less buck-passing between regs

Question 9

What are the reasons why it is good for an insurer and regulator to engage

Answer 9

• Regulators focus on orgs they think pose greatest risk. I.e. risk based regulation. Engagement reduces risk regulator places on insurer&raquo_space; less supervisory burden
• Regulators see range of RM processes and aware of best practice- can benefit from advice

Question 10

What are the considerations when setting management principles

Answer 10

• Align to supervisory objectives
• Preserve insurer’s reputation
• Importance of being proactive and early engagement with regulator
• Transparent communication
• Accountability for and governance of managing the relationship

Question 11

Why was the Senior Insurance Managers Regime (SIMR)

Answer 11

To define resposibilities of people running organisations and that they behave with integrity, honesty and skill

Question 12

What are the two parts of the SIMR

Answer 12

1. Developing a governance map
2. Assess fitness and propriety of senior insurance managers and directors based on resp on governance map. Incl CRO and chair of Risk Committee.

Question 13

Outline the components of the governance map as outlined by the SIMR

Answer 13

a. Company and corp governance structures
b. Key Functions incl RMF; Key Function Holders- accountable for functions; Key Function Performers- support KFH in performing duties
c. Everyone included in SIMR regime, responsibilities and reporting line
d. Rationale applied in identifying c