Legal and regulatory environment

Examples of compulsory insurance

Motor insurance

Liability insurance for dangerous wild animals or dogs

Employers liability

Public liability insurance for riding establishments

Examples of Professional Indemnity insurance (PI insurance)

Solicitors

Insurance intermediaries

Why do solicitors need PI Insurance

The solicitors act 1974 states that solicitors must hold PI insurance to cover client losses from failure to act.

Why do insurance intermediaries need PI Insurance?

FCA-authorised intermediaries must have PI insurance with minimum cover set by FCA to cover third-party financial loss from professional negligence.

Contracts (Rights of Third Parties) Act 1999

Normally only signers can enforce a contract, but the 1999 Act lets certain third parties enforce it—unless the contract excludes this, which insurers usually do.

Third parties (Rights Against Insurers) Act 2010

The 2010 Act lets third parties claim directly from insurers if the insured is insolvent, ensuring insurance money goes to them, not creditors.

What 3 regulatory bodies does the UK regulatory framework for financial services consist of?

The Prudential Regulation Authority (PRA)

The Financial Conduct Authority (FCA)

The Financial Policy Committee (FPC)

What is the PRA responsible for?

Keeping major financial institutions like banks, building societies, and insurers stable and able to be resolved if they fail.

What are the FCA responsible for?

Responsible for business conduct, market issues for all firms (including insurers), and prudential regulation of small firms.

What is the FPC responsible for?

Monitors risks to the UK financial system and sets overall regulatory strategy.

PRA Objectives - primary and secondary

P - Promote safety and soundness of the firms it regulates

P - Ensure that policyholders and appropriately protected

S - To facilitate effective competition in the markets for services provided by PRA authorised firms

S - To facilitate the international competitiveness of the UK’s financial services.

Risk assessment framework

PRA assesses impact if a firm fails, its risk controls, financial strength, and resolvability, then ranks firms in 4 risk categories (1 = highest, 4 = lowest).

Proactive Intervention Framework (PIF)

Judges how close a firm is to failure based on risks and its ability to manage them - looking at context, business risk, governance, controls, capital, and liquidity.

FCA 3 key Objectives

Consumer protection

Integrity

Competition

How long should it take for the FCA to respond?

90 calendar days

8 Core principles that guide the FCA’s supervisory work

Forward-looking. • A focus on firm strategy and business models. • A focus on culture and governance. • A focus on individual as well as firm accountability. • Proportionate and risk-based. • Two-way communication. • Coordinated. • Putting right systematic harm that has occurred and stop it happening again.

What does the FCA’s 2025-2030 strategy add?

harm prevention via Consumer Duty,

smarter data use,

tailored supervision by risk level,

and stronger transparency and accountability under SM&CR.

What 3 types of work is the supervision model based on?

Proactive

Reactive

Thematic

Proactive

identifying harm early by assessing firms and portfolios, including business models and cultural drivers.

Reactive

dealing with issues that are emerging or have happened to prevent harm growing.

Thematic

Addressing actual or potential harm affecting multiple firms through broader diagnostic or remedial work.

What are the 12 PRIN (principles for business) in the FCA and PRA handbook ? (PRA only applied 1 to 4,8 and 11)

1. Integrity. 2. Skill, care and diligence 3. Management and control. 4. Financial prudence  5. Market conduct. 6. Customers’ interests  7. Communications with clients . 8. Conflicts of interest  9. Customers: relationships of trust . 10. Clients’ assets 11. Relations with regulators . 12. Consumer Duty

What rules did the FCA introduce in October 2018?

The development, distribution and life cycle of new products as a result of the Insurance Distribution Directive

What are the 4 outcomes of Consumer duty?

– The governance of products and services.

– Price and value.

– Consumer understanding.

– Consumer support

Benefits of using AI in insurance

Improves risk assessment, fraud detection, underwriting and claims - faster tailored services

Challenges of using AI

Ethics, transparency, fairness, consumer protection.

What does ESG (Environmental, social and governance) cover?

climate, diversity, and governance. FCA focuses on sustainability reporting, transparency, and integrating ESG into financial decisions.

What is the Senior Managers and Certification Regime (SM&CR)?

Firms must:

• Give each senior manager a Statement of Responsibilities.

• Create a Responsibilities Map.

• Get senior managers pre-approved by regulators.

What are the 3 categories firms are split into?

• Core (most firms),

• Enhanced (large/complex firms),

• Limited scope (light-touch).

What are the pillars that the SM&CR is formed of?

Senior Managers Regime.

• Certification Regime.

• Conduct Rules.

What does the FIT test for an individual in senior management or position under SM&CR?

• honesty, integrity and reputation;

• competence and capability; and

• financial soundness.

What is the PIDA (Public Interest Disclosure Act) 1998?

covers whistleblowing reporting hidden wrongdoing through protected disclosures.

Civil and less formal action the FCA may take?

Court orders, return of money/goods, cancellation of permission, withdrawal of authorisation

What is a solvency margin?

Companies must keep assets higher than liabilities, ensuring a minimum balance to cover what they owe or expect to owe.

What is Solvency II?

Implemented in Jan 2016 - sets insurer rules on capital, risk, and reporting to protect policyholders.

3 pillars of Solvency II

Financial requirements

Governance and supervision

Reporting and disclosure

What are the 3 key areas of training and competence that all firms need to consider?

Assessing competence

Maintaining competence

Record keeping

What is ICOBS (Conduct of business sourcebook)?

The FCA rulebook for selling and administering general insurance. It imposes stricter requirements for PPI, some life protection policies, and recently for GAP insurance sales

What does the ICOBS rules apply to?

insurance distribution,
• handling insurance contracts and claims,
• managing Lloyd’s underwriting capacity,
• and approving or communicating financial promotions.

How long is the cooling off period for consumers in regards to cancellation rules?

14 days

What is the IDD (Insurance Distribution Directive)?

Introduced 22/02/2016 - aims to ease cross-border trade, strengthen policyholder protection, and create a level playing field. It applies to all firms involved in selling, advising on, or administering insurance.

Key provisions of the IDD

• Professionalism: Staff need appropriate knowledge and at least 15 hours of training annually.

• Commission disclosure: Intermediaries must disclose the nature of their remuneration before contracts (except for large risks/professional clients).

• Harmonisation: Minimum EU standards; countries can add stricter rules.

• Product governance: Aligns with FCA requirements.

• Ancillary insurance intermediaries (AIIs): New category introduced.

• Duties for insurers using unauthorised sellers.

• Insurance Product Information Documents (IPIDs): Required for retail and small corporate general insurance.

IDD’s general principles

Distributors must:

• Act honestly, fairly, and in customers’ best interests.

• Communicate clearly and avoid misleading information; marketing must be identifiable.

• Ensure pay and performance management don’t conflict with customer interests.

What are the three stages of money laudering?

Placement

Layering

Integration

What is money laudering?

The process of converting illegally obtained money into legitimate funds. It can occur on any scale.

The key UK laws against money laundering

• SAMLA 2018: UK sanctions framework post-Brexit; aligns with FATF standards.

• Criminal Justice Act 1993: Offences include assisting, failing to report, and tipping off.

• POCA 2002: Extends offences (concealing, acquiring, failing to disclose).

• Serious Crime Acts 2007 & 2015: Strengthen powers against organised crime.

• MLR 2017: Applies to financial institutions, auditors, lawyers, estate agents, high-value dealers.

What is the FCA’s role in anti-money laundering?

Prevent and detect financial crime; firms must have systems, controls, and staff training

Who is the MLRO (money laundering reporting officer) and what do they do?

A senior manager responsible for AML systems; must be UK-based, independent, and have resources.

How should firms verify clients?

• Individuals: Passport, driving licence, national ID, firearms certificate, or NI electoral card.

• Companies: Name, registration number, office address, and legal existence.

• Records kept for 5 years; report difficulties to MLRO.

What is the bribery act 2010?

Makes bribery a criminal offence, including giving, receiving, bribing officials, and failing to prevent bribery.

What is the economic crime and corporate transparency act 2023?

Updates fraud laws and makes large firms liable for failing to prevent fraud.

What is the Data protection legislation?