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CII LM3 study materials
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CII LM3: Regulation, compliance and market conduct obligations

CII LM3 · Work through your exam, one topic at a time.

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Regulation, compliance and market conduct obligations

Regulation, compliance and market conduct obligations

This domain tests the regulatory architecture around London market firms and the conduct rules that apply to placing, underwriting and claims.

Who regulates what

  • The PRA regulates prudential soundness (capital, solvency, governance) for insurers.
  • The FCA regulates conduct and, for insurance distribution, implements the Insurance Distribution Directive through ICOBS and related rules.
  • Lloyd's supervises its market under the Lloyd's Act 1982 and sets Minimum Standards (including on underwriting, claims and conduct) that managing agents must meet.
  • The Senior Managers and Certification Regime allocates prescribed responsibilities to named individuals.

Conduct and compliance themes

  • Consumer Duty (in force 2023) requires fair value and good outcomes; it applies to retail customers, not commercial clients generally.
  • Sanctions screening at placement and claims; dealing with a designated person is prohibited regardless of contract terms.
  • Anti-bribery obligations under the Bribery Act 2010; AML and data protection (UK GDPR) controls.
  • Financial promotions must be fair, clear and not misleading; conflicts of interest and broker remuneration must be managed and, where required, disclosed.

Worked example. After binding a cargo risk, the underwriter learns the assured matches a sanctions designation. The correct response is to stop, freeze the transaction, report to the relevant authority, and take legal advice - the contract does not authorise continued performance, and the sanctions obligation overrides commercial convenience.

Traps. Treating Lloyd's as the prudential regulator (it supervises the market; the PRA regulates). Assuming Consumer Duty applies identically to large commercial risks. Believing sanctions breaches are cured by disclosure after the event. Ignoring SM&CR personal accountability.

Key points

  • PRA = prudential; FCA = conduct; Lloyd's supervises its market.
  • Lloyd's Minimum Standards bind managing agents.
  • SM&CR allocates personal accountability for prescribed responsibilities.
  • Sanctions screening applies at placement and at claim; breach is prohibited, not excused.
  • Consumer Duty governs retail outcomes; commercial business largely sits outside it.