Aviva 2013 Annual Report Download - page 297

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Aviva plc
Annual report and accounts 2013
295
Shareholder information continued
controls, treating customers fairly, and communicating with
customers in a manner that is clear, fair and not misleading.
The PRA has 6 high level principles including maintenance of
adequate systems and controls and financial prudence.
The PRA and FCA regulatory regimes are based on the
principle that firms should have effective systems and controls,
including robust risk management, which are appropriate to the
size, complexity and diversity of their business.
UK Regulation of the Aviva Group
A number of the Group’s UK subsidiaries are “dual regulated”
(directly authorised by both the PRA (for prudential regulation)
and the FCA (for conduct regulation)) whilst others are solo
regulated (regulated solely by the FCA for both prudential and
conduct regulation).
Aviva plc, although not directly authorised, does come within
the scope of some regulation as the ultimate insurance holding
company in the Group. The PRA and FCA have new powers
under the FS Act in relation to unregulated parent undertakings
(“qualifying parent undertakings”) that control and exert
influence over regulated firms. The new powers include the
ability to make directions imposing requirements on parent
undertakings, take enforcement action where such directions are
breached and gather information from parent undertakings.
As Aviva is a UK-based group, the PRA has the responsibility
of acting as lead regulator (i.e. the cross-sector supervisory
co-ordinator) for the Group within the EU.
Regulated entities within Aviva plc
DUAL REGULATED SOLO REGULATED
Aviva Annuity UK Ltd Aviva Equity Release UK Ltd
Aviva Health UK Ltd Aviva Insurance Services UK Ltd
Aviva Insurance Ltd Aviva Investors London Ltd
Aviva International Insurance Ltd Aviva Investors Global Services Ltd
Aviva Investors Pensions Ltd Aviva Investors UK Fund Services Ltd
Aviva Life & Pensions UK Ltd Aviva Investors UK Funds Ltd
Gresham Insurance Company Ltd Aviva Life Services UK Ltd
The Ocean Marine Insurance
Company Ltd
Aviva Pension Trustees UK Ltd
Aviva Wrap UK Ltd
Orn Capital LLP
Approved persons and controllers
Both the PRA and FCA place great emphasis on the principle of
senior management responsibility. The directors of, and senior
managers carrying out controlled function roles (as defined in
the PRA and FCA handbooks) in, any of the Group’s regulated
entities are individually registered with either the PRA or FCA
under the ‘Approved Person’ regime, and can be held directly
accountable to the relevant regulator for control failings in
those entities. For solo regulated entities, individuals applying
for approval in a controlled function make their application to
the FCA and if successful, are registered with the FCA. For dual
regulated entities, responsibility for applying the approved
persons regime to controlled functions is split between the PRA
and FCA, with the PRA having responsibility for all of the
Governing Functions. However, the PRA cannot approve an
application without the consent of the FCA. Each regulator can
apply its Statements of Principles and Code of Practice for
Approved Persons (APER) to the conduct expected of approved
persons, and each can discipline an approved person who has
breached an APER statement of principle, regardless of which
regulator gave approval.
A number of senior managers at Group are registered as
Approved Persons with either the PRA or FCA for the regulated
subsidiaries, even though they are neither directors nor senior
managers of these firms. This recognises that these managers
exert significant influence over the regulated subsidiaries,
because they are responsible for key parts of the Group’s
control framework on which the regulated subsidiaries place
reliance.
The PRA and FCA regulate from a legal entity perspective,
even though Aviva tends to operate by business unit. However,
both regulators expect that Aviva’s regulated subsidiaries will
operate within an overall framework of Group governance and
controls. PRA and FCA rules expressly provide that any systems
and controls which operate on a Group basis will be taken into
account in determining the adequacy of a regulated subsidiary’s
systems and controls. The robustness of these Group controls is
therefore subject to scrutiny and challenge by both regulators.
PRA and FCA rules regulate the acquisition and increase of
control over Authorised Firms. Under FSMA, any person
proposing to acquire control of, or increase control over certain
thresholds of, an Authorised Firm must first obtain the consent
of the appropriate regulator. The Authorised Firm must also
inform the appropriate regulator of any such proposed
acquisition or increase. In considering whether to grant or
withhold its approval of the acquisition or increase of control,
the appropriate regulator must be satisfied both that the
acquirer is a fit and proper person and that the interests of
consumers would not be threatened by this acquisition or
increase of control.
Control over a UK Authorised Firm is acquired if the
acquirer:
 holds 10% (or 20% if the Authorised Firm is an insurance
intermediary) or more of the shares, or voting power, in that
firm, or a parent undertaking of the firm; or
 is able to exercise significant influence over the management
of the firm by virtue of the acquirer’s shares or voting power
in that company or a parent undertaking of the firm.
Increases in control require the consent of the appropriate
regulator when they reach thresholds of 20%, 30% and 50%
of the shares or voting power of the firm (or its parent).
In order to determine whether a person or a group of
persons is a ‘controller’ for the purposes of FSMA, the holdings
(shares or voting rights) of the person and any other person
‘acting in concert’, if any, are aggregated.
Conduct of business rules
The FCA’s Conduct of Business (COB) and Insurance: Conduct
of Business (ICOB) Rules apply to every Authorised Firm carrying
on relevant regulated activities, and regulate the day-to-day
conduct of business standards to be observed by all Authorised
Persons in carrying out regulated activities.
The COB and ICOB Rules are principle based, and the scope
and range of obligations imposed on an Authorised Firm will
vary according to the scope of its business and range of the
Authorised Firm’s clients. Generally speaking, however, the
obligations imposed on an Authorised Firm by the COB and
ICOB Rules will include the need to classify its clients according
to their level of sophistication, provide them with information
about the Authorised Firm, meet certain standards of product
disclosures (including fee and remuneration arrangements),
ensure that promotional material which it produces is clear, fair
and not misleading, assess suitability when advising on certain
products, control the range and scope of advice given, manage
conflicts of interest, report appropriately to its clients and
provide certain protections in relation to client assets.
The PRA’s COB rule book is limited to with-profits business and
linked long-term insurance business as these classes of business
are regulated by both the PRA and FCA. For with-profits
business the FCA is concerned with ensuring fairness between
policyholders and shareholders whilst the PRA has ultimate
responsibility in respect of decisions which have material
consequences for both affordability and fairness. For linked
long-term business, the FCA is concerned with ensuring benefits
are determined by reference to an approved index, whilst the
PRA is concerned with linked assets being capable of being