Aviva 2014 Annual Report Download - page 299

Aviva plc Annual report and accounts 2014
295
permission to carry on regulated activities becomes an
Authorised Person for the purposes of FSMA. ‘Regulated
activities’ are prescribed in the FSMA (Regulated Activities)
Order 2001 and include banking, insurance and investment
business, stakeholder pension schemes, insurance mediation
and certain mortgage mediation and lending activities.
Authorised Firms must at all times meet specified threshold
conditions, including possession of adequate resources for the
carrying on of their business, and being fit and proper to
conduct that business, having regard to all the circumstances.
Authorised Firms must also operate in accordance with the
FCA’s Principles for Business if solo regulated and the PRA’s
Fundamental Rules and FCA’s Principles for Business if dual
regulated. The FCA has 11 high level principles for conducting
financial services business in the UK, including maintenance of
adequate systems and controls, treating customers fairly, and
communicating with customers in a manner that is clear, fair
and not misleading. The PRA has 9 Fundamental Rules
including organising and controlling its affairs responsibly and
effectively and acting in a prudent manner.
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 Groups’ 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 powers under
the FS Act in relation to unregulated parent undertakings
(“qualifying parent undertakings”) that control and exert
influence over regulated firms. The 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.
Aviva was designated as a Global Systemically Important
Insurer (G-SII) by the IAIS. The IAIS has developed a framework
of policy measures for G-SIIs. The policy framework includes:
• The recovery and resolution planning requirements under the
Financial Stability Board’s Key Attributes of Effective
Resolution Regimes;
• Enhanced group-wide supervision; and
• Higher loss absorbency requirements (HLA).
The enhanced group wide supervision of G-SIIs introduces more
tailored regulation, greater supervisory resources and more
thorough use of existing supervisory tools compared to the
supervision of non-systemically important insurers. For G-SIIs,
the group-wide supervisor has specific powers over holding
companies to ensure that a direct approach to group-wide
supervision can be applied. In addition, other involved
supervisors may have direct or indirect powers over holding
companies in their jurisdiction.
UK 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 International Ltd
The Ocean Marine Insurance
Company Ltd
Aviva Life Services UK Ltd
Aviva Pension Trustees UK Ltd
Aviva Wrap UK Ltd
ORN Capital LLP
TenetConnect Ltd
TenetConnect Services Ltd
TenetLime Ltd
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.
Other information
Aviva plc Annual report and accounts 2014 |295