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A warm Welcome to
The Control framework broker conference
17th September 2013
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Luke SavageLloyd’s director
of finance & operations
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Control framework broker conference
9:00 Arrival and breakfast
9:15 Welcome and background to control framework
9:25 International regulation and the Control Framework
9:45 Tax and the Control Framework
10:00 Delivery roadmap and project tools
10:20 BREAK
10:35 Data quality and coverholder audits
10:45 Hiscox – Lloyd’s Control Framework: A managing agents’
view
11:00 Integro – Brokers’ view into the Control Framework
11:15 Q & A
11:35 CLOSE
11:45 Find out more – Crystal, Risk Locator Tool, the Exchange
Luke Savage
Andrew Gurney
Helen Halliwell
Jaana Rouvari
Peter Montanaro
Mandy Horne
Dan Lott
All
Ali Dove
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International regulation and the control frameworkAndrew Gurney, Senior Manager,
International Licences2013
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The global regulatory environment
More regulations
G20/FSB response on banks
New supervision frameworks
Disproportionate regulation
Significant global
initiatives
Systemic risk and “SIIs”
Global supervision of “IAIGs”/Comframe
Sanctions
Reformedregulatory structure
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Our Local Rules
Ensure level playing Field and Use of Local Rules
Much Stronger Consumer Protection
Rule out Intermediary Conflict of Interest
Modern Solvency Regulation Calibrated to local exposures
Key regulatory concerns
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Threats to Lloyd’s competitive market access
21%
27%
25%
27%
Local assets Regulatory reformRegulatory reporting Other supervisory pressures
53 Regulatory Issues Across licensed territories
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lloyd’s market access challenges
Existing licences
New licences
Existing licences
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Lloyd’s Prudential challenges
Issues• “Level playing field”
Issues• IFRS / Local GAAP
Issues• Assurance
Issues• “Performance data”
Issues• Country specific solvency / ORSA
More dataMore reportingMore local assets
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Where does the Control Framework fit into this?
► Regulators seeking ever more information
► Lloyd’s data increasingly subject to audit or other assurance work
► Best defence is good underlying data, and systems and controls around data that inspire confidence and a trust relationship with regulators
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Tax and the control FrameworkHelen Halliwell, Senior Manager,
Lloyd’s Taxation2013
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Changing Environment
► Fiscal crises
► Tax authorities getting smarter and sharper
► Starbucks, Amazon, eBay, Google, ….
► Greater international cooperation
► Greater exchange of information
All these equal more active and more aggressive approaches by tax authorities
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What are we seeing in practice?
► Increasing number of audits – e.g. French income tax, Canadian provincial premium tax, German premium tax and more
► Recurring audit programme
► Ad hoc queries from tax authorities on particular transactions
► Insureds taking greater interest in ensuring taxes are being handled correctly
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Where does the Control Framework fit into this?
► Lloyd’s adopts a low risk approach to tax
► We make every reasonable effort to be compliant and be seen to be compliant
► We are subject to tax audits from time to time
► Best defence is good underlying data, systems that inspire confidence and a relationship of trust with the tax authorities
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What is the impact of bad data?
► Unexpected tax to pay
► Drop in profitability
► Undermines tax authorities’ confidence in Lloyd’s data and systems
► Increased risk of further audits, more time spent dealing with queries
► Increased risk of penalties
► Increased international cooperation means an issue can spread to other territories
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Delivery road map and project toolsJaana Rouvari, Project Manager,
Market Operations2013
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What is it?
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Identifies for the first time explicit minimum information requirements covering tax and regulatory reporting.
A structured, documented process that allows managing agents to demonstrate they have adequate controls in place.
Nothing new!
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WHO does it affect?
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Phase I – Completed39 managing agents successfully signed off on time!
Phase II – Commenced in July 2013 Coverholder business. Key stakeholders- managing agents, London brokers and coverholders
worldwide. Presentations at Market Forums to focus on ensuring quality of
information. Our own page on Lloyds.com. Monthly Breakfast Group for managing agents and brokers.
Control Framework is the managing agents’ responsibility
Phase I Service Companies-
Completed
Phase II Coverholders-
December 2014
Phase IIIOpen Market-
TBC
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Coverholder risk ratingComplexity of
business writtenNature of operations
Single vs.Multiple
Territories?
Regional Complexity?
Lines of Business?
Premium written?
Historic Issues?
Use of Lloyd’s Tools?
Lloyd’s reporting
standards?
Coverholders resources?
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How it’s implemented
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Information Requirements
Risks
How the risks apply
Controls described or
defined
Evidence gathered
Confidence gained
Process for continuous improvement to ensure data quality
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The risk model
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RISK
Requirements are not understood
1 There are many reasons why this risk may crystallise. It could be that the person interpreting the requirements does not have the requisite skills or experience, human error, or the requirements being unclear or ambiguous
HOW IT MAY TRANSPIRE
Data capture is inadequate
2 This may relate to data not being captured, being captured more than once (duplicate) or that the data captured is erroneous. It may also be that data is not refreshed at the appropriate point (if relevant).
Data is processed incorrectly
3 Between capture and reporting data will undergo some form of processing. In some cases this will be about using different elements of data to compute other information, but it also relates to things such as erroneous report definitions. Typically, this risk can also be used to cover security and continuity risks, but given the specific focus in the Operating Principles these have been broken out.
Data is corrupted
4 Data may be corrupted accidentally or on purpose. Typically this involved inadvertent or erroneous changes to data when it is being adapted outside of core processing systems.
Data is lost and cannot be recovered
5 This is most likely to crystallise where historic information is not contained in core processing systems that are subject to a robust backup regime, but in end user computing facilities such as spread sheets or user maintained databases.
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Risk in the distribution chain
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Existing controls
Further mitigation?
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Coverholder audit
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Managing agent Delivery road map
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
6 Month Analysis Phase for each MA to size the project
Confirmation of project delivery timescale
Assess risks
Identify controls and gaps
Develop remediating controls
Implement controls
Test controls & procedures in operations
Confirm evidence for sign off
SIGN OFF!
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Board Sign-off…
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Lloyd’s project structure
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Executive SponsorLuke Savage
Project Board
Helen Halliwell - TaxAndrew Gurney- International Regulatory Affairs
Peter Montanaro- Delegated AuthoritiesRob Humphreys- Market Operations
Ali Dove- Market Operations
Programme ManagerAli Dove
Project TeamJaana Rouvari- Project Manager
John Hibbert- Stakeholder ManagerLaura Fletcher- Business Analyst
Lucy Evans- PMO
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BREAK
…Continues at 10:35
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Data quality and coverholder Audits
2013
Peter Montanaro,
Head of Delegated Authorities
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Key Topics
► Coverholder Audits
► Frequently asked questions
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Data quality► How does the Coverholder determine and record the risk
location for a risk from a regulatory perspective for entry into their system?
► How does the Coverholder determine and record the risk location for a risk from a tax perspective for entry into their system?
► How does the Coverholder determine the relevant taxes to apply?
► How does the Coverholder determine the tax liability for the insured or insurer?
► What controls are in place to ensure that data does not become lost?
► Does any data transformation take place?
► Does the coverholder conduct sample data entry and reporting quality control checks?
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Frequently Asked Questions
► Isn’t this going to upset our coverholders ?
► Why don’t we just mandate the standards ?
► What about restricted coverholders ?
► Any other questions ?
Lloyd’s Control Framework:A Managing Agent’s View
Mandy Horne – Head of HSL Broker and Data Governance – Hiscox GroupSeptember 2013 presentation for Lloyd’s Control Framework Broker Conference
Introduction
Who am I?
Why are we doing this?
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•Lloyd’s Managing Agents are ultimately directly responsible for multiple territory regulatory and tax compliance when using Lloyd’s licences
•Coverholders, acting on our behalf, have a duty to us and to Lloyd’s to ensure that they are acting compliantly and collecting and reporting correct data
•Brokers, especially those who play an active part in the enrichment of coverholder data, have a duty to us and to Lloyd’s to effectively manage the coverholder relationship and ensure we receive accurate coverholder data
• Location of risk
=
• Tax
• Regulatory country
=
• Tax authority payment
• Regulatory reporting
• Licence reporting
=
• Territory regulator
• Tax authority
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Incorrect data is the root cause of many regulatory and tax issues
What happens when ANY OF US get it wrong?
And what are the potential impacts for ALL OF US?
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Country regulatory and tax issues resulting in fines
Loss of privileges to write in specific territories
Reputation tarnished in the market and within Lloyd’s
Loss of Lloyd’s licences for certain territories
Impact on the clients or our relationship with the clients
Reduced profits and loss of competitive advantage
Our ability to write business effectively and profitably could be compromised
Phase 1 – Why did it work so well?
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• Lloyd’s included managing agents in discussion from the start and explained the rationale behind their requirements
• We were able to discuss approach, issues and solutions with Lloyd’s and our managing agent colleagues at the monthly breakfast forums
• Lloyd’s used the breakfast forums to bring in relevant speakers and encouraged managing agents to share their experiences
• We engaged in regular updates and query sessions on a one-to-one basis with Lloyd’s
• Tools and guidance documents were provided to us by Lloyd’s• Information page was set up on Lloyds.com
• COLLABORATION WAS KEY TO PHASE 1’s SUCCESS
Phase 2 – What does it mean for Hiscox?
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• Now dealing with the assessment of controls outside of our own operations• With limited access to detailed information• And a need to engage with multiple stakeholders:-
– c.300 (Lloyd’s business) coverholders worldwide– c.400 (Lloyd’s business) binding authorities across multiple classes– c.50 (Lloyd’s business) TPAs worldwide– c.60 Lloyd’s placing binder brokers– Through several different internal business units and distribution models– Via service companies or directly with Box underwriters in Lloyd’s– Written by multiple internal class underwriters
We need to keep work to a manageable level and avoid upsettinganybody!!
Phase 2 – How will we all do that?
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• Consultancy and consensus approach between MAs, Lloyd’s and Brokers• Open communication; sharing and discussion of concerns• Attendance at the breakfast forums• Maintain awareness of developments• Avoid unnecessary disruption and information gathering exercises• Project to manage activities• Analysis between managing agents’ books to ensure coverholders do not
get bombarded with multiple approaches from different sources• Pragmatic, workable, proportionate, risk-based solutions• Solution is focussed on audit scope and scheduling
• WE NEED BROKERS TO SUPPORT US• COLLABORATION WILL BE KEY TO PHASE 2’s SUCCESS
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Integro – Dan LottBrokers’ view into the Control
Framework
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Lloyd’s Control Framework
The Control Framework is a positive step in the right direction for Brokers and for Coverholders…
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What is our role?
It is the Managing Agent’s responsibility to comply with the Control Framework but, as Lloyd’s Brokers, we have an important role to play:
Communication
Co-ordination
Pace-making
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What do we need to do?
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Understand the Control Framework - Phase II FAQs; Website
Be prepared: Are you a Coverholder?
Do the right people in your organisation know about the CF?!
As a Lloyd’s Broker, what (if any) processes do you undertake?
e.g. validating data / supplementing data / holding data
Expectation management is key! How will you introduce this to your Coverholders?
Audits are likely to be carried out on many Coverholders Start the dialogue early. Remember – this is nothing new!
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Who can we talk to?
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In the first instance, talk with your Managing Agent(s)
Mark Knight at LIIBA
The Project Team at Lloyd’s
It’s good to talk!
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Q & A
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► www.lloyds.com/controlframework
► Monthly Market Breakfast Group
► Lloyd’s Project Team
► Crystal & Risk Locator Tool – [email protected]
► Electronic Distribution – [email protected]
For more information…
close
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UPCOMING Lloyd's TECHNOLOGY EVENTS in THE OLD LIBRARY
Technology Thought Leadership SessionsVenue: Lloyd’s Old Library (08:45 – 09:30)
► Tuesday 1st October – Northdoor – “Implementation and migration of a new UW system in under six months”
► Friday 8th November – IBM – “Are you making the most of social media in business?”
Technology Day: e-Trading and Distribution► Tuesday 3rd December
More information: www.lloyds.com/the-market/communications/events
Contact: Paivi Marshall - [email protected]
James Bobbitt - [email protected]
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