Transcript Control Framework Broker Conference

A warm Welcome
to
The Control framework
broker conference
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17th September 2013
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Luke Savage
Lloyd’s director
of
finance & operations
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Control framework broker conference
9:00
Arrival and breakfast
9:15
Welcome and background to
9:25
International regulation and the Control Framework
9:45
Tax and the Control Framework
10:00
Delivery roadmap and project tools
Helen Halliwell
10:20
BREAK
Jaana Rouvari
10:35
Data quality and coverholder
10:45
agents’
Hiscox – Lloyd’s Control Framework:
view
A managing
Peter Montanaro
11:00
Integro – Brokers’ view into the Control
Framework
Mandy Horne
11:15
Q&A
11:35
CLOSE
11:45
Exchange
Find out more – Crystal, Risk Locator
control framework
Luke Savage
Andrew Gurney
audits
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Dan Lott
Tool, the
All
Ali Dove
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International regulation and the control framework
Andrew Gurney, Senior Manager,
International Licences
2013
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The global regulatory environment
G20/FSB response on banks
More
regulations
New supervision frameworks
Disproportionate regulation
Systemic risk and “SIIs”
Global supervision of
“IAIGs”/Comframe
Significant
global
initiatives
Sanctions
Reformed
regulatory
structure
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Key regulatory concerns
Modern Solvency Regulation
Calibrated to local exposures
Ensure level playing Field
and Use of Local Rules
Our Local Rules
Rule out Intermediary
Conflict of Interest
Much Stronger
Consumer Protection
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Threats to Lloyd’s
competitive market
access
21%
27%
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Regulatory Issues
27%
25%
Across licensed territories
Local assets
Regulatory reform
Regulatory reporting
Other supervisory pressures
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lloyd’s market access challenges
Existing licences
Existing licences
New licences
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Lloyd’s Prudential challenges
Issues
Issues
Issues
Issues
Issues
• “Level playing field”
• IFRS / Local GAAP
• Assurance
• “Performance data”
• Country specific solvency / ORSA
More data
More reporting
More 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 Framework
Helen Halliwell, Senior Manager,
Lloyd’s Taxation
2013
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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 tools
Jaana Rouvari, Project Manager,
Market Operations
2013
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What is it?
 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?
Control Framework is the managing agents’ responsibility
Phase I
Service CompaniesCompleted
Phase II
CoverholdersDecember 2014
Phase III
Open MarketTBC
Phase I – Completed
39 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.
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Coverholder risk rating
Complexity of
Nature of
operations
business written
Use of
Lloyd’s
Tools?
Single vs.
Multiple
Territories?
Regional
Complexity?
Coverholders
resources?
Lloyd’s
reporting
standards?
Lines of
Business?
Premium
written?
Historic
Issues?
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How it’s implemented
Process for continuous improvement to ensure data quality
Information
Requirements
Confidence
gained
Risks
Evidence
gathered
How the risks
apply
Controls
described or
defined
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The risk model
RISK
1
Requirements are not
understood
2
Data capture is
inadequate
3
Data is processed
incorrectly
4
Data is corrupted
5
Data is lost and
cannot be recovered
HOW IT MAY TRANSPIRE
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
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).
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 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.
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
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
6 Month Analysis
Phase for each MA
to size the project
Assess risks
Confirmation of
project delivery
timescale
Identify
controls and
gaps
Q2 2014
Q3 2014
Q4 2014
Develop
remediating
controls
Test controls
& procedures
in operations
Implement controls
Confirm
evidence for
sign off
SIGN OFF!
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Board Sign-off…
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Lloyd’s project structure
Executive Sponsor
Luke Savage
Project Board
Helen Halliwell - Tax
Andrew Gurney- International Regulatory Affairs
Peter Montanaro- Delegated Authorities
Rob Humphreys- Market Operations
Ali Dove- Market Operations
Programme Manager
Ali Dove
Project Team
Jaana Rouvari- Project Manager
John Hibbert- Stakeholder Manager
Laura Fletcher- Business Analyst
Lucy Evans- PMO
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BREAK
…Continues at 10:35
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Data quality and coverholder Audits
Peter Montanaro,
Head of Delegated Authorities
2013
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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 ?
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Lloyd’s Control Framework:
A Managing Agent’s View
Mandy Horne – Head of HSL Broker and Data Governance – Hiscox Group
September 2013 presentation for Lloyd’s Control Framework Broker Conference
Introduction
Who am I?
Why are we doing this?
•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
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What happens when ANY OF US get it
wrong?
=
• Location
of risk

=

• Regulatory 
• Tax
country
=
• Tax authority
payment

• Territory regulator

• Regulatory
reporting

• Tax authority

• Licence
reporting

• Lloyd’s

Incorrect data is the root cause of many regulatory and tax issues
And what are the potential impacts for ALL
OF US?
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
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Phase 1 – Why did it work so well?
• 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
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Phase 2 – What does it mean for Hiscox?
• 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 upsetting
anybody!!
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Phase 2 – How will we all do that?
• 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 Lott
Brokers’ 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?
 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?
 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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close
For more information…
► www.lloyds.com/controlframework
► [email protected]
► Monthly Market Breakfast Group
► Lloyd’s Project Team
► Crystal & Risk Locator Tool – [email protected]
► Electronic Distribution
– [email protected]
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UPCOMING Lloyd's
TECHNOLOGY
EVENTS in THE OLD
LIBRARY
Technology Thought Leadership Sessions
Venue: 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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