CII R05 FCA Regulations and Protection 2 — Questions and Answers
Question 1: What is the FCA's approach to the regulation of 'non-investment insurance contracts' such as term assurance?
- They are unregulated and can be sold without FCA authorisation
- They require FCA authorisation under the Insurance Distribution Directive but are subject to lighter touch conduct rules than investments (Correct answer)
- They are regulated identically to investment products
- They are regulated by the PRA only, not the FCA
Correct answer: They require FCA authorisation under the Insurance Distribution Directive but are subject to lighter touch conduct rules than investments
Non-investment protection contracts (term assurance, income protection, critical illness) require firms to be FCA authorised. While subject to conduct of business rules, they are generally subject to proportionate regulation compared to investment products.
Question 2: What is the purpose of the Financial Ombudsman Service (FOS) in the context of protection insurance?
- To regulate insurers' financial strength
- To provide an independent service to resolve disputes between consumers and financial firms, including insurers (Correct answer)
- To advise customers on the best protection policies available
- To set premium rates for the UK insurance market
Correct answer: To provide an independent service to resolve disputes between consumers and financial firms, including insurers
The FOS provides free, independent dispute resolution for consumers who cannot resolve complaints with their financial services firm. It can award compensation and require firms to take remedial action.
Question 3: Under FCA rules, what is the maximum time an insurer has to provide a final response to a complaint?
- 14 days
- 8 weeks (Correct answer)
- 6 months
- 28 days
Correct answer: 8 weeks
Under FCA complaint handling rules (DISP), firms must acknowledge a complaint promptly and provide a final response within 8 weeks. If unresolved, the complainant can refer the matter to the FOS.
Question 4: What is a 'cooling off' period for protection policies and how long does it last?
- 7 days after receiving the policy documents
- 14 days, during which the policyholder can cancel the policy and receive a refund of premiums (Correct answer)
- 30 days for all protection products
- There is no statutory cooling off period for protection insurance
Correct answer: 14 days, during which the policyholder can cancel the policy and receive a refund of premiums
Under FCA rules and the Insurance Distribution Directive, consumers have a 14-day right to cancel (cooling off period) for distance contracts of insurance, including term assurance and income protection, from the later of inception or receipt of documents.
Question 5: What is the FCA's 'suitability' requirement when an adviser makes a personal recommendation on a protection product?
- The adviser must recommend the cheapest product available
- The recommendation must be suitable for the individual customer based on their personal circumstances, financial situation, and protection needs (Correct answer)
- The adviser must obtain at least three competitive quotes before making a recommendation
- The adviser must be personally satisfied they would buy the same product
Correct answer: The recommendation must be suitable for the individual customer based on their personal circumstances, financial situation, and protection needs
Suitability requires that personal recommendations are appropriate for the individual customer. The adviser must gather sufficient information about the customer's circumstances to ensure the recommendation genuinely meets their needs.
Question 6: What does the FCA's Insurance Distribution Directive (IDD) require regarding adviser remuneration disclosure?
- Advisers must charge fees only; commission is banned
- Advisers must disclose the nature and basis of remuneration — whether commission, fee, or combination — before giving advice (Correct answer)
- Advisers must disclose the exact pound amount of all future commissions at outset
- Remuneration disclosure is voluntary for protection products
Correct answer: Advisers must disclose the nature and basis of remuneration — whether commission, fee, or combination — before giving advice
The IDD requires advisers to disclose the nature of their remuneration (fee, commission, or both) and, on request, the specific amount before concluding a contract. This ensures customers understand adviser incentives.
CII R05 FCA Regulations and Protection 2
What is the FCA's approach to the regulation of 'non-investment insurance contracts' such as term assurance?