CII R05 FCA Regulations and Protection — Questions and Answers
Question 1: Which body is the primary regulator of insurance and financial advice in the UK?
- Prudential Regulation Authority (PRA)
- Financial Conduct Authority (FCA) (Correct answer)
- Competition and Markets Authority (CMA)
- Financial Ombudsman Service (FOS)
Correct answer: Financial Conduct Authority (FCA)
The Financial Conduct Authority (FCA) is the conduct regulator for financial services firms in the UK, including those selling insurance products. The PRA handles prudential regulation of certain deposit-takers and insurers.
Question 2: Under the FCA's Consumer Duty (effective July 2023), what is the primary obligation on firms selling protection products?
- To sell the cheapest available product to every customer
- To deliver good outcomes for retail customers, acting in their best interests (Correct answer)
- To provide a 10-year guarantee on all protection products
- To obtain prior FCA approval for all individual policy sales
Correct answer: To deliver good outcomes for retail customers, acting in their best interests
Consumer Duty requires firms to act to deliver good outcomes for retail customers — encompassing products and services, price and value, consumer understanding, and consumer support. It is a higher standard than mere compliance with rules.
Question 3: What is the 'demands and needs' requirement when advising on protection insurance under FCA rules?
- Advisers must recommend the product with the lowest premium
- Advisers must ensure the product meets the customer's stated insurance demands and needs at the time of the sale (Correct answer)
- Advisers must obtain a minimum of three competing quotes
- Advisers must disclose commission earned before making a recommendation
Correct answer: Advisers must ensure the product meets the customer's stated insurance demands and needs at the time of the sale
Under the Insurance Distribution Directive and FCA rules, advisers must ascertain the customer's demands and needs before recommending a product, and the recommended product must meet those demands and needs.
Question 4: What is the significance of the 'duty of fair presentation' under the Insurance Act 2015 for protection policy applicants?
- Insurers must present their terms fairly to the customer
- The customer must disclose all material facts they know or ought to know when applying for insurance (Correct answer)
- Advisers must present at least three insurer options to customers
- Insurers must fairly present their commission structures
Correct answer: The customer must disclose all material facts they know or ought to know when applying for insurance
The Insurance Act 2015 replaced the doctrine of utmost good faith with a duty of fair presentation, requiring the insured to disclose all material information they know or ought to know in a clear and accessible manner.
Question 5: Under FCA rules, what information must be provided to a customer before they take out a protection policy?
- The insurer's full annual report and accounts
- A key features document or product information document outlining the main features, risks, and costs (Correct answer)
- A copy of the full policy terms and conditions signed by the chief underwriter
- A detailed breakdown of the insurer's investment strategy
Correct answer: A key features document or product information document outlining the main features, risks, and costs
Before a protection policy is concluded, the customer must be provided with appropriate product information — typically a key features document or insurance product information document (IPID) — covering key features, exclusions, costs, and how to claim.
Question 6: What does 'treating customers fairly' (TCF) require of protection advisers?
- Charging customers no more than the market average premium
- Ensuring customers have a genuine chance of making a successful claim, that products work as expected, and that advice is suitable for their individual needs (Correct answer)
- Offering every customer a 14-day cooling off period
- Providing products exclusively from FCA-authorised insurers
Correct answer: Ensuring customers have a genuine chance of making a successful claim, that products work as expected, and that advice is suitable for their individual needs
TCF (now superseded/enhanced by Consumer Duty) requires advisers to ensure customers are sold products that genuinely suit their needs, are given clear information, and face no unreasonable barriers to making claims.
CII R05 FCA Regulations and Protection
Which body is the primary regulator of insurance and financial advice in the UK?