CII IF1 Chapter 9

Question 1

The FCA’s strategic or overall objective is to:

a. minimise the effect that will arise from the failure of an insurer.

b. make markets work well.

c. identify and reduce potential systemic risks.

d. treat customers fairly and encourage competition.

Answer 1

make markets work well.

Question 2

The FCA expects the fair treatment of customers to apply:

a. to the claims process only.

b. only to the advice provided to the customer.

c. only to the product information the customer is given.

d. to all aspects of the insurance sales process.

Answer 2

to all aspects of the insurance sales process.

Question 3

Under Solvency II, an insurance company must maintain enough capital to give it what level of confidence that it is able to cover its liabilities in the following twelve month period?

a. 75.5%.

b. 99.5%.

c. 89.5%.

d. 85.5%

Answer 3

99.5%. (Tip to remember “Got 99 problems but money ain’t one”)

Question 4

If Alvaro has been criminally prosecuted by the FCA, this is most likely to be because:

a. he was advising on regulated insurance products without his business being authorised.

b. his firm was found to have inappropriate and inadequate systems and controls.

c. his firm failed to maintain the required levels of capital adequacy.

d. he repeatedly provided deliberately misleading information about regulated products to customers.

Answer 4

he was advising on regulated insurance products without his business being authorised.

Question 5

Lewis runs a small shop and has applied for insurance for his business. Under the Insurance: Conduct of Business Sourcebook, he would be classified as a:

a. consumer.

b. business customer.

c. retail customer.

d. commercial customer.

Answer 5

commercial customer.

Question 6

What is the FCA’s online system of monitoring authorised firms known as?

a. E-REPORT.

b. GABRIEL.

c. BENCHMARK.

d. PERCY.

Answer 6

Gabriel
Tip to remember: FCA, F can be for French, Gabriel is a French name

Question 7

What specific measure is used to assess the financial strength of an insurer?

a. Solvency margin.

b. Free assets.

c. Claims ratio.

d. Debt ratio.

Answer 7

Solvency Margin
Tip to remember: Financial and Solvency are both money related. Use the S of strength to remember it’s Solvency not Debt

Question 8

The fair treatment of customers is based on which one of the eleven FCA’s Principles for Businesses?

a. Principle 2 - conduct its business with due skill, care and diligence.

b. Principle 6 - pay due regard to the interests of customers.

c. Principle 1 - conduct business with integrity.

d. Principle 5 - observe proper standards of market conduct.

Answer 8

pay due regard to the interests of customers.

Question 9

Employers in Great Britain must have employers’ liability insurance with an indemnity limit of at least:

a. £2m.

b. £5m.

c. £10m.

d. £7m.

Answer 9

£5 million

Question 10

When the PRA refers to ‘judgment-based’ regulation, what is this referring to?

a. The culture of a firm.

b. Assessing the future risks of a firm.

c. Whether the firm has adequate systems and controls.

d. The current assets of a firm.

Answer 10

Assessing the future risks of a firm.

Question 11

The FCA is able to prosecute an individual for:

a. accumulating debts above a stated amount.

b. receiving more than a stated number of complaints.

c. having a poor compliance history.

d. misleading the regulator.

Answer 11

misleading the regulator

Question 12

What type of insurance is compulsory for an engineering firm that employs 40 staff?

a. Employers’ liability.

b. Public liability.

c. Professional indemnity.

d. Business interruption.

Answer 12

Employers’ liability.
Tip to remember: if they have employees they must have employers liability

Question 13

The PRA’s power to take action based upon forward-looking analysis of firms is known as:

a. forward-looking regulation.

b. judgement-based regulation.

c. outcome-led regulation.

d. principles-based regulation.

Answer 13

Judgement-Based Regulation
Tip to remember: The PRA is Hella Judgey

Question 14

An individual providing advice will need to follow the conduct of business rules of the:

a. Financial Policy Committee.

b. FCA.

c. Association of British Insurers.

d. PRA.

Answer 14

FCA

Question 15

Harry has had his application for a senior manager function declined due to his lack of relevant experience in the role being applied for. Under the FCA’s fit and proper test, this would fall under the heading of:

a. qualifications.

b. competence and capability.

c. financial soundness.

d. honesty, integrity and reputation.

Answer 15

competence and capability.

Question 16

Under the Certification Regime, who determines the ‘fitness and propriety’ of an individual?

a. The CII.

b. The PRA.

c. The FCA.

d. The authorised firm.

Answer 16

The authorised firm.
Explanation - The fit and proper person test is a benchmark the Financial Conduct Authority (‘FCA’) uses to assess whether an individual is suitable to perform a controlled or senior management function (SMF) in an authorised body. Individual firms or agencies use this measure to test managerial staff before agreeing them to join the company.

Question 17

An insured cancels their insurance after two months and receives a part refund of the premium paid from the insurer. They then use the proceeds to set up multiple insurance policies by reinvesting the proceeds. In money laundering terms, these actions are an example of:

a. concealment.

b. layering.

c. integration.

d. placement.

Answer 17

Layering
Tip to remember: Multiple policies think of multiple cakes being layered on top of each other.

Question 18

If a German insurer sets up a company in the UK, who would this subsidiary company be regulated by?

a. The PRA and the FCA.

b. The PRA only.

c. The FCA only.

d. The home regulator in Germany only.

Answer 18

The PRA and the FCA.

Question 19

When appointing an insurance adviser to a ‘significant harm function’ who, if anyone, certifies them?

a. The PRA.

b. The FCA.

c. Approval is not necessary for this role.

d. The authorised firm.

Answer 19

The authorised firm.

Question 20

Which UK organisation has overall responsibility for promoting fair competition for the benefit of consumers?

a. HM Treasury.

b. Competition and Markets Authority.

c. FCA.

d. Office of Fair Trading.

Answer 20

Competition and Markets Authority.
Tip to remember: Their whole title is competition in markets. It does what it says on the tin.

Question 21

What is typically the cooling-off period for a consumer motor insurance policy?

a. 31 days.

b. 21 days.

c. 5 days.

d. 14 days.

Answer 21

14 days

Question 22

What is the minimum amount of professional indemnity cover for a single claim that the FCA requires intermediary firms to have?

a. 1,000,000 Euros.

b. 1,250,000 Euros.

c. 1,300,380 Euros.

d. 1,924,560 Euros.

Answer 22

1,300,380 Euros.

Question 23

Who is responsible in an authorised firm for ensuring adequate money laundering systems and controls?

a. The compliance manager.

b. The chief executive.

c. The money laundering reporting officer.

d. A nominated director.

Answer 23

The money laundering reporting officer.
Tip: it does what it says on the tin

Question 24

The Third Parties [Rights Against Insurers] Act 2010 allows:

a. a reinsurer to sue an insurer for a breach of contract.

b. an insured to instruct their insurer to refuse any claims against their policy from a third party.

c. a third party to claim directly against the insurer of a bankrupt insured.

d. an insured to sue the insurer for negligence.

Answer 24

A third party to claim directly against the insurer of a bankrupt insured.

Question 25

Which UK regulator would authorise a new insurance company?

a. The FCA.

b. The PRA.

c. The Financial Policy Committee.

d. The Bank of England.

Answer 25

The PRA
Tip: Which Regulator, Prudential REGULATORY Authority

Question 26

Beta Insurance has outsourced its claims handling to PDQ Ltd who in turn uses Jones’s Ltd; both are third party firms. If the FCA had concerns about how claims are dealt with, who would it hold responsible?

a. PDQ Ltd and Jones’s Ltd jointly.

b. PDQ Ltd.

c. Beta Insurance and PDQ Ltd jointly.

d. Beta Insurance.

Answer 26

Beta Insurance
Tip to Remember: Who sets the claims handling in motion and delegates the authority. The initial insurer.

Question 27

Which type of role within a regulated firm, if any, would require an individual to obtain FCA authorisation and approval?

a. None.

b. Those individuals that have a material impact on the conduct of the firm’s regulated activities only.

c. All staff who act as managers within a regulated firm only.

d. All staff within a regulated firm.

Answer 27

Those individuals that have a material impact on the conduct of the firm’s regulated activities only.

Question 28

Before being authorised to carry out regulated activities, a firm must demonstrate that it has met minimum regulatory requirements. These are known as:

a. Threshold Conditions.

b. Tier 1 requirements.

c. Conduct of Business rules.

d. the Senior Managers Regime.

Answer 28

Threshold Conditions.

Question 29

What did the Public Interest Disclosure Act 1998 introduce?

a. Whistle-blowing requirements.

b. Anti-discrimination requirements.

c. Data protection requirements.

d. Health and safety requirements.

Answer 29

Whistle-blowing requirements.

Question 30

What are the punishments for the following crimes?
a. Tipping off

Answer 30

Tipping off - 5 years in prison

Question 31

Give some examples of legislations and liabilities which are compulsory

Answer 31

Motor insurance for third parties, public liability in regards to dangerous animals, Employers liability, public liability for specific trades, professional indemnity for certain trades

Question 32

What is a privity of contract?

Answer 32

Means that a person can only enforce a contract if they are party to it.

Question 33

What does the Third Parties (Right against insurers) Act 2010 bring into effect?

Answer 33

Means a third party can bring a claim against the insurance company who is responsible for supplying the liability support to a company that has gone insolvent so the monies go direct to the third party making the claim rather than company.

Question 34

What are the 3 main regulatory bodies?

Answer 34

FCA - Financial conduct Authority
PRA - Prudential Regulatory Authority
FPC - Financial Policy Committee

Question 35

What are the main features of the PRA?

Answer 35

-Responsible for stability and resolvability of banks, building societies and insurers
-It’s role is the regulation of firms that pose a risk to the financial system should they collapse
-They seek to ensure some firms can fail without bringing down the system
-Use the ‘judgement based” approach in terms of supervision

Question 36

Name some of the main features of the FCA?

Answer 36

-They are responsible for the conduct of business and market issues
-They also use market-wide analysis to identify potential problems
-The FCA have the power to ban products where necessary
-Review the product lifestyle

Question 37

What are the 2 main objectives of the PRA?

Answer 37

-To promote the safety and soundness of the firms it regulates
-Specific to Insurers, to contribute to ensuring policyholders are appropriately protected