Violations and Professional Indemnity Insurance
Violations
Know the categories of violation: unlicensed activity, failure to maintain records, misleading advertising, undisclosed conflicts, AML failures, and non-compliance with CPD or insurance requirements. Understand that violations can lead to warnings, fines, suspension, cancellation, and referral for further action.
Professional indemnity insurance
Professional indemnity (PI) insurance protects against claims of negligence or error arising from professional services. Candidates must know that cover is typically a licensing condition, must remain in force throughout the licence period, and must meet minimum limits. Claims-made policies respond to claims reported during the policy period, which is a frequent exam point.
Common traps
Questions confuse PI insurance with escrow or project insurance; assume PI covers fraud or deliberate wrongdoing (it generally does not); or assume a policy lapse is harmless if no claim has yet arisen. Another trap is believing a broker is personally immune once the firm has cover.
Rule of thumb
PI covers honest mistakes, not dishonesty. Cover must be continuous - a gap is a violation even without a claim.
Worked example
A broker's PI policy expires mid-year and is renewed a month later. Correct answer: the lapse is a compliance violation and may affect licence validity, even though no client has complained.