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CII IF2 study materials
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CII IF2: Insurance Law and Regulation Fundamentals

CII IF2 · Work through your exam, one topic at a time.

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Insurance Law and Regulation Fundamentals

What this domain tests

IF2 tests the legal scaffolding under insurance: where English law comes from, how precedent works, and how FSMA 2000 divides regulation between the PRA and the FCA. Questions are scenario-based ('which regulator?', 'which source of law?') rather than recall-only.

Sources of law

  • Common law is judge-made. The binding element is the ratio decidendi; obiter dicta persuade only. Lower courts are bound by ratio from higher courts (Supreme Court, Court of Appeal, High Court).
  • Equity supplies remedies such as injunctions and specific performance, plus doctrines like estoppel.
  • Statute prevails over common law where they conflict. Key examples: FSMA 2000, Insurance Act 2015, Data Protection Act 2018.
  • Retained EU law (Solvency II, IDD-derived rules) continues via the European Union (Withdrawal) Act 2018, as amended.
  • The FCA Handbook and PRA Rulebook are regulator rules made under FSMA. They are not statutes, but breach can lead to penalties and, for unauthorised business, unenforceability under s.26 FSMA.

The regulatory split

The Financial Services Act 2012 replaced the FSA with twin peaks. The PRA regulates prudential soundness: safety and soundness plus, for insurers, policyholder protection, with a secondary competition objective. The FCA regulates conduct: consumer protection, integrity and competition, under a strategic objective that markets function well. Most insurers are dual-regulated; intermediaries are FCA-only. Carrying on a regulated activity by way of business without authorisation is a criminal offence under s.19 FSMA. Firms obtain Part 4A permission by satisfying the threshold conditions.

Worked example

A broker places commercial fleet cover with an unauthorised offshore insurer. The offshore insurer commits an offence under s.19 FSMA unless an exclusion (e.g. overseas persons) applies. The broker risks breaching its own permission and ICOBS, and s.26 may let the insured recover premiums and be indemnified by the broker. The FCA leads because the issue is authorisation and conduct, not prudential soundness.

Traps

  • Confusing PRA policyholder protection (prudential) with FCA consumer protection (conduct).
  • Treating FOS decisions as binding precedent: they bind only the firm in that case.
  • Assuming regulator rules are 'law' in the same sense as statute.
  • Forgetting s.26 FSMA can make an unauthorised contract unenforceable against the customer.