MIPRU Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries

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MIPRU 1

Application and general provisions

MIPRU 1.1

Application

  • 01/01/2007

Application

MIPRU 1.1.1

handbook-guidance

This sourcebook applies to a firm with Part IV permission to carry on:

  1. (1) insurance mediation activity;
  2. (2) mortgage mediation activity;
  3. (3) mortgage lending;
  4. (4) mortgage administration; and
  5. (5) insurance business;

as specified in the beginning of each of the remaining chapters.

MIPRU 1.2

Actions for damages

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MIPRU 1.2.1

handbook-rule
A contravention of the rules in this sourcebook does not give rise to a right of action by a private person under section 150of the Act (and each of those rules is specified under section 150(2)of the Act as a provision giving rise to no such right of action).
  • 01/01/2007

Export chapter as

MIPRU 2

Insurance mediation activity: responsibility, knowledge, ability and good repute

MIPRU 2.1

Application and purpose

  • 01/01/2007

Application

MIPRU 2.1.1

handbook-rule
This chapter applies to a firm with Part IV permission to carry on insurance mediation activity.

Purpose

MIPRU 2.1.2

handbook-guidance
The main purpose of this chapter is to implement in part the provisions of the Insurance Mediation Directive as these apply to firms regulated by the FSA .

MIPRU 2.2

Allocation of the responsibility for insurance mediation activity

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Responsibility for insurance mediation activity

MIPRU 2.2.1

handbook-rule

An insurance intermediary, other than a sole trader, must allocate the responsibility for the firm's insurance mediation activity to a director or senior manager.

[Note: Article 3(1), fourth paragraph, of the IMD]

MIPRU 2.2.2

handbook-rule

The firm may allocate the responsibility for its insurance mediation activity to an approved person (or persons) performing:

  1. (1) a governing function (other than the non-executive director function); or
  2. (2) the apportionment and oversight function; or
  3. (3) the significant management (other business operations) function.

MIPRU 2.2.3

handbook-guidance
  1. (1) Typically an insurance intermediary will appoint a person performing a governing function (other than the non-executive director function) to direct its insurance mediation activity. Where this responsibility is allocated to a person performing another function, the person performing the apportionment and oversight function with responsibility for the apportionment of responsibilities must ensure that the firm's insurance mediation activity is appropriately allocated.
  2. (2) The descriptions of significant influence functions, other than the required functions, do not extend to activities carried on by an insurance intermediary with permission only to carry on insurance mediation activity and whose principal purpose is to carry on activities other than regulated activities (see SUP 10.1.21 R ). In this case, the firm may allocate the responsibility for the firm's insurance mediation activity to one or more of the persons performing the apportionment and oversight function who will be required to be an approved person.
  3. (3) In the case of a sole trader, the sole trader will be responsible for the firm's insurance mediation activity.

MIPRU 2.2.4

handbook-guidance
Where a firm has appointed an appointed representative to carry on insurance mediation activity on its behalf, the person responsible for the firm's insurance mediation activity will also be responsible for the insurance mediation activity carried on by an appointed representative.
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MIPRU 2.2.5

handbook-guidance
The FSA will specify in the FSA Register the name of the persons to whom the responsibility for the firm's insurance mediation activity has been allocated by inserting after the relevant controlled function the words "(insurance mediation)". In the case of a sole trader, the FSA will specify in the FSA Register the name of the sole trader as the 'contact person' in the firm.
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MIPRU 2.3

Knowledge, ability and good repute

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MIPRU 2.3.1

handbook-rule

An insurance intermediary must establish on reasonable grounds that:

  1. (1) a reasonable proportion of the persons within its management structure who are responsible for insurance mediation activity; and
  2. (2) all other persons directly involved in its insurance mediation activity;
  3. demonstrate the knowledge and ability necessary for the performance of their duties; and
  4. (3) all the persons in its management structure and any staff directly involved in insurance mediation activity are of good repute.

[Note: Article 4(1) and (2) of the IMD]

MIPRU 2.3.2

handbook-guidance

In determining a person's knowledge and ability, the firm should have regard to matters including, but not limited to, whether the person:

  1. (1) has demonstrated by experience and training to be able, or that he will be able to perform his duties related to the firm's insurance mediation activity; and
  2. (2) satisfies the relevant requirements of the FSA's Training and Competence sourcebook.

MIPRU 2.3.3

handbook-rule

In considering a person's repute the firm must ensure that the person:

  1. (1) has not been convicted of any serious criminal offences linked to crimes against property or other crimes related to financial activities (other than spent convictions under the Rehabilitation of Offenders Act 1974 or any other national equivalent); and
  2. (2) has not been adjudged bankrupt (unless the bankruptcy has been discharged);

under the law of any part of the United Kingdom or under the law of a country or territory outside the United Kingdom.

[Note: Article 4(2) of the IMD]

MIPRU 2.3.4

handbook-guidance
The firm should give particular consideration to offences of dishonesty, fraud, financial crime or other offences under legislation relating to banking and financial services, companies, insurance and consumer protection.

MIPRU 2.3.5

handbook-guidance
Firms are reminded that Principle 3 requires firms to take reasonable care to organise and control their affairs responsibly and effectively. Principle 3 is amplified by the rule which requires firms to take reasonable care to establish and maintain such systems and controls as are appropriate to its business (SYSC 3.1.1 R). A firm's systems and controls should enable it to satisfy itself of the suitability of anyone who acts for it (SYSC 3.2.13 G). This includes the assessment of an individual's honesty and competence. In addition, the Training and Competence sourcebook lists some general, high level commitments to training and competence which every firm should make and fulfil.

Export chapter as

MIPRU 3

Professional indemnity insurance

MIPRU 3.1

Application and purpose

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Application

MIPRU 3.1.1

handbook-rule

This chapter applies to a firm with Part IV permission to carry on any of the activities:

  1. (1) insurance mediation activity;
  2. (2) mortgage mediation activity; unless any of the following exemptions apply:
  3. (3) in relation to insurance mediation activity, this chapter does not apply to a firm if another authorised person which has net tangible assets of more than £10 million provides a comparable guarantee; for this purpose:
    1. (a) if the firm is a member of a group in which there is an authorised person with net tangible assets of more than £10 million, the comparable guarantee must be from that person;
    2. (b) A 'comparable guarantee' means a written agreement on terms at least equal to those in a contract of professional indemnity insurance (see MIPRU 3.2.4 R) to finance the claims that might arise as a result of a breach by the firm of its duties under the regulatory system or civil law.
  4. (4) in relation to mortgage mediation activity, this chapter does not apply to a firm if:
    1. (a) it has net tangible assets of more than £1 million; or
    2. (b) the comparable guarantee provisions of (3) apply (as if the firm was carrying on insurance mediation activity) but substituting £1 million for £10 million in (3)(a) and (b);
  5. (5) This chapter does not apply to:
    1. (a) an insurer; or
    2. (b) a managing agent; or
    3. (c) a personal investment firm that is required by another rule to hold professional indemnity insurance (see IPRU(INV) 13.1.4(1)R);
  6. (6) in relation to mortgage mediation activity, this chapter does not apply to an authorised professional firm:
    1. (a) that is required by another rule to hold professional indemnity insurance (see IPRU(INV) 2.3.1R); and
    2. (b) whose mortgage mediation activity is incidental to its main business.

MIPRU 3.1.2

handbook-guidance
The definition of insurance mediation activity is any of several activities 'in relation to a contract of insurance' which includes a contract of reinsurance. This chapter, therefore, applies to a reinsurance intermediary in the same way as it applies to any other insurance intermediary.

Purpose

MIPRU 3.1.3

handbook-guidance

The purposes of this chapter are to:

  1. (1) implement article 4.3 of the Insurance Mediation Directive in so far as it requires insurance intermediaries to hold professional indemnity insurance, or some other comparable guarantee, against any liability that might arise from professional negligence; and
  2. (2) meet the regulatory objectives of consumer protection and maintaining market confidence by ensuring that firms have adequate resources to protect themselves, and their customers, against losses arising from breaches in its duties under the regulatory system or civil law.
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MIPRU 3.1.4

handbook-guidance
Any breach in the duty of a firm or of its agents under the regulatory system or civil law can give rise to claims being made against the firm. Professional indemnity insurance has an important role to play in helping to finance such claims. In so doing, this chapter amplifies threshold condition 4 (Adequate resources). This threshold condition provides that a firm must have, on a continuing basis, resources that are, in the opinion of the FSA, adequate in relation to the regulated activities that the firm carries on.

MIPRU 3.1.5

handbook-guidance
Under Principles 3 and 4 a firm is required to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems and to maintain adequate financial resources. Under Principle 9 a firm is obliged to take reasonable care to ensure the suitability of its advice on investments and discretionary decisions for any customer who is entitled to rely upon its judgement.

MIPRU 3.1.6

handbook-guidance
Although financial resources and appropriate systems and controls can generally mitigate operational risk, professional indemnity insurance has a role in mitigating the risks a firm faces in its day to day operations, including those arising from not meeting the legally required standard of care when advising on investments. The purpose of this chapter is to ensure that a firm has in place the type, and level, of professional indemnity insurance necessary to mitigate these risks.

MIPRU 3.2

Professional indemnity insurance requirements

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MIPRU 3.2.1

handbook-rule

A firm must take out and maintain professional indemnity insurance that is at least equal to the requirements of this section from:

  1. (1) an insurance undertaking authorised to transact professional indemnity insurance in the EEA; or
  2. (2) a person of equivalent status in:
    1. (i) a Zone A country; or
    2. (ii) the Channel Islands, Gibraltar, Bermuda or the Isle of Man.

[Note: Article 4(3) of the IMD]

MIPRU 3.2.2

handbook-guidance
The minimum limits of indemnity for a firm whose Part IV permission covers both insurance mediation activity and mortgage mediation activity is the higher of the limits of indemnity for these activities. If the firm opts for a single comparable guarantee to finance the claims which might arise as a result of both activities, the requirements for insurance mediation activity apply.

MIPRU 3.2.3

handbook-guidance
A non-EEA firm (such as a captive insurance company outside the EEA) will be able to provide professional indemnity insurance only if it is authorised to do so in one of the specified countries or territories.. The purpose of this provision is to balance the level of protection required for the policyholder against a reasonable level of flexibility for the firm.

Terms to be incorporated in the insurance

MIPRU 3.2.4

handbook-rule

The contract of professional indemnity insurance must incorporate terms which make provision for:

  1. (1) cover in respect of claims for which a firm may be liable as a result of the conduct of itself, its employees and its appointed representatives (acting within the scope of their appointment);
  2. (2) the minimum limits of indemnity per year set out in this section;
  3. (3) an excess as set out in this section;
  4. (4) appropriate cover in respect of legal defence costs;
  5. (5) continuous cover in respect of claims arising from work carried out from the date on which the firm was given Part IV permission for the insurance mediation activity or mortgage mediation activity concerned; and
  6. (6) cover in respect of Ombudsman awards made against the firm.

MIPRU 3.2.5

handbook-guidance
A firm is responsible for the conduct of all of its employees. The firm's employees include, but are not limited to, its partners, directors, individuals that are self-employed or operating under a contract hire agreement and any other individual that is employed in connection with its business.

MIPRU 3.2.6

handbook-guidance
A firm is responsible for the conduct of all of its appointed representatives.

Minimum limits of indemnity: insurance intermediary

MIPRU 3.2.7

handbook-rule

If the firm is an insurance intermediary, then the minimum limits of indemnity are:

  1. (1) for a single claim, €1 million; and
  2. (2) in aggregate, €1.5 million or, if higher, 10% of annual income up to £30 million.

[Note: Article 4(3) of the IMD]

MIPRU 3.2.8

handbook-rule
If a policy is denominated in any currency other than euros, a firm must take reasonable steps to ensure that the limits of indemnity are, when the policy is effected and at renewal, at least equivalent to those required.

Minimum limits of indemnity: mortgage intermediary

MIPRU 3.2.9

handbook-rule

If the firm is a mortgage intermediary, then the minimum limit of indemnity is the higher of 10% of annual income up to £1 million, and:

  1. (1) for a single claim, £100,000; or
  2. (2) in aggregate, £500,000.

Excess

MIPRU 3.2.10

handbook-rule
In this chapter, "client assets" includes a document only if it has value, or is capable of having value, in itself (such as a bearer instrument).

MIPRU 3.2.11

handbook-rule

For a firm which does not hold client money or other client assets, the excess must not be more than the higher of:

  1. (1) £2,500; and
  2. (2) 1.5% of annual income.

MIPRU 3.2.12

handbook-rule

For a firm which holds client money or other client assets, the excess must not be more than the higher of:

  1. (1) £5,000; and
  2. (2) 3% of annual income.

Policies covering more than one firm

MIPRU 3.2.13

handbook-rule

If a policy provides cover to more than one firm, then:

  1. (1) the limits of indemnity must be calculated on the combined annual income of all the firms named in the policy; and
  2. (2) each firm named in the policy must have the benefit of the relevant minimum limits of indemnity.

Additional capital

MIPRU 3.2.14

handbook-rule
If a firm seeks to have an excess which is higher than the relevant limit, it must hold additional capital as calculated in accordance with the appropriate table below:
Table: Calculation of additional capital for firm not holding client money or other client assets (£000's)
Table: Calculation of additional capital for firm holding client money or other client assets (£000's)

MIPRU 3.2.15

handbook-rule
The rule on the items which are eligible to contribute to the capital resources of a firm applies (see MIPRU 4.4.2 R.

Export chapter as

MIPRU 4

Capital resources

MIPRU 4.1

Application and purpose

  • 01/01/2007

Application

MIPRU 4.1.1

handbook-rule

This chapter applies to a firm with Part IV permission to carry on any of the following activities, unless an exemption in this section applies:

  1. (1) insurance mediation activity;
  2. (2) mortgage mediation activity;
  3. (3) entering into a regulated mortgage contract (that is, mortgage lending);
  4. (4) administering a regulated mortgage contract (that is, mortgage administration).

MIPRU 4.1.2

handbook-guidance
As this chapter applies only to a firm with Part IV permission, it does not apply to an incoming EEA firm (unless it has a top-up permission). An incoming EEA firm includes a firm which is passporting into the United Kingdom under the IMD.

MIPRU 4.1.3

handbook-guidance
The definition of insurance mediation activity refers to several activities 'in relation to a contract of insurance' which includes a contract of reinsurance. This chapter, therefore, applies to a reinsurance intermediary in the same way as it applies to any other insurance intermediary.

Application: banks, building societies, insurers and friendly societies

MIPRU 4.1.4

handbook-rule

This chapter does not apply to:

  1. (1) a bank; or
  2. (2) a building society; or
  3. (3) a solo consolidated subsidiary of a bank or a building society; or
  4. (4) an insurer; or
  5. (5) a friendly society.

MIPRU 4.1.5

handbook-guidance
The capital resources of the firms above are calculated in accordance with the appropriate prudential sourcebook.

Application: firms carrying on designated investment business only

MIPRU 4.1.6

handbook-rule
This chapter does not apply to a firm whose Part IV permission is limited to regulated activities which are designated investment business.

MIPRU 4.1.7

handbook-guidance
A firm which carries on designated investment business, and no other regulated activity, may disregard this chapter. For example, a firm with permission limited to dealing in investments as agent in relation to securities is only carrying on designated investment business and the Interim Prudential sourcebook for investment businesses or the Prudential sourcebook for Banks, Building Societies and Investment Firms, as appropriate, will apply. However, if its permission is varied to enable it to arrange motor insurance as well, this activity is not designated investment business so the firm will be subject to the higher of the requirements in this chapter and those sourcebooks (see MIPRU 4.2.5 R).

Application: credit unions

MIPRU 4.1.8

handbook-rule

This chapter does not apply to:

  1. (1) a 'small credit union', that is one with:
    1. (a) assets of £5 million or less; and
    2. (b) a total number of members of 5,000 or less (see CRED 8.3.14 R); or
  2. (2) a credit union whose Part IV permission includes mortgage lending or mortgage administration (or both) but not insurance mediation activity or mortgage mediation activity.

MIPRU 4.1.9

handbook-guidance
  1. (1) For credit unions to which this chapter applies and which are not CTF providers, the capital requirements will be the higher of the requirements in this chapter and in the Credit Unions sourcebook (see MIPRU 4.2.6 R).
  2. (2) For credit unions to which this chapter applies and which are CTF providers with permission to carry on designated investment business, the capital requirements will be the highest of the requirements in this chapter, those in the Credit Unions sourcebook and in the Interim Prudential sourcebook for investment businesses (see MIPRU 4.2.6 R).

Application: professional firms

MIPRU 4.1.10

handbook-rule
  1. (1) This chapter does not apply to an authorised professional firm:
    1. (a) whose main business is the practice of its profession; and
    2. (b) whose regulated activities covered by this chapter are incidental to its main business.
  2. (2) A firm's main business is the practice of its profession if the proportion of income it derives from professional fees is, during its annual accounting period, at least 50% of the firm's total income (a temporary variation of not more than 5% may be disregarded for this purpose).
  3. (3) Professional fees are fees, commissions and other receipts receivable in respect of legal, accountancy, actuarial, conveyancing and surveying services provided to clients but excluding any items receivable in respect of regulated activities.
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Application: Lloyd's managing agents

MIPRU 4.1.11

handbook-rule
This chapter does not apply to a managing agent.

MIPRU 4.1.12

handbook-guidance
The reason for excluding managing agents from the provisions of this chapter is twofold: first, a member will have accepted full responsibility for those activities under the Society's managing agent agreement. Secondly, the member is itself subject to capital requirements which are equivalent to those applying to an insurer (to which this chapter is also disapplied).

Application: social housing firms

MIPRU 4.1.13

handbook-guidance
There are special provisions for a social housing firm when it is carrying on mortgage lending or mortgage administration (see MIPRU 4.2.7 R).

Purpose

MIPRU 4.1.14

handbook-guidance
This chapter amplifies threshold condition 4 (Adequate resources) by providing that a firm must meet, on a continuing basis, a basic solvency requirement and a minimum capital resources requirement. This chapter also amplifies Principle 4 which requires a firm to maintain adequate financial resources by setting out capital requirements for a firm according to the regulated activity or activities it carries on.

MIPRU 4.1.15

handbook-guidance
Capital has an important role to play in protecting consumers and complements the roles played by professional indemnity insurance and client money protection (see the client money rules). Capital provides a form of protection for situations not covered by a firm's professional indemnity insurance and it provides the funds for the firm's PII excess, which it has to pay out of its own finances (see MIPRU 3.2.11 R and MIPRU 3.2.12 R for the relationship between the firm's capital and its excess).

MIPRU 4.1.16

handbook-guidance
More generally, having adequate capital gives the firm a degree of resilience and some indication to consumers of creditworthiness, substance and the commitment of its owners. It reduces the possibility of a shortfall of funds and provides a cushion against disruption if the firm ceases to trade.

MIPRU 4.1.17

handbook-guidance
There is a greater risk to consumers, and a greater adverse impact on market confidence, if a firm holding client money or other client assets fails. For this reason, the capital resources rules in this chapter clearly distinguish between firms holding client assets and those that do not.

Purpose: social housing firms

MIPRU 4.1.18

handbook-guidance
Social housing firms undertake small amounts of mortgage business even though their main business consists of activities other than regulated activities. Their mortgage lending is only done as an adjunct to their primary purpose (usually the provision of housing) and is substantially different in character to that done by commercial lenders. Furthermore, they are subsidiaries of local authorities or registered social landlords which are already subject to separate regulation. The FSA does not consider that it would be proportionate to the risks involved with such business to impose significant capital requirements for these firms. The capital resources requirement for social housing firms therefore simply provides that, where their Part IV permission is limited to mortgage lending and mortgage administration, their net tangible assets must be greater than zero.

MIPRU 4.1.19

handbook-guidance
A registered social landlord is a non-profit organisation which provides and manages homes for rent and sale for people who might not otherwise be able to rent or buy on the open market. It can be a housing association, a housing society or a non-profit making housing company. The Housing Corporation, which was set up by Parliament in 1964, funds homes built by registered social landlords from money received from central government.

MIPRU 4.2

Capital resources requirements

  • 01/01/2007

General solvency requirement

MIPRU 4.2.1

handbook-rule
A firm must at all times ensure that it is able to meet its liabilities as they fall due.

General capital resource requirement

MIPRU 4.2.2

handbook-rule
A firm must at all times maintain capital resources equal to or in excess of its relevant capital resources requirement.

Capital resources: relevant accounting principles

MIPRU 4.2.3

handbook-rule
A firm must recognise an asset or liability, and measure its amount, in accordance with the relevant accounting principles applicable to it for the purpose of preparing its annual financial statements unless a rule requires otherwise.

Capital resorces: client assets

MIPRU 4.2.4

handbook-rule
In this chapter, "client assets" includes a document only if it has value, or is capable of having value, in itself (such as a bearer instrument)

Capital resources requirement: firms carrying on regulated activities including designated investment business

MIPRU 4.2.5

handbook-rule

The capital resources requirement for a firm (other than a credit union) carrying on regulated activities, including designated investment business, is the higher of:

  1. (1) the requirement which is applied by this chapter according to the activity or activities of the firm (treating the relevant rules as applying to the firm by disregarding its designated investment business); and
  2. (2) the financial resource requirement which is applied by the Interim Prudential sourcebook for investment businesses, the Prudential sourcebook for Investment Firms and the EUCRR or the Prudential sourcebook for Banks, Building Societies and Investment Firms.

Capital resources requirement: credit unions

MIPRU 4.2.6

handbook-rule

The capital resources requirement for a credit union to which this chapter applies is the highest of:

  1. (1) the requirement which is applied to firms carrying on mediation activities only (see MIPRU 4.2.11 R) treating that rule as applying to the credit union by disregarding activities which are not insurance mediation activity or mortgage mediation activity;
  2. (2) the amount which is applied by the Credit Unions sourcebook; and
  3. (3) if the credit union is a CTF provider that has a permission to carry on designated investment business, the amount which is applied by Chapter 8 of the Interim Prudential sourcebook for investment businesses.

Capital resources requirement: social housing firms

MIPRU 4.2.7

handbook-rule

The capital resources requirement for a social housing firm whose Part IV permission is limited to carrying on the regulated activities of:

  1. (1) mortgage lender; or
  2. (2) mortgage administration (or both);

is that the firm's net tangible assets must be greater than zero.

MIPRU 4.2.8

handbook-guidance
If a social housing firm is carrying on mortgage lending or mortgage administration (and no other regulated activity), its net tangible assets must be greater than zero. However, if it carries on insurance mediation activity or mortgage mediation activity, there is no special provision and the capital resources requirement for firms carrying on designated investment business or mediation activities only applies to it as appropriate.

Capital resources requirement: application according to regulated activities

MIPRU 4.2.9

handbook-rule
Unless any of the rules on capital resources for firms carrying on designated investment business, for credit unions or for social housing firms apply, the capital resources requirement for a firm varies according to the regulated activity or activities it carries on.

MIPRU 4.2.10

handbook-rule
Table: Application of capital resources requirements

Capital resources requirement: mediation activity only

MIPRU 4.2.11

handbook-rule
  1. (1) If a firm carrying on insurance mediation activity or mortgage mediation activity (and no other regulated activity) does not hold client money or other client assets in relation to these activities, its capital resources requirement is the higher of:
    1. (a) £5,000; and
    2. (b) 2.5% of the annual income from its insurance mediation activity or mortgage mediation activity (or both).
  2. (2) If a firm carrying on insurance mediation activity or mortgage mediation activity (and no other regulated activity) holds client money or other client assets in relation to these activities, its capital resources requirement is the higher of:
    1. (a) £10,000; and
    2. (b) 5% of the annual income from its insurance mediation activity or mortgage mediation activity (or both).

Capital resources requirement: mortgage lending and administration (but not mortgage administration only)

MIPRU 4.2.12

handbook-rule
  1. (1) The capital resources requirement for a firm carrying on mortgage lending or mortgage lending and mortgage administration (and no other regulated activity) is the higher of:
    1. (a) £100,000; and
    2. (b) 1% of:
      1. (i) its total assets plus total undrawn commitments; less:
      2. (ii) excluded loans plus intangible assets (see Note 1 in the table in MIPRU 4.4.4 R).
  2. (2) Undrawn commitments means the total of those amounts which a borrower has the right to draw down from the firm but which have not yet been drawn down, excluding those under an agreement:
    1. (a) which has an original maturity of up to one year; or
    2. (b) which can be unconditionally cancelled at any time by the lender

MIPRU 4.2.13

handbook-guidance
When considering what is an undrawn commitment, the FSA takes into account an amount which a borrower has the right to draw down, but which has not yet been drawn down, whether the commitment is revocable or irrevocable, conditional or unconditional.

MIPRU 4.2.14

handbook-rule

When calculating total assets, the firm may exclude a loan which has been transferred to a third party only if it meets the following conditions:

  1. (1) the first condition is that the loan has been transferred in a legally effective manner by:
    1. (a) novation; or
    2. (b) legal or equitable assignment; or
    3. (c) sub-participation; or
    4. (d) declaration of trust; and
  2. (2) the second condition is that the lender:
    1. (a) retains no material economic interest in the loan; and
    2. (b) has no material exposure to losses arising from it.

MIPRU 4.2.15

handbook-evidential-provisions
  1. (1) When seeking to rely on the second condition, a firm should ensure that the loan qualifies for the 'linked presentation' accounting treatment under Financial Reporting Standard 5 (Reporting the substance of transactions) issued in April 1994, and amended in December 1994 and September 1998 (if applicable to the firm).
  2. (2) Compliance with (1) may be relied upon as tending to establish compliance with the second condition.

MIPRU 4.2.16

handbook-guidance
The requirement that the loan qualifies for the 'linked presentation' accounting treatment under FRS 5 is aimed at those firms which report according to FRS 5. Other firms which report under other standards, including International Accounting Standards, need not adopt FRS 5 in order to meet the second condition.

MIPRU 4.2.17

handbook-evidential-provisions
  1. (1) When seeking to rely on the second condition, a firm should not provide material credit enhancement in respect of the loan unless it deducts the amount of the credit enhancement from its capital resources before meeting its capital resources requirement.
  2. (2) Credit enhancement includes:
    1. (a) any holding of subordinated loans or notes in a transferee that is a special purpose vehicle; or
    2. (b) over collateralisation by transferring loans to a larger aggregate value than the securities to be issued; or
    3. (c) any other arrangement with the transferee to cover a part of any subsequent losses arising from the transferred loan.
  3. (3) Contravention of (1) may be relied upon as tending to establish contravention the second condition.

Capital resources requirement: mortgage administration only

MIPRU 4.2.18

handbook-rule
The capital resources requirement for a firm carrying on mortgage administration only, which has all or part of the regulated mortgage contracts that it administers on its balance sheet, is the amount which is applied to a firm carrying on mortgage lending or mortgage lending and mortgage administration (and no other regulated activity) (see MIPRU 4.2.12 R).

MIPRU 4.2.19

handbook-rule

The capital resources requirement for a firm carrying on mortgage administration only, which has all the regulated mortgage contracts that it administers off its balance sheet, is the higher of:

  1. (1) £100,000; and
  2. (2) 10% of its annual income.

Capital resources requirement: insurance mediation activity and mortgage lending or mortgage administration

MIPRU 4.2.20

handbook-rule

The capital resources requirement for a firm carrying on insurance mediation activity and mortgage lending or mortgage administration is the sum of the requirements which are applied to the firm by:

  1. (1) the capital resources rule for a firm carrying on insurance mediation activity or mortgage mediation activity (and no other regulated activity) (see MIPRU 4.2.11 R); and
  2. (2)
    1. (a) the capital resources requirement rule for a firm carrying on mortgage lending or mortgage lending and mortgage administration (and no other regulated activity) (see MIPRU 4.2.12 R); or
    2. (b) if, in addition to its insurance mediation activity, the firm carries on mortgage administration with all the assets that it administers off balance sheet, the capital resources rule for such a firm (see MIPRU 4.2.19 R).

Capital resources requirement: mortgage mediation activity and mortgage lending or mortgage administration

MIPRU 4.2.21

handbook-rule
  1. (1) If a firm carrying on mortgage mediation activity and mortgage lending or mortgage administration does not hold client money or other client assets in relation to its mortgage mediation activity, the capital requirement is the amount applied to a firm, according to the activities carried on by the firm, by:
    1. (a) the capital resources requirement rule for a firm carrying on mortgage lending or mortgage lending and mortgage administration (and no other regulated activity) (see MIPRU 4.2.12 R); or
    2. (b) if, in addition to its mortgage mediation activity, the firm carries on mortgage administration with all the assets that it administers off balance sheet, the capital resources rule for such a firm (see MIPRU 4.2.19 R).
  2. (2) If the firm holds client money or other client assets in relation to its mortgage mediation activity, the capital resources requirement is:
    1. (a) the amount calculated under (1); plus
    2. (b) the amount which is applied to a firm carrying on insurance mediation activity or mortgage mediation activity (and no other regulated activity) that holds client money or other client assets in relation to these activities (see MIPRU 4.2.11R (2)).

Capital resources requirement: other combinations of activities

MIPRU 4.2.22

handbook-rule
The capital resources requirement for a firm carrying any other combination of regulated activities is the amount which is applied to a firm carrying on insurance mediation activity and mortgage lending or mortgage administration (see MIPRU 4.2.20 R).

MIPRU 4.3

Calculation of annual income

  • 01/01/2007

Annual income

MIPRU 4.3.1

handbook-rule

This section contains provisions relating to the calculation of annual income for the purposes of:

  1. (1) the limits of indemnity for professional indemnity insurance; and
  2. (2) the capital resources requirements.

MIPRU 4.3.2

handbook-rule
'Annual income' is the annual income given in the firm's most recent annual financial statement from the relevant regulated activity or activities.

MIPRU 4.3.3

handbook-rule
For a firm which carries on insurance mediation activity or mortgage mediation activity , annual income is the amount of all brokerage, fees, commissions and other related income (for example, administration charges, overriders, profit shares) due to the firm in respect of or in relation to those activities.

MIPRU 4.3.4

handbook-guidance
  1. (1) The purpose of the rule on annual income that applies to insurance intermediaries and mortgage intermediaries is to ensure that the capital resources requirement is calculated on the basis only of brokerage and other amounts earned by a firm which are its own income.
  2. (2) Annual income includes commissions and other amounts the firm may have agreed to pay to other persons involved in a transaction, such as sub-agents or other intermediaries.
  3. (3) A firm's annual income does not, however, include any amounts due to another person (for example, the product provider) which the firm has collected on behalf of that other person.

MIPRU 4.3.5

handbook-rule
If a firm is a principal, its annual income includes amounts due to its appointed representative in respect of activities for which the firm has accepted responsibility.

MIPRU 4.3.6

handbook-guidance
If a firm is a network, it should include the relevant income due to all of its appointed representatives in its annual income.

Annual income for mortgage administration

MIPRU 4.3.7

handbook-rule

For the purposes of the calculation of the capital resources of a firm carrying on mortgage administration only with all the assets it administers off balance sheet, annual income is the sum of:

  1. (1) revenue (that is, commissions, fees, net interest income, dividends, royalties and rent); and
  2. (2) gains;
  3. (3) arising in the course of the ordinary activities of the firm, less profit:
    1. (a) on the sale or termination of an operation;
    2. (b) arising from a fundamental reorganisation or restructuring having a material effect on the nature and focus of the firm's operation; and
    3. (c) on the disposal of fixed assets, including investments held in a long-term portfolio.

Annual income: periods of less than 12 months

MIPRU 4.3.8

handbook-rule
If the firm's most recent annual financial statement does not cover a 12 month period, the annual income is taken to be the amount in the statement converted, proportionally, to a 12 month period.

Annual income: no financial statements

MIPRU 4.3.9

handbook-rule
If the firm does not have annual financial statements, the annual income is to be taken from the forecast or other appropriate accounts which the firm has submitted to the FSA.

MIPRU 4.4

Calculation of capital resources

  • 01/01/2007

The calculation of a firm's capital resources

MIPRU 4.4.1

handbook-rule
  1. (1) A firm must calculate its capital resources only from the items which are eligible to contribute to a firm's capital resources from which it must deduct certain items (see MIPRU 4.4.4 R).
  2. (2) If the firm is subject to the Interim Prudential sourcebook for investment businesses, the Prudential sourcebook for Banks, Building Societies and Investment Firms or the Credit Unions sourcebook, the capital resources are the higher of:
    1. (a) the amount calculated under (1); and
    2. (b) the financial resources calculated under those sourcebooks .

MIPRU 4.4.2

handbook-rule
Table: Items which are eligible to contribute to the capital resources of a firm

MIPRU 4.4.3

handbook-guidance
A firm should keep a record of and be ready to explain to its supervisory contacts in the FSA the reasons for any difference between the deficit reduction amount and any commitment the firm has made in any public document to provide funding in respect of a defined benefit occupational pension scheme.

MIPRU 4.4.4

handbook-rule
Table: Items which must be deducted from capital resources

Personal assets

MIPRU 4.4.5

handbook-rule

In relation to a sole trader's firm or a firm which is a partnership, the sole trader or a partner in the firm may use personal assets to meet the general solvency requirement and the general capital resource requirement, to the extent necessary to make up any shortfall in meeting those requirements, unless:

  1. (1) those assets are needed to meet other liabilities arising from:
    1. (a) personal activities; or
    2. (b) another business activity not regulated by the FSA; or
  2. (2) the firm holds client money or other client assets.

MIPRU 4.4.6

handbook-guidance
A sole trader or a partner may use any personal assets, including property, to meet the capital requirements of this chapter, but only to the extent necessary to make up a shortfall.

Subordinated loans

MIPRU 4.4.7

handbook-rule

A subordinated debt must not form part of the capital resources of the firm unless it meets the following conditions:

  1. (1) (for a firm which carries on insurance mediation activity or mortgage mediation activity (or both) but not mortgage lending or mortgage administration ) it has an original maturity of:
    1. (a) at least two years; or
    2. (b) it is subject to two years' notice of repayment;
  2. (2) (for all other firms) it has an original maturity of:
    1. (a) at least five years; or
    2. (b) it is subject to five years' notice of repayment;
  3. (3) the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;
  4. (4) the only events of default must be non-payment of any interest or principal under the debt agreement or the winding up of the firm;
  5. (5) the remedies available to the subordinated creditor in the event of non-payment or other default in respect of the subordinated debt must be limited to petitioning for the winding up of the firm or proving the debt and claiming in the liquidation of the firm;
  6. (6) the subordinated debt must not become due and payable before its stated final maturity date except on an event of default complying with (4);
  7. (7) the agreement and the debt are governed by the law of England and Wales, or of Scotland or of Northern Ireland;
  8. (8) to the fullest extent permitted under the rules of the relevant jurisdiction, creditors must waive their right to set off amounts they owe the firm against subordinated amounts owed to them by the firm;
  9. (9) the terms of the subordinated debt must be set out in a written agreement or instrument that contains terms that provide for the conditions set out in this rule; and
  10. (10) the debt must be unsecured and fully paid up.

MIPRU 4.4.8

handbook-rule
  1. (1) This rule applies to a firm which:
    1. (a) carries on:
      1. (i) insurance mediation activity; or
      2. (ii) mortgage mediation activity (or both); and
    2. (b) in relation to those activities, holds client money or other client assets;
  2. but is not carrying on mortgage lending or mortgage administration .
  3. (2) In calculating its capital resources, the firm must exclude any amount by which the aggregate amount of its subordinated loans and its redeemable preference shares exceeds the amount calculated as follows:

MIPRU 4.4.9

handbook-guidance
If a firm wishes to see an example of a subordinated loan agreement which would meet the required conditions, it should refer to the Forms page.

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MIPRU 5


Insurance undertakings and mortgage
lenders using insurance or mortgage mediation services

MIPRU 5.1

Application and purpose

  • 01/01/2007

Application

MIPRU 5.1.1

handbook-rule

This chapter applies to a firm with a Part IV permission to carry on:

  1. (1) insurance business; or
  2. (2) mortgage lending;
  3. (3) and which uses, or proposes to use, the services of another person consisting of:
    1. (a) insurance mediation; or
    2. (b) insurance mediation activity; or
    3. (c) mortgage mediation activity.

Purpose

MIPRU 5.1.2

handbook-guidance
The purpose of this chapter is to implement article 3.6 of the Insurance Mediation Directive in relation to insurance undertakings. The provisions of this chapter have been extended to mortgage lenders in relation to insurance mediation activity, and to insurance undertakings and mortgage lenders in relation to mortgage mediation activity, to ensure that firms using these services are treated in the same way and to ensure that clients have the same protection. To avoid the loss of protection where an intermediary itself uses the services of an unauthorised person, this chapter also ensures that each person in the chain of those providing services is authorised.

MIPRU 5.1.3

handbook-guidance
This chapter supports the more general duties in Principles 2 and 3, and the relevant rule in the Senior Management Arrangements, Systems and Controls sourcebook (see SYSC 3.1.1 R).

MIPRU 5.2

Use of intermediaries

  • 01/01/2007

MIPRU 5.2.1

handbook-rule

A firm must not use, or propose to use, the services of another person consisting of:

  1. (1) insurance mediation; or
  2. (2) insurance mediation activity; or
  3. (3) mortgage mediation activity;

unless two conditions are satisfied.

[Note: Article 3(6) of the IMD]

MIPRU 5.2.2

handbook-rule

The first condition is that the person, in relation to the activity:

  1. (1) has permission; or
  2. (2) is an exempt person; or
  3. (3) is an exempt professional firm; or
  4. (4) is registered in another EEA State for the purposes of the IMD; or
  5. (5) in relation to insurance mediation activity, is not carrying this activity on in the EEA; or
  6. (6) in relation to mortgage mediation activity, is not carrying this activity on in the United Kingdom.
[Note: Article 3(6) of the IMD]

MIPRU 5.2.3

handbook-evidential-provisions
  1. (1) A firm should:
    1. (a) before using the services of the intermediary, check:
      1. (i) the FSA Register; or
      2. (ii) in relation to insurance mediation carried on by an EEA firm, the register of its Home State regulator;
    2. for the status of the person; and
    3. (b) use the services of that person only if the relevant register indicates that the person is registered for that purpose.
  2. (2)
    1. (a) Checking the FSA Register before using the services of the intermediary and using the services of that person only if the FSA Register indicates that the person is registered for that purpose may be relied on as tending to establish that:
      1. (i) the person, in relation to the activity, has permission; or
      2. (ii) the person, in relation to insurance mediation activity, also is an exempt person or an authorised professional firm.
    2. (b) In relation to insurance mediation carried on by an EEA firm, checking the register of the firm's Home State regulator and using the services of the EEA firm only if the register indicates that the firm is registered for that purpose may be relied on as tending to establish that the firm is registered for the purposes of the IMD.

MIPRU 5.2.4

handbook-rule

The second condition is that the firm takes all reasonable steps to ensure that the person that it uses in relation to the activity, is not, directly or indirectly, carrying out the activity as a consequence of the activities of another person which:

  1. (1) contravene section 19 of the Act (The general prohibition); or
  2. (2) in the case of activities provided from an establishment in an EEA State, contravene the IMD registration requirements.

[Note: Article 3(6) of the IMD]

MIPRU 5.2.5

handbook-rule

In order to comply with the second condition, a firm may rely on a confirmation provided by the other person in writing if:

  1. (1) the confirmation is provided by a person that satisfies the first condition;
  2. (2) the firm checked that this is the case; and
  3. (3) the firm is not aware that the confirmation is inaccurate and has no grounds for reasonably being aware that the confirmation is inaccurate.
  • 01/01/2007

MIPRU 5.2.6

handbook-guidance
The FSA Register can be accessed through the FSA website under the link www.fsa.gov.uk/register/home.do

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Transitional Provisions and Schedules

MIPRU TP 1

Transitional Provisions

MIPRU TP 1.1

MIPRU Sch 1

Record keeping requirements

  • 01/01/2007

MIPRU Sch 1.1

handbook-guidance

MIPRU Sch 2

Notification requirements

  • 01/01/2007

MIPRU Sch 2.1

handbook-guidance

MIPRU Sch 3

Fees and other required payments

  • 01/01/2007

MIPRU Sch 3.1

handbook-guidance

MIPRU Sch 4

Powers exercised

  • 01/01/2007

MIPRU Sch 4.1

handbook-guidance

MIPRU Sch 4.2

handbook-guidance
  • 01/01/2007

MIPRU Sch 5

Rights of actions for damages

  • 01/01/2007

MIPRU Sch 5.1

handbook-guidance
  • 01/01/2007

MIPRU Sch 5.2

handbook-guidance
  • 01/01/2007

MIPRU Sch 5.3

handbook-guidance
  • 01/01/2007

handbook-guidance
Table
  • 01/01/2007

MIPRU Sch 6

Rules that can be waived

  • 01/01/2007

MIPRU Sch 6.1

handbook-guidance

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