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

Part

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

Printed on: 13/11/2024

Rulebook at: 01/01/2007

Chapters

MIPRU 1 Application and general provisions
MIPRU 2 Insurance mediation activity: responsibility, knowledge, ability and good repute
MIPRU 3 Professional indemnity insurance
MIPRU 4 Capital resources
MIPRU 5
Insurance undertakings and mortgage
lenders using insurance or mortgage mediation services
Transitional Provisions and Schedules

MIPRU 1

Application and general provisions

MIPRU 1.1

Application

01/01/2007

Application

MIPRU 1.1.1

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

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

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

01/01/2007

MIPRU 1.2

Actions for damages

01/01/2007

MIPRU 1.2.1

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

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

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

01/01/2007

Purpose

MIPRU 2.1.2

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 .

01/01/2007

MIPRU 2.2

Allocation of the responsibility for insurance mediation activity

01/01/2007

Responsibility for insurance mediation activity

MIPRU 2.2.1

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]

01/01/2007

MIPRU 2.2.2

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

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

01/01/2007

MIPRU 2.2.3

(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) 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) In the case of a sole trader, the sole trader will be responsible for the firm's insurance mediation activity, whether or not he is himself a person approved to perform the sole trader function.

01/01/2007

MIPRU 2.2.4

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.

01/01/2007

MIPRU 2.2.5

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.

01/01/2007

MIPRU 2.3

Knowledge, ability and good repute

01/01/2007

MIPRU 2.3.1

An insurance intermediary must establish on reasonable grounds that:

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

01/01/2007

MIPRU 2.3.2

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

(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) satisfies the relevant requirements of the FSA's Training and Competence sourcebook.

01/01/2007

MIPRU 2.3.3

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

(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) 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]

01/01/2007

MIPRU 2.3.4

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.

01/01/2007

MIPRU 2.3.5

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.

01/01/2007

MIPRU 3

Professional indemnity insurance

MIPRU 3.1

Application and purpose

01/01/2007

Application

MIPRU 3.1.1

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

(1) insurance mediation activity;
(2) mortgage mediation activity; unless any of the following exemptions apply:
(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:

(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;
(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) in relation to mortgage mediation activity, this chapter does not apply to a firm if:

(a) it has net tangible assets of more than £1 million; or
(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) This chapter does not apply to:

(a) an insurer; or
(b) a managing agent; or
(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) in relation to mortgage mediation activity, this chapter does not apply to an authorised professional firm:

(a) that is required by another rule to hold professional indemnity insurance (see IPRU(INV) 2.3.1R); and
(b) whose mortgage mediation activity is incidental to its main business.

01/01/2007

MIPRU 3.1.2

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.

01/01/2007

Purpose

MIPRU 3.1.3

The purposes of this chapter are to:

(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) 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.

01/01/2007

MIPRU 3.1.4

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.

01/01/2007

MIPRU 3.1.5

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.

01/01/2007

MIPRU 3.1.6

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.

01/01/2007

MIPRU 3.2

Professional indemnity insurance requirements

01/01/2007

MIPRU 3.2.1

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

(1) an insurance undertaking authorised to transact professional indemnity insurance in the EEA; or
(2) a person of equivalent status in:

(i) a Zone A country; or
(ii) the Channel Islands, Gibraltar, Bermuda or the Isle of Man.

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

01/01/2007

MIPRU 3.2.2

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.

01/01/2007

MIPRU 3.2.3

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.

01/01/2007

Terms to be incorporated in the insurance

MIPRU 3.2.4

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

(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) the minimum limits of indemnity per year set out in this section;
(3) an excess as set out in this section;
(4) appropriate cover in respect of legal defence costs;
(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) cover in respect of Ombudsman awards made against the firm.

01/01/2007

MIPRU 3.2.5

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.

01/01/2007

MIPRU 3.2.6

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

01/01/2007

Minimum limits of indemnity: insurance intermediary

MIPRU 3.2.7

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

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

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

01/01/2007

MIPRU 3.2.8

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.

01/01/2007

Minimum limits of indemnity: mortgage intermediary

MIPRU 3.2.9

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

01/01/2007

Excess

MIPRU 3.2.10

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).

01/01/2007

MIPRU 3.2.11

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

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

01/01/2007

MIPRU 3.2.12

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

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

01/01/2007

Policies covering more than one firm

MIPRU 3.2.13

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

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

01/01/2007

Additional capital

MIPRU 3.2.14

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)

Income

Excess obtained up to and including:

More than

Up to

2.5

100

150

200+

100

200

300

400

500

600

100

600

700

104

700

800

107

800

900

109

900

1,000

111

1,000

1,500

118

1,500

2,000

121

2,000

2,500

126

2,500

3,000

101

130

3,000

3,500

101

132

3,500

4,000

101

133

4,000

4,500

101

134

4,500

5,000

134

5,000

6,000

133

6,000

7,000

131

7,000

8,000

126

8,000

9,000

120

9,000

10,000

113

10,000

100,000

n/a

Table: Calculation of additional capital for firm holding client money or other client assets (£000's)

Income

Excess obtained up to and including:

More than

Up to

100

150

200+

100

200

300

400

500

600

700

800

900

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

6,000

7,000

8,000

9,000

10,000

100,000

n/a

01/01/2007

MIPRU 3.2.15

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

01/01/2007

MIPRU 4

Capital resources

MIPRU 4.1

Application and purpose

01/01/2007

Application

MIPRU 4.1.1

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

01/01/2007

MIPRU 4.1.2

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.

01/01/2007

MIPRU 4.1.3

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.

01/01/2007

Application: banks, building societies, insurers and friendly societies

MIPRU 4.1.4

This chapter does not apply to:

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

01/01/2007

MIPRU 4.1.5

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

01/01/2007

Application: firms carrying on designated investment business only

MIPRU 4.1.6

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

01/01/2007

MIPRU 4.1.7

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).

01/01/2007

Application: credit unions

MIPRU 4.1.8

This chapter does not apply to:

(1) a 'small credit union', that is one with:

(a) assets of £5 million or less; and
(b) a total number of members of 5,000 or less (see CRED 8.3.14 R); or

(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.

01/01/2007

MIPRU 4.1.9

(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) 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).

01/01/2007

Application: professional firms

MIPRU 4.1.10

(1) This chapter does not apply to an authorised professional firm:

(a) whose main business is the practice of its profession; and
(b) whose regulated activities covered by this chapter are incidental to its main business.

(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) 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.

01/01/2007

Application: Lloyd's managing agents

MIPRU 4.1.11

This chapter does not apply to a managing agent.

01/01/2007

MIPRU 4.1.12

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).

01/01/2007

Application: social housing firms

MIPRU 4.1.13

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).

01/01/2007

Purpose

MIPRU 4.1.14

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.

01/01/2007

MIPRU 4.1.15

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).

01/01/2007

MIPRU 4.1.16

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.

01/01/2007

MIPRU 4.1.17

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.

01/01/2007

Purpose: social housing firms

MIPRU 4.1.18

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.

01/01/2007

MIPRU 4.1.19

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.

01/01/2007

MIPRU 4.2

Capital resources requirements

01/01/2007

General solvency requirement

MIPRU 4.2.1

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

01/01/2007

General capital resource requirement

MIPRU 4.2.2

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

01/01/2007

Capital resources: relevant accounting principles

MIPRU 4.2.3

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.

01/01/2007

Capital resorces: client assets

MIPRU 4.2.4

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)

01/01/2007

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

MIPRU 4.2.5

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) 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) the financial resource requirement which is applied by the Interim Prudential sourcebook for investment businesses, the Prudential sourcebook for Investment Firms and the EU CRR or the Prudential sourcebook for Banks, Building Societies and Investment Firms.

01/01/2007

Capital resources requirement: credit unions

MIPRU 4.2.6

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

(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) the amount which is applied by the Credit Unions sourcebook; and
(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.

01/01/2007

Capital resources requirement: social housing firms

MIPRU 4.2.7

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

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

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

01/01/2007

MIPRU 4.2.8

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.

01/01/2007

Capital resources requirement: application according to regulated activities

MIPRU 4.2.9

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.

01/01/2007

MIPRU 4.2.10

Table: Application of capital resources requirements

Regulated activities

Provisions

(a) insurance mediation activity; or
(b) mortgage mediation activity (or both); and no other regulated activity.

MIPRU 4.2.11 R

(a) mortgage lending; or
(b) mortgage lending and mortgage administration ; and no other regulated activity.

MIPRU 4.2.12 R to MIPRU 4.2.17 E

mortgage administration; and no other regulated activity.

MIPRU 4.2.18 R to MIPRU 4.2.19 R

insurance mediation activity; and
(a) mortgage lending; or
(b) mortgage administration (or both).

MIPRU 4.2.20 R

mortgage mediation activity; and

(a) mortgage lending, or

(b) mortgage administration (or both).

MIPRU 4.2.21 R

Any combination of regulated activities not within rows 1 to 5.

MIPRU 4.2.22 R

01/01/2007

Capital resources requirement: mediation activity only

MIPRU 4.2.11

(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:

(a) £5,000; and
(b) 2.5% of the annual income from its insurance mediation activity or mortgage mediation activity (or both).

(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:

(a) £10,000; and
(b) 5% of the annual income from its insurance mediation activity or mortgage mediation activity (or both).

01/01/2007

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

MIPRU 4.2.12

(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:

(a) £100,000; and
(b) 1% of:

(i) its total assets plus total undrawn commitments; less:
(ii) excluded loans plus intangible assets (see Note 1 in the table in MIPRU 4.4.4 R).

(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:

(a) which has an original maturity of up to one year; or
(b) which can be unconditionally cancelled at any time by the lender

01/01/2007

MIPRU 4.2.13

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.

01/01/2007

MIPRU 4.2.14

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) the first condition is that the loan has been transferred in a legally effective manner by:

(a) novation; or
(b) legal or equitable assignment; or
(c) sub-participation; or
(d) declaration of trust; and

(2) the second condition is that the lender:

(a) retains no material economic interest in the loan; and
(b) has no material exposure to losses arising from it.

01/01/2007

MIPRU 4.2.15

(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) Compliance with (1) may be relied upon as tending to establish compliance with the second condition.

01/01/2007

MIPRU 4.2.16

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.

01/01/2007

MIPRU 4.2.17

(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) Credit enhancement includes:

(a) any holding of subordinated loans or notes in a transferee that is a special purpose vehicle; or
(b) over collateralisation by transferring loans to a larger aggregate value than the securities to be issued; or
(c) any other arrangement with the transferee to cover a part of any subsequent losses arising from the transferred loan.

(3) Contravention of (1) may be relied upon as tending to establish contravention the second condition.

01/01/2007

Capital resources requirement: mortgage administration only

MIPRU 4.2.18

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).

01/01/2007

MIPRU 4.2.19

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

01/01/2007

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

MIPRU 4.2.20

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) 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)

(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
(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).

01/01/2007

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

MIPRU 4.2.21

(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:

(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
(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) If the firm holds client money or other client assets in relation to its mortgage mediation activity, the capital resources requirement is:

(a) the amount calculated under (1); plus
(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)).

01/01/2007

Capital resources requirement: other combinations of activities

MIPRU 4.2.22

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).

01/01/2007

MIPRU 4.3

Calculation of annual income

01/01/2007

Annual income

MIPRU 4.3.1

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

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

01/01/2007

MIPRU 4.3.2

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

01/01/2007

MIPRU 4.3.3

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.

01/01/2007

MIPRU 4.3.4

(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) 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) 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.

01/01/2007

MIPRU 4.3.5

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.

01/01/2007

MIPRU 4.3.6

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

01/01/2007

Annual income for mortgage administration

MIPRU 4.3.7

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) revenue (that is, commissions, fees, net interest income, dividends, royalties and rent); and
(2) gains;
(3) arising in the course of the ordinary activities of the firm, less profit:

(a) on the sale or termination of an operation;
(b) arising from a fundamental reorganisation or restructuring having a material effect on the nature and focus of the firm's operation; and
(c) on the disposal of fixed assets, including investments held in a long-term portfolio.

01/01/2007

Annual income: periods of less than 12 months

MIPRU 4.3.8

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.

01/01/2007

Annual income: no financial statements

MIPRU 4.3.9

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.

01/01/2007

MIPRU 4.4

Calculation of capital resources

01/01/2007

The calculation of a firm's capital resources

MIPRU 4.4.1

(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) 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:

(a) the amount calculated under (1); and
(b) the financial resources calculated under those sourcebooks .

01/01/2007

MIPRU 4.4.2

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

Item

Additional explanation

Share capital

This must be fully paid and may include:

(1)

ordinary share capital; or

(2)

preference share capital (excluding preference shares redeemable by shareholders within two years).

Capital other than share capital (for example, the capital of a sole trader, partnership or limited liability partnership)

The capital of a sole trader is the net balance on the firm's capital account and current account. The capital of a partnership is the capital made up of the partners':

(1)

capital account, that is the account:

(a)

into which capital contributed by the partners is paid; and

(b)

from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if:

(i) he ceases to be a partner and an equal amount is transferred to another such account by his former partners or any person replacing him as their partner; or

(ii) the partnership is otherwise dissolved or wound up; and

(2)

current accounts according to the most recent financial statement.

For the purpose of the calculation of capital resources, in respect of a defined benefit occupational pension scheme:

(1)

a firm must derecognise any defined benefit asset;

(2)

a firm may substitute for a defined benefit liability the firm's deficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

Reserves (Note 1)

These are, subject to Note 1, the audited accumulated profits retained by the firm (after deduction of tax, dividends and proprietors' or partners' drawings) and other reserves created by appropriations of share premiums and similar realised appropriations. Reserves also include gifts of capital, for example, from a parent undertaking.

For the purposes of calculating capital resources, a firm must make the following adjustments to its reserves, where appropriate:

(1)

a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on debt instruments held in the available-for-sale financial assets category;

(2)

a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on cash flow hedges of financial instruments measured at cost or amortised cost;

(3)

in respect of a defined benefit occupational pension scheme:

(a)

a firm must derecognise any defined benefit asset;

(b)

a firm may substitute for a defined benefit liability the firm's deficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

Interim net profits (Note 1)

If a firm seeks to include interim net profits in the calculation of its capital resources, the profits have, subject to Note 1, to be verified by the firm's external auditor, net of tax, anticipated dividends or proprietors' drawings and other appropriations.

Revaluation reserves

General/ collective provisions (Note 1)

These are provisions that a firm carrying on mortgage lending or mortgage administration holds against potential losses that have not yet been identified but which experience indicates are present in the firm's portfolio of assets. Such provisions must be freely available to meet these unidentified losses wherever they arise. Subject to Note 1, general/collective provisions must be verified by external auditors and disclosed in the firm's annual report and accounts.

Subordinated loans

Subordinated loans must be included in capital on the basis of the provisions in this chapter that apply to subordinated loans.

Note:

Reserves must be audited and interim net profits, general and collective provisions must be verified by the firm's external auditor unless the firm is exempt from the provisions of Part VII of the Companies Act 1985 relating to the audit of accounts (section 249A (Exemptions from audit)).

01/01/2007

MIPRU 4.4.3

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.

01/01/2007

MIPRU 4.4.4

Table: Items which must be deducted from capital resources

Investments in own shares

Intangible assets (Note 1)

Interim net losses (Note 2)

Excess of drawings over profits for a sole trader or a partnership (Note 2)

Notes

Notes 1. Intangible assets are the full balance sheet value of goodwill (but not until 14 January 2008 - see transitional provision 1), capitalised development costs, brand names, trademarks and similar rights and licences.
2. The interim net losses in row 3, and the excess of drawings in row 4, are in relation to the period following the date as at which the capital resources are being computed.

01/01/2007

Personal assets

MIPRU 4.4.5

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) those assets are needed to meet other liabilities arising from:

(a) personal activities; or
(b) another business activity not regulated by the FSA; or

(2) the firm holds client money or other client assets.

01/01/2007

MIPRU 4.4.6

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.

01/01/2007

Subordinated loans

MIPRU 4.4.7

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

(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:

(a) at least two years; or
(b) it is subject to two years' notice of repayment;

(2) (for all other firms) it has an original maturity of:

(a) at least five years; or
(b) it is subject to five years' notice of repayment;

(3) the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;
(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) 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) 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) the agreement and the debt are governed by the law of England and Wales, or of Scotland or of Northern Ireland;
(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) 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) the debt must be unsecured and fully paid up.

01/01/2007

MIPRU 4.4.8

(1) This rule applies to a firm which:

(a) carries on:

(i) insurance mediation activity; or
(ii) mortgage mediation activity (or both); and

(b) in relation to those activities, holds client money or other client assets;

but is not carrying on mortgage lending or mortgage administration .
(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:

four times (a - b - c);

where:

items 1 to 5 in the Table of items which are eligible to contribute to a firm's capital resources (see MIPRU 4.4.2 R)

the firm's redeemable preference shares; and

the amount of its intangible assets (but not goodwill until 14 January 2008 - see transitional provision 1).

01/01/2007

MIPRU 4.4.9

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.

01/01/2007

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

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

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

(a) insurance mediation; or
(b) insurance mediation activity; or
(c) mortgage mediation activity.

01/01/2007

Purpose

MIPRU 5.1.2

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.

01/01/2007

MIPRU 5.1.3

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).

01/01/2007

MIPRU 5.2

Use of intermediaries

01/01/2007

MIPRU 5.2.1

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

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

unless two conditions are satisfied.

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

01/01/2007

MIPRU 5.2.2

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

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

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

01/01/2007

MIPRU 5.2.3

(1) A firm should:

(a) before using the services of the intermediary, check:

(i) the FSA Register; or
(ii) in relation to insurance mediation carried on by an EEA firm, the register of its Home State regulator;

for the status of the person; and
(b) use the services of that person only if the relevant register indicates that the person is registered for that purpose.

(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:

(i) the person, in relation to the activity, has permission; or
(ii) the person, in relation to insurance mediation activity, also is an exempt person or an authorised professional firm.

(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.

01/01/2007

MIPRU 5.2.4

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) contravene section 19 of the Act (The general prohibition); or
(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]

01/01/2007

MIPRU 5.2.5

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

(1) the confirmation is provided by a person that satisfies the first condition;
(2) the firm checked that this is the case; and
(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

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

01/01/2007

Transitional Provisions and Schedules

MIPRU TP 1

Transitional Provisions

MIPRU TP 1.1

(1)

(2) Material to which the transitional provision applies

(3)

(4) Transitional provision

(5) Transitional provision: dates in force

(6) Handbook provision: coming into force

MIPRU 4.4.4 R and MIPRU 4.4.8 R (3)

A firm is not required to include goodwill in its intangible assets until 14 January 2008.

From 31 October 2004 until 14 January 2008

31 October 2004

MIPRU 5.2.2 R and MIPRU 5.2.4 R

MIPRU 5.2.2 R and MIPRU 5.2.4 R have effect in respect of the use by a firm of the services of another person consisting of insurance mediation and provided from an establishment in an EEA State that has not implemented Article 3 (Registration) of the IMD , as if the condition in paragraph (4) of MIPRU 5.2.2 R and the condition in paragraph (2) of MIPRU 5.2.4 R were a condition that the firm has no reason to doubt the good repute, competence and financial standing of that person.

from 14 January 2005 until the implementation of Article 3 of the IMD by the relevant EEA State

14 January 2005

01/01/2007

MIPRU Sch 1

Record keeping requirements

01/01/2007

MIPRU Sch 1.1

There are no record keeping requirements in MIPRU.

01/01/2007

MIPRU Sch 2

Notification requirements

01/01/2007

MIPRU Sch 2.1

There are no notification requirements in MIPRU

01/01/2007

MIPRU Sch 3

Fees and other required payments

01/01/2007

MIPRU Sch 3.1

There are no requirements for fees or other payments in MIPRU.

01/01/2007

MIPRU Sch 4

Powers exercised

01/01/2007

MIPRU Sch 4.1

The following powers and related provisions in or under the Act have been exercised by the FSA to make the rules in MIPRU:

Section 138 (General rule-making power)

Section 149 (Evidential provisions); and

Section 156 (General supplementary powers)

01/01/2007

MIPRU Sch 4.2

The following powers in the Act have been exercised by the FSA to give the guidance in MIPRU:

Section 157(1) (Guidance)

01/01/2007

MIPRU Sch 5

Rights of actions for damages

01/01/2007

MIPRU Sch 5.1

The table below sets out the rules in MIPRU contravention of which by an authorised person may be actionable under section 150of the Act (Actions for damages) by a person who suffers loss as a result of the contravention.

01/01/2007

MIPRU Sch 5.2

If a 'Yes' appears in the column headed 'For private person', the rule may be actionable by a 'private person' under section 150of the Act (or, in certain circumstances, his fiduciary or representative; see article 6(2) and (3)(c) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (SI 2001 No 2256)). A 'Yes' in the column headed 'Removed' indicates that the FSA has removed the right of action under section 150(2)of the Act. If so, a reference to the rule in which it is removed is also given.

01/01/2007

MIPRU Sch 5.3

The column headed 'For other person' indicates whether the rule may be actionable by a person other than a private person (or his fiduciary or representative) under article 6(2) and (3) of those Regulations. If so, an indication of the type of person by whom the rule may be actionable is given.

01/01/2007

Table

Chapter/Appendix

Section/Annex

Right of action under section 150

For private person

Removed

For other person

All rules in MIPRU with the status letter "E"

All other rules in MIPRU

Yes, MIPRU 1.2.1 R

01/01/2007

MIPRU Sch 6

Rules that can be waived

01/01/2007

MIPRU Sch 6.1

The rules in MIPRU may be waived by the FSA under section 148of the Act (Modification or waiver of rules). However, if the rules incorporate requirements laid down in European directives, it will not be possible for the FSA to grant a waiver that would be incompatible with the United Kingdom's responsibilities under those directives. It therefore follows that if a rule in MIPRU contains provisions which derive partly from a directive, and partly not, the FSA will be able to consider a waiver of the latter requirements only, unless the directive provisions are optional rather than mandatory.

01/01/2007