Part

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

Chapter

Capital resources

Printed on: 27/11/2024

Rulebook at: 19/06/2014

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 4A permission to carry on any of the following activities, unless an exemption in this section applies:

  1. (1) insurance mediation activity;
  2. (2) home finance mediation activity;
  3. (3) home financing;
  4. (4) home finance administration.
  • 01/04/2013

MIPRU 4.1.2

handbook-guidance
As this chapter applies only to a firm with Part 4A 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 Insurance Mediation Directive.
  • 01/04/2013

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.
  • 01/04/2013

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.
  • 01/04/2013

MIPRU 4.1.5

handbook-guidance
The capital resources of the firms above are calculated in accordance with the appropriate prudential sourcebook.
  • 01/04/2013

Application: firms carrying on designated investment business only

MIPRU 4.1.6

handbook-rule
This chapter does not apply to a firm whose Part 4A permission is limited to regulated activities which are designated investment business.
  • 01/04/2013

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).
  • 01/04/2013

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 CREDS 5.3.13 R); or
  2. (2) a credit union whose Part 4A permission includes mortgage lending or mortgage administration (or both) but not insurance mediation activity or mortgage mediation activity.
  • 01/04/2013

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).
  3. (3) A credit union cannot carry on home purchase activities or reversion activities because the Credit Unions Act 1979 (in relation to Great Britain credit unions) and the Credit Unions (Northern Ireland) Order 1985 (in relation to Northern Ireland credit unions) restricts the circumstances whereby credit unions can hold land.
  • 01/04/2013

Application: Lloyd's managing agents

MIPRU 4.1.11

handbook-rule
This chapter does not apply to a managing agent.
  • 01/04/2013

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).
  • 01/04/2013

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.
  • 01/04/2013

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).
  • 01/04/2013

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.
  • 01/04/2013

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.
  • 01/04/2013

MIPRU 4.2

Capital resources requirements

  • 01/01/2007

Applicable guidance within BIPRU

MIPRU 4.2.-1

handbook-guidance
Unless otherwise specified, where MIPRU 4.2 to MIPRU 4.2D refers to a guidance provision contained in BIPRU, a firm should regard that guidance provision as applying to it in the same way that that provision applies to a BIPRU firm.
  • 26/04/2014

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.
  • 01/04/2013

MIPRU 4.2.1A

handbook-guidance
Specific liquidity requirements for a firm carrying on any home financing or home finance administration connected to regulated mortgage contracts are set out in MIPRU 4.2D.
  • 26/04/2014

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.
  • 01/04/2013

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.
  • 01/04/2013

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)
  • 01/04/2013

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 General Prudential sourcebook and the Prudential sourcebook for Banks, Building Societies and Investment Firms.
  • 01/01/2014

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.
  • 01/04/2013

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.
  • 01/04/2013

MIPRU 4.2.10

handbook-rule
Table: Application of capital resources requirements
  • 26/04/2014

MIPRU 4.2.10A

handbook-guidance
MIPRU 4.2.12 R to MIPRU 4.2.23 R have the effect that a firm carrying on any home financing or home finance administration which is connected to regulated mortgage contracts will be subject to different capital requirements to a firm that carries on those activities without connection to regulated mortgage contracts. To identify which of the rules in MIPRU 4.2.12 R to MIPRU 4.2.23 R is applicable, a firm should consider which regulated activities it performs as part of its home financing and home finance administration activities and determine whether any of those regulated activities (no matter what proportion) are connected to regulated mortgage contracts.
  • 26/04/2014

Capital resources requirement: mediation activity only

MIPRU 4.2.11

handbook-rule
  1. (1) If a firm carrying on insurance mediation activity or home finance 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 home finance mediation activity (or both).
  2. (2) If a firm carrying on insurance mediation activity or home finance 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 home finance mediation activity (or both).
  • 01/04/2013

Capital resources requirement: home financing and home finance administration not connected to regulated mortgage contracts

MIPRU 4.2.12

handbook-rule
  1. (1) The capital resources requirement for a firm carrying on only home financing, which is not connected to regulated mortgage contracts, or home financing and home finance administration which is not connected to regulated mortgage contracts (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 and unreleased amounts under the home reversion plan; less:
      2. (ii) excluded loans or amounts plus intangible assets (see Note 1 in the table in MIPRU 4.4.4 R).
  2. (2) Undrawn commitments and unreleased amounts means the total of those amounts which a customer has the right to draw down or to receive from the firm but which have not yet been drawn down or received, 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 or provider.
  • 26/04/2014

MIPRU 4.2.13

handbook-guidance
When considering what is an undrawn commitment or unreleased amount, the appropriate regulator takes into account an amount which a customer has the right to draw down or to receive under a home finance transaction, but which has not yet been drawn down or received, whether the commitment or obligation is revocable or irrevocable, conditional or unconditional.
  • 01/04/2013

MIPRU 4.2.14

handbook-rule

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

  1. (1) the first condition is that the loan or the plan 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 home finance provider:
    1. (a) retains no material economic interest in the loan or the plan; and
    2. (b) has no material exposure to losses arising from it.
  • 01/04/2013

MIPRU 4.2.15

handbook-evidential-provisions
  1. (1) When seeking to rely on the second condition, a firm should ensure that the loan or plan 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.
  • 01/04/2013

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.
  • 01/04/2013

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 or plan 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 or plans 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 or plan.
  3. (3) Contravention of (1) may be relied upon as tending to establish contravention the second condition.
  • 01/04/2013

Capital resources requirement: home finance administration only

MIPRU 4.2.18

handbook-rule

The capital resources requirement for a firm carrying on home finance administration only, which has all or part of the home finance transactions that it administers on its balance sheet, is:

  1. (1) in the case of a firm carrying on only home finance administration which is not connected to regulated mortgage contracts, the amount which is applied to a firm under MIPRU 4.2.12 R; or
  2. (2) in the case of a firm carrying on any home finance administration which is connected to regulated mortgage contracts, the amount which is applied to a firm under MIPRU 4.2.23 R.
  • 26/04/2014

MIPRU 4.2.19

handbook-rule

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

  1. (1) £100,000; and
  2. (2) 10% of its annual income.
  • 01/04/2013

Capital resources requirement: insurance mediation activity and home financing or home finance administration

MIPRU 4.2.20

handbook-rule

The capital resources requirement for a firm carrying on insurance mediation activity and home financing or home finance administration is the sum of :

  1. (1) the capital resources requirement for a firm carrying on insurance mediation activity or home finance mediation activity (and no other regulated activity) (see MIPRU 4.2.11 R); and
  2. (2)
    1. (a) in the case of a firm carrying on home financing which is not connected to regulated mortgage contracts, or home finance administration which is not connected to regulated mortgage contracts, the amount which is applied to a firm under MIPRU 4.2.12 R; or
      1. (aa) in the case of a firm carrying on any home financing which is connected to regulated mortgage contracts or any home finance administration that it administers on its balance sheet which is connected to regulated mortgage contracts, the amount which is applied to a firm under MIPRU 4.2.23 R; or
    2. (b) in the case of a firm carrying on home finance administration with all the home finance transactions that it administers off balance sheet, the amount which is applied to a firm under MIPRU 4.2.19 R.
  • 26/04/2014

Capital resources requirement: home finance mediation activity and home financing or home finance administration

MIPRU 4.2.21

handbook-rule
  1. (1) If a firm carrying on home finance mediation activity and home financing or home finance administration does not hold client money or other client assets in relation to its home finance mediation activity, the capital resources requirement is:
    1. (a) in the case of a firm carrying on home financing which is not connected to regulated mortgage contracts or home finance administration which is not connected to regulated mortgage contracts, the amount applied to a firm under MIPRU 4.2.12 R; or
    2. (aa) in the case of a firm carrying on any home financing which is connected to regulated mortgage contracts or any home finance administration that it administers on its balance sheet which is connected to regulated mortgage contracts, the amount applied to a firm under MIPRU 4.2.23 R; or
    3. (b) in the case of a firm carrying on home finance administration with all the home finance transactions that it administers off balance sheet, the amount applied to a firm under MIPRU 4.2.19 R
  2. (2) If the firm holds client money or other client assets in relation to its home finance 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 home finance 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)).
  • 26/04/2014

Capital resources requirement: other combinations of activities

MIPRU 4.2.22

handbook-rule

The capital resources requirement for a firm carrying on any combination of regulated activities which is not set out in MIPRU 4.2.10 R to MIPRU 4.2.21 R and MIPRU 4.2.23 R is:

  1. (1) if the combination of regulated activities includes carrying on any home financing connected to regulated mortgage contracts or home finance administration connected to regulated mortgage contracts, the sum of the amounts which are applied to a firm under:
    1. (a) MIPRU 4.2.20R (1); and
    2. (b) MIPRU 4.2.23 R; or
  2. (2) in all other cases, the sum of the amounts which are applied to a firm under:
    1. (a) MIPRU 4.2.20R (1); and
    2. (b) MIPRU 4.2.12 R.
  • 26/04/2014

Capital resources requirement: home financing and home finance administration connected to regulated mortgage contracts

MIPRU 4.2.23

handbook-rule

The capital resources requirement for a firm carrying on any home financing which is connected to regulated mortgage contracts, or home financing and home finance administration which is connected to regulated mortgage contracts (and no other regulated activity), is the higher of:

  1. (1) £100,000; and
  2. (2) the sum of:
    1. (a) the credit risk capital requirement calculated in accordance with MIPRU 4.2A; and
    2. (b) 1% of:
      1. (i) its total assets plus total undrawn commitments and unreleased amounts under the home reversion plan; less
      2. (ii) intangible assets (see Note 1 in the table in MIPRU 4.4.4 R) plus loans, securitisation positions and CIU positions subject to MIPRU 4.2A.4 R.
  • 26/04/2014

MIPRU 4.2A

Credit risk capital requirement

  • 26/04/2014

Application

MIPRU 4.2A.1

handbook-rule
This section applies to a firm to which MIPRU 4.2.23 R applies.
  • 26/04/2014

Purpose

MIPRU 4.2A.2

handbook-guidance

The purpose of MIPRU 4.2A is to:

  1. (1) set out how a firm should calculate its credit risk capital requirement;
  2. (2) set out how a firm should calculate its risk weighted exposure amounts for exposures on its balance sheet; and
  3. (3) identify which provisions of BIPRU 3 will apply to a firm, in addition to the provisions of MIPRU 4.2A, to enable it to make those calculations.
  • 26/04/2014

MIPRU 4.2A.3

handbook-guidance
A firm should refer to BIPRU 5 (as amended by MIPRU 4.2C.3 R) with regard to the effect of credit risk mitigation on the calculation of risk weighted exposure amounts.
  • 26/04/2014

Calculation of credit risk

MIPRU 4.2A.4

handbook-rule

The credit risk capital requirement of a firm is 8% of the total of its risk weighted exposure amounts for exposures that:

  1. (1) are on its balance sheet; and
  2. (2) derive from:
    1. (a) a loan entered into; or
    2. (b) a securitisation position originated; or
    3. (c) a CIU position entered into;
  3. on or after 26 April 2014; and
  4. (3) have not been deducted from the firm's capital resources under MIPRU 4.4.4 R or MIPRU 4.2BA;
calculated in accordance with MIPRU 4.2A.
  • 26/04/2014

MIPRU 4.2A.5

handbook-rule
Any arrangements entered into on or after 26 April 2014 which increase the amount of a loan already advanced or change the security to a loan already advanced or change the contractual terms (other than if the firm is exercising forbearance) of a loan already advanced will be subject to the credit risk capital requirement under MIPRU 4.2A.4R (2)(a) provided that, where the arrangements only increase the amount of a loan already advanced, such requirement shall only apply to the amount of such increase.
  • 26/04/2014

MIPRU 4.2A.5A

handbook-guidance

The arrangements excluded from the credit risk capital requirement include:

  1. (1) a loan acquired by a firm after 26 April 2014 if that loan was made before 26 April 2014;
  2. (2) arrangements made as a result of forbearance procedures, including:
    1. (a) a change in the basis of interest payments from variable to fixed rate; or
    2. (b) a change from a repayment mortgage to interest only; or
    3. (c) the capitalisation of interest which increases the principal outstanding, where there is no element of new borrowing.
  • 26/04/2014

MIPRU 4.2A.6

handbook-rule
The exposure value of an asset item must be its balance sheet value.
  • 26/04/2014

MIPRU 4.2A.7

handbook-rule
When calculating risk weighted exposure amounts, a firm must comply with BIPRU 3.2.3 R, BIPRU 3.2.9 R to BIPRU 3.2.19 G, and BIPRU 3.2.38 R in the same way that these provisions apply to a BIPRU firm, except to the extent that a provision is modified or excluded in the table in MIPRU 4.2A.8 R.
  • 26/04/2014

MIPRU 4.2A.8

handbook-rule
This table belongs to MIPRU 4.2A.7 R
  • 26/04/2014

MIPRU 4.2A.9

handbook-rule
For the purposes of applying a risk weight, the exposure value must be multiplied by the risk weight determined in accordance with MIPRU 4.2A.10 R, MIPRU 4.2A.11 R, MIPRU 4.2A.12 R or MIPRU 4.2A.13 R.
  • 26/04/2014

MIPRU 4.2A.10

handbook-rule
To calculate risk weighted exposure amounts on exposures secured by mortgages on residential property, risk weights must be applied to all such exposures, unless deducted from capital resources calculated under MIPRU 4.4, in accordance with BIPRU 3.4.56 R to BIPRU 3.4.88 G.
  • 26/04/2014

MIPRU 4.2A.11

handbook-rule
To calculate risk weighted exposure amounts on exposures in CIUs, risk weights must be applied to all such exposures, unless deducted from capital resources under MIPRU 4.4, in accordance with BIPRU 3.4.114 R to BIPRU 3.4.125 R.
  • 26/04/2014

MIPRU 4.2A.12

handbook-rule
Risk weighted exposure amounts for securitised exposures must be calculated in accordance with MIPRU 4.2B.
  • 26/04/2014

MIPRU 4.2A.13

handbook-rule
To calculate risk weighted exposure amounts on exposures other than those provided for in MIPRU 4.2A.10 R to MIPRU 4.2A.12 R, risk weights must be applied to all such exposures, unless deducted from capital resources calculated under MIPRU 4.4, in accordance with BIPRU 3.5.5 G as though that provision were a rule.
  • 26/04/2014

MIPRU 4.2A.14

handbook-guidance
Rather than risk weighting exposures individually under MIPRU 4.2A.13 R, a firm should apply a single risk weight to all exposures in each exposure class.
  • 26/04/2014

MIPRU 4.2A.15

handbook-rule
If a firm calculates risk weighted exposure amounts under MIPRU 4.2A.13 R and is directed by BIPRU 3.5.5 G to the "normal rules", it must, in the calculation of those risk weighted exposure amounts, comply with BIPRU 3.4 in the same way that that section applies to a BIPRU firm.
  • 26/04/2014

MIPRU 4.2A.16

handbook-rule
Exposures must be assigned a risk weight of 100% if MIPRU 4.2A.10 R to MIPRU 4.2A.13 R do not set out a calculation for risk weighted exposure amounts applicable to that exposure.
  • 26/04/2014

MIPRU 4.2A.17

handbook-rule
A firm must apply BIPRU 3.4.96 R to BIPRU 3.4.102 R to all past items due.
  • 26/04/2014

MIPRU 4.2A.18

handbook-guidance
A firm may apply BIPRU 3.5.6 G and BIPRU 3.5.7 G to exposures. MIPRU 4.2C sets out the amendments to the BIPRU 5rules referenced within these provisions.
  • 26/04/2014

MIPRU 4.2B

Securitisation

  • 26/04/2014

Application

MIPRU 4.2B.1

handbook-rule
This section applies to a firm to which MIPRU 4.2.23 R applies.
  • 26/04/2014

Purpose

MIPRU 4.2B.2

handbook-guidance

The purpose of MIPRU 4.2B is to set out:

  1. (1) how a firm that is required to calculate the credit risk capital requirement under MIPRU 4.2.23 R should calculate the risk weighted exposure amounts for securitisation positions; and
  2. (2) the requirements that investors, originators and sponsors of securitisations on the balance sheet will have to meet (BIPRU 9.3.1A R and BIPRU 9.3.15 R to BIPRU 9.3.20 R).
  • 26/04/2014

Calculation of risk weighted exposure amount for securitisation positions

MIPRU 4.2B.3

handbook-rule
To calculate the risk weighted exposure amount for securitisation positions, a firm must comply with BIPRU 9 in the same way that that section applies to a BIPRU firm, except to the extent that a provision of BIPRU 9 is modified or excluded in the table in MIPRU 4.2B.4 R.
  • 26/04/2014

MIPRU 4.2B.4

handbook-rule
This table belongs to MIPRU 4.2B.3 R
  • 26/04/2014

MIPRU 4.2B.5

handbook-guidance
Subject to BIPRU 9.3.6 G, for the purposes of BIPRU 9.4.1 R and BIPRU 9.5.1 R the transfer of credit risk to third parties should only be considered significant if the proportion of risk transferred is broadly commensurate with, or exceeds, the proportion by which risk weighted exposure amounts are reduced.
  • 26/04/2014

MIPRU 4.2B.6

handbook-guidance
For measuring the reduction in risk and risk weighted exposure amounts, an originator should assess the securitisation positions it holds against the underlying exposures as if they had never been securitised.
  • 26/04/2014

MIPRU 4.2B.7

handbook-guidance
An originator should use an appropriate method, consistent with its own internal processes, to assess whether the risk transferred is significant.
  • 26/04/2014

MIPRU 4.2B.8

handbook-guidance

If the result of:

  1. (1) applying a risk weight of 1250% to all positions that an originator holds in the securitisation; or
  2. (2) deducting all those positions from capital resources;

is a reduction in the originator's capital requirement compared to the capital requirements that would apply had it not transferred the securitised exposures, then the originator may treat the risk transferred as significant for the purposes of BIPRU 9.4.1 R and BIPRU 9.5.1 R.

  • 26/04/2014

MIPRU 4.2C

Credit risk mitigation

  • 26/04/2014

Application

MIPRU 4.2C.1

handbook-rule
This section applies to a firm to which MIPRU 4.2.23 R applies where that firm wishes to apply credit risk mitigation to the calculation of its risk weighted exposure amounts under MIPRU 4.2A.
  • 26/04/2014

Purpose

MIPRU 4.2C.2

handbook-guidance
The purpose of MIPRU 4.2C is to set out which provisions of BIPRU 5 a firm should comply with in the recognition of credit risk mitigation in the calculation of risk weighted exposure amounts for the purposes of the calculation of the credit risk capital requirement under MIPRU 4.2.23 R.
  • 26/04/2014

General

MIPRU 4.2C.3

handbook-rule
A firm that wishes to recognise credit risk mitigation in the calculation of risk weighted exposure amounts, must comply with BIPRU 5 in the same way that that section applies to a BIPRU firm, except to the extent that a provision of BIPRU 5 is modified or excluded in the table in MIPRU 4.2C.4 R.
  • 26/04/2014

MIPRU 4.2C.4

handbook-rule
This table belongs to MIPRU 4.2C.3 R
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MIPRU 4.2D

Liquidity resources requirements

  • 26/04/2014

Application

MIPRU 4.2D.1

handbook-rule
This section applies to a firm carrying on any home financing or home finance administration connected to regulated mortgage contracts, unless as at 26 April 2014 its Part 4A permission was and continues to remain subject to a restriction preventing it from undertaking new home financing or home finance administration connected to regulated mortgage contracts.
  • 26/04/2014

Adequacy of liquidity resources

MIPRU 4.2D.2

handbook-rule
A firm must at all times maintain liquidity resources which are adequate, both as to amount and quality, to ensure that there is no significant risk that its liabilities cannot be met as they fall due.
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MIPRU 4.2D.3

handbook-guidance

In assessing the adequacy of liquidity resources, a firm should have regard to the overall character of the resources available to it, which enable it to meet its liabilities as they fall due. A firm should ensure that:

  1. (1) it holds sufficient assets which are marketable, or otherwise realisable;
  2. (2) it is able to generate funds from those assets in a timely manner; and
  3. (3) it maintains a prudent funding profile in which its assets are of appropriate maturities, taking into account the expected timing of its liabilities.
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Systems and controls requirements

MIPRU 4.2D.4

handbook-rule
A firm must have in place robust strategies, policies, processes and systems that enable it to identify, measure, manage and monitor liquidity risk over the appropriate set of time horizons for its business activities, to ensure that it maintains adequate levels of liquidity resources. These strategies, policies, processes, and systems must be appropriate to the firm's business lines, currencies in which it operates, and its group companies and must include adequate allocation mechanisms of liquidity costs, benefits and risks.
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MIPRU 4.2D.5

handbook-rule
The strategies, policies, processes and systems referred to in MIPRU 4.2D.4 R must be proportionate to the nature, scale and complexity of the firm's activities and the risk profile of the firm.
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MIPRU 4.2D.6

handbook-rule
A firm must have in place reliable management information systems to provide its governing body, senior managers and other appropriate personnel with timely and forward-looking information on the liquidity position of the firm.
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MIPRU 4.2D.7

handbook-rule
A firm must ensure that its governing body reviews regularly (and not less frequently than annually) the continued adequacy of any strategies, policies, processes and systems in place in accordance with MIPRU 4.2D.4 R
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Stress testing and contingency funding plans

MIPRU 4.2D.8

handbook-rule
A firm must consider alternative scenarios in which its liquidity position could be impacted. The consideration of alternative scenarios must include and deal with off-balance sheet items and other contingent liabilities, including those of securitisation special purpose entities (SSPEs) or other special purpose entities, in relation to which the firm acts as sponsor or provides material liquidity support. These scenarios must be incorporated into the stress testing under MIPRU 4.2D.9 R.
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MIPRU 4.2D.9

handbook-rule

In order to ensure compliance with MIPRU 4.2D.2 R, a firm must:

  1. (1) conduct on a regular basis appropriate stress tests so as to:
    1. (a) identify sources of potential liquidity strain; and
    2. (b) ensure that the risks of current liquidity exposures can be adequately managed; and
  2. (2) analyse the separate and combined impact of possible future liquidity stresses on its:
    1. (a) cash flows;
    2. (b) liquidity position; and
    3. (c) solvency; and
  3. (3) make, as soon as is practicable after a test has been performed, and maintain a written record of all stress tests and their results
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MIPRU 4.2D.10

handbook-rule
A firm must ensure that its governing body reviews regularly the stresses and scenarios tested and the assumptions underlying the funding position of the firm to ensure that their nature and severity remain appropriate and relevant to it.
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MIPRU 4.2D.11

handbook-guidance

For the purpose of MIPRU 4.2D.10 R a review should take into account:

  1. (1) changes in market conditions;
  2. (2) changes in funding sources and inflows;
  3. (3) changes in the nature, scale or complexity of the firm's business model and activities; and
  4. (4) the firm's practical experience in periods of stress.
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MIPRU 4.2D.12

handbook-rule
A firm must adjust its strategies, internal policies and limits on liquidity risk, taking into account the outcome of the alternative scenarios referred to in MIPRU 4.2D.8 R.
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MIPRU 4.2D.13

handbook-rule
  1. (1) A firm must have in place contingency funding plans setting out adequate strategies and proper implementation measures in order to address potential liquidity shortfalls.
  2. (2) The contingency funding plans must be:
    1. (a) in writing;
    2. (b) approved by the firm's governing body;
    3. (c) regularly tested; and
    4. (d) updated on the basis of the outcome of the stress tests, testing alternative scenarios set out in MIPRU 4.2D.8 R.
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MIPRU 4.2D.14

handbook-guidance
A contingency funding plan sets out a firm's strategies for managing liquidity shortfalls in emergency situations. Its aim should be to ensure that, in each of the stresses set out in MIPRU 4.2D.11 G, it would have sufficient liquidity resources to ensure that it can meet its liabilities as they fall due.
  • 26/04/2014

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.
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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.
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MIPRU 4.3.3

handbook-rule
For a firm which carries on insurance mediation activity or home finance 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.
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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.
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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.
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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.
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Annual income for home finance administration

MIPRU 4.3.7

handbook-rule

For the purposes of the calculation of the capital resources of a firm carrying on home finance 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.
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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.
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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 appropriate regulator.
  • 01/04/2013

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 Investment Firms and the EU CRR, the General Prudential sourcebook, 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 and regulations.
  • 01/01/2014

MIPRU 4.4.2

handbook-rule
Table: Items which are eligible to contribute to the capital resources of a firm
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MIPRU 4.4.3

handbook-guidance
A firm should keep a record of and be ready to explain to its supervisory contacts in the appropriate regulator 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.
  • 01/04/2013

MIPRU 4.4.4

handbook-rule
Table: Items which must be deducted from capital resources
  • 01/04/2013

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 appropriate regulator; or
  2. (2) the firm holds client money or other client assets.
  • 01/04/2013

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.
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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, home finance mediation activity (or both) but not home financing or home finance 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.
  • 01/04/2013

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) home finance mediation activity (or both); and
    2. in relation to those activities, holds client money or other client assets; or
    3. (b) carries on home financing or home finance administration connected to regulated mortgage contracts (or both) unless as at 26 April 2014 its Part IV permission was and continues to remain subject to a restriction preventing it from undertaking new home financing or home finance administration connected to regulated mortgage contracts.
  2. (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:

  • 26/04/2014

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.
  • 01/04/2013

Reversion providers: additional requirement for instalment reversions

MIPRU 4.4.10

handbook-rule
  1. (1) If the reversion provider agrees under the terms of an instalment reversion plan to pay the reversion occupier for the qualifying interest in land over a period of time, then the provider must:
    1. (a) take out and maintain adequate insurance from an insurance undertaking authorised in the EEA or 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; or
    2. (b) enter into a written agreement with a credit institution;
  2. to meet these obligations in the event that the reversion provider is unable to do so.
  3. (2) This rule does not apply if:
    1. (a) the instalment reversion plan is linked to an investment and it is reasonably anticipated that the amounts due to the reversion occupier under the plan will be paid out of the proceeds of the investment to the occupier by a product provider other than the reversion provider; or
    2. (b) the reversion provider acquires its interest in the property in steps proportionate to the instalments paid.
  • 01/04/2013

MIPRU 4.4.11

handbook-guidance
The additional requirement for reversion providers aims to protect the reversion occupier against the insolvency of the reversion provider where the reversion occupier has agreed to receive the price for the part of the qualifying interest in land sold in instalments rather than in a lump sum. The requirement does not arise, for example, in relation to reversions linked to annuities as the reversion occupier has no credit risk on the reversion provider. Also, the requirement does not arise in relation to 'mini-reversions' (or 'staged reversions') as under these plans the reversion occupier continues to own the qualifying interest in land.
  • 01/04/2013

Regulated sale and rent back agreements: additional requirement

MIPRU 4.4.12

handbook-rule

If a SRB agreement provider agrees, under the terms of a regulated sale and rent back agreement, to account to the SRB agreement seller for any monetary sum, whether after a qualifying period, over a period of time, on the occurrence of a contingent event or otherwise, the provider must:

  1. (1) take out and maintain adequate insurance from an insurance undertaking authorised in the EEA or a person of equivalent status in:
    1. (a) a Zone A country; or
    2. (b) the Channel Islands, Gibraltar, Bermuda, or the Isle of Man; or
  2. (2) enter into a written agreement with a credit institution;

to meet these obligations in the event that the SRB agreement provider is unable to do so.

  • 01/04/2013

MIPRU 4.4.13

handbook-guidance
An example of where this additional requirement would apply would be a term of a regulated sale and rent back agreement under which the SRB agreement seller was to receive from the SRB agreement provider a refund of an agreed percentage of the discount on the sale price of the property to which the agreement relates after an agreed qualifying period.
  • 01/04/2013