Small Mortgage and Insurance Intermediaries: Part I - General Rules | Prudential Regulation Authority Handbook & Rulebook

MIGI 1

Introduction

MIGI 1.1

Purpose of the Guide

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MIGI 1.1.1

The Guide to the FSA Handbook for Small Mortgage and Insurance Intermediaries (The Guide) is primarily intended for small intermediary firms carrying on:

(1) mortgage mediation activities in relation to regulated mortgage contracts; or

(2) insurance mediation activities in relation to general insurance contracts or pure protection contracts (except long term care insurance), collectively known as 'non-investment insurance contracts'; or

(3) both;

from a permanent place of business in the UK.

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MIGI 1.1.2

From 31 October 2004 (known as 'NM') we (the FSA) will be responsible for regulating mortgage intermediaries, and from 14 January 2005 (known as 'NGI') we will regulate insurance intermediaries. This Guide will help small mortgage intermediaries and insurance intermediaries who are authorised by us or have decided to seek authorisation to find the rules in the FSA Handbook of rules and guidance (the Handbook) that apply to them. The Guide refers to and contains extracts from various parts of the Handbook. Firms should consult the Handbook to determine the precise wording and effect of the rules. In addition, firms may need to refer to the Financial Services and Markets Act 2000 (the Act).

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MIGI 1.1.3

Not every mortgage or insurance intermediary does identical business or is permitted to carry on the same type of activities. This Guide directs firms to those parts of the Handbook that will usually be relevant to typical small mortgage and insurance intermediaries that have simple organisational structures and do not carry on any regulated activities other than mortgage or insurance mediation activities.

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MIGI 1.1.4

As well as firms whose principal business is carrying on insurance mediation activities, this Guide will also help small firms carrying on insurance mediation activities as a secondary activity, provided that their main business is not regulated by us. This would include, for example, mobile phone retailers who also sell mobile phone insurance but no other kinds of insurance.

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MIGI 1.1.5

Some aspects of the Handbook do not apply to small firms and so are not covered in any detail, if at all, in this Guide. As such, if your firm is large, or has a complex organisational structure, there may be other rules that apply to you that are not referred to in the Guide.

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MIGI 1.1.6

Similarly, the Guide does not cover many of the rules that apply to firms that are authorised or require authorisation for investment business, such as IFAs and firms that carry on insurance mediation activities in relation to life policies. Nor does it cover many of the rules that apply to insurance companies and mortgage lenders. These firms will need to consult other sources of information to identify the rules that apply to them. Small IFAs might find the FSA guide Using the FSA Handbook: an overview for small IFA firms helpful.

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MIGI 1.1.7

Although the Guide is primarily intended for authorised firms, we are aware that many small firms carrying on mortgage or insurance mediation will decide to become appointed representatives (ARs). Part I, Chapter 9 of the Guide explains how ARs carrying on these regulated activities are regulated, and there are references elsewhere in the Guide to some of the requirements that apply either to ARs directly or to firms with ARs. However, the Guide does not cover all of the rules that apply to networks and other firms with ARs.

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MIGI 1.1.8

Whether or not you are a small mortgage intermediary or insurance intermediary, this Guide is only a tool to help you access the Handbook and to find the rules that are relevant to your firm. It is not a substitute for reading the rules themselves and is not a comprehensive statement of your firms' obligations under our rules. It should be used to help guide you through the most relevant aspects of our regulatory regime and is designed to make accessing and understanding the content of the Handbook easier.

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MIGI 1.1.9

The Guide is not formal guidance and does not have the status of guidance in the Handbook. You cannot use the Guide to counter a charge of breaking our rules. In the event of any conflict between the Guide and the Handbook, the Handbook takes precedence.

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MIGI 1.1.10

The Guide is current as at 31 March 2004. The Guide does not remove the need for firms to keep up to date with regulatory developments and to consider the potential impact on business of proposed changes. We will regularly update the Guide but we will not update it each time the Handbook changes.

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MIGI 1.2

Structure of the Guide

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MIGI 1.2.1

The Guide is in three Parts:

(1) Part I (this Part) covers all the sections of the Handbook that apply to mortgage and insurance intermediaries other than conduct of business, training and competence and client money rules. Chapter 2 of this Part gives a general explanation of the structure of the Handbook, what parts apply to small insurance and mortgage intermediaries and how to interpret the provisions of the Handbook.

(2) Part II covers the conduct of business and training and competence rules for mortgage intermediaries.

(3) Part III covers the conduct of business, training and competence and client money rules for insurance intermediaries.

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MIGI 1.2.2

The Guide is grouped into chapters covering the most frequent types of interaction with us and the rules that most often apply to mortgage and insurance intermediaries. The references to the Handbook and the pointers to other sections within the Guide itself are not intended to be exhaustive.

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MIGI 1.2.3

The Guide uses terms that are consistent with those defined in the Handbook Glossary. These terms are in italics in the Handbook (though not in this Guide). To help you Appendix A to this Part contains brief definitions of some of the terms we use throughout the Guide. Appendix A to Parts II and III also contain definitions of some of the terms used frequently in those Parts. In each case firms should consult the Handbook Glossary for the full definitions.

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MIGI 2

Overview of the Handbook

MIGI 2.1

Introduction

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MIGI 2.1.1

This chapter provides an overview of the Handbook and explains:

(1) which parts of the Handbook apply to mortgage and insurance intermediaries;

(2) how the Handbook is structured; and

(3) how to interpret rules, guidance and evidential provisions in the Handbook.

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MIGI 2.2

Content of the Handbook

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Where can you find the rules that apply to mortgage and insurance intermediaries?

MIGI 2.2.1

The Handbook can be found:

(1) on our website (www.fsa.gov.uk) and

(2) on the CD-ROMs sent to all authorised firms at the end of any month in which the Handbook is amended.

You can buy paper copies from our Publications Order Helpline or order online through our website. The contents are the same in each medium.

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MIGI 2.2.2

Most of the new requirements for mortgage and general insurance intermediaries are finalised. However, many of these requirements will not be incorporated into the FSA Handbook until just before regulation starts. The rules that are not already in the Handbook have been published in several documents available on the FSA website at www.fsa.gov.uk/mgi.

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MIGI 2.2.3

Until regulation starts you should use the table available at www.fsa.gov.uk/mgi/jigsaw.html as a navigation tool around the sourcebooks and manuals that make up the Handbook and any amendments or new requirements that apply to your firm.

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MIGI 2.2.4

The table provides links to:

(1) sections of the existing Handbook that will apply to some, or all, of your firm's mortgage or insurance mediation activities;

(2) amendments to existing sections of the Handbook;

(3) the new requirements specific to these activities; and

(4) any Frequently Asked Questions or other helpful guidance relating to particular requirements.

In addition, the Enforcement manual (ENF), Decision making manual (DEC) and Complaints against the FSA manual (COAF) contain information about the FSA's policies and procedures which will be of relevance to small mortgage and insurance intermediaries in certain circumstances. These manuals are not covered in the Guide but you can find further information about them on our website (www.fsa.gov.uk/).

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Which parts of the Handbook apply to mortgage and insurance intermediaries?

MIGI 2.2.5

Only some of our rules apply to mortgage and insurance intermediaries. The table below provides an overview of the Handbook for small mortgage and insurance intermediaries to highlight which parts will be most relevant to them, and where they are covered in the Guide. There will be some variation, as not all mortgage and insurance intermediaries undertake identical business or have permission to carry on the same regulated activities.

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How are the sourcebooks and manuals structured?

MIGI 2.2.6

Overview of contents of the Handbook:

Block

Sourcebook or manual

What does it include?

Where in the Guide can I find out more?

1 High Level Standards

PRIN Principles for Businesses

A general statement of the main regulatory obligations of your firm.

Part I, Chapter 3

SYSC Senior Management Arrangements, Systems and Controls

Rules and guidance on how key responsibilities for managing the business should be allocated amongst your senior management team; and the systems and controls your firm should have in place.

Part I, Chapter 3

COND Threshold Conditions

The minimum standards your firm must satisfy to be authorised by us.

Part I, Chapter 4

APER Statements of Principles and Code of Practice for Approved Persons

A set of principles and illustrative code of practice that describe the standards of behaviour that we expect of individuals in your firm who are performing 'controlled functions', i.e. functions that have a particular regulatory significance.

Part I, Chapter 6

FIT The Fit and Proper test for Approved Persons

This sets out the criteria which we use to assess whether an individual is suitable to perform a controlled function.

Part I, Chapter 6

GEN General provisions

This sets out some of the underlying legal framework to FSA regulation and requirements regarding statutory status disclosure.

Interpreting the Handbook: Part I, Chapter 2.3 Disclosure of status: Part I, Chapter 5

Block

Sourcebook or manual

What does it include?

Where in the Guide can I find out more?

2 Business Standards

PRU Integrated Prudential

The rules about the financial safeguards your firm needs to have in place, for example capital requirements and professional indemnity insurance (PII) requirements.

Capital: Part I, Chapter 7 PII: Part I, Chapter 8

MCOB Mortgages: Conduct of Business

If your firm does mortgage business, these are the requirements relating to how your firm must deal with customers.

Part II, Chapter 2

ICOB Insurance: Conduct of Business

If your firm does insurance mediation activities, these are the requirements relating to how your firm must deal with customers.

Part III, Chapter 3

CASS Client Assets

Our requirements on firms that hold client money. These client money rules do not apply to mortgage intermediaries. Insurance intermediaries only have to comply with CASS Chapter 5. The rest of CASS is not covered in the Guide.

Part III, Chapter 2

TC Training and Competence

The arrangements your firm will need to have in place to ensure staff are appropriately trained and competent for their role.

Mortgage intermediaries: Part II, Chapter 3
Insurance intermediaries: Part III, Chapter 4

Block

Sourcebook or manual

What does it include?

Where in the Guide can I find out more?

AUTH Authorisation

Gives guidance to your firm on: whether you need FSA authorisation; the procedures you need to follow for authorisation; and our role in your authorisation.

Part I, Chapter 4

3 Regulatory Processes

SUP Supervision

This manual sets out what we do to ensure you are complying with our requirements, including the requirements on what information you need to report to us and when.
Chapter 12 of SUP includes the arrangements for firms with appointed representatives

Variation and cancellation of Permission: Part I, Chapter 16
Reporting and notifications: Part I, Chapter 11
Audit requirements: Part I, Chapter 12
Waivers and rule modifications: Part I, Chapter 17
Appointed representatives: Part I, Chapter 9
Fees: Part I, Chapter 19

DISP Dispute resolution: Complaints

The procedures your firm will need to have in place to handle any complaints made by its customers and the rules that apply to firms subject to the Financial Ombudsman Service.

Part I, Chapter 14 and, on the FOS, Part I, Chapter 18

4 Redress

COMP Compensation

Information on the Financial Services Compensation Scheme, which is the scheme to compensate customers if the firm responsible for their loss is not able to pay the claim.

Part 1, Chapter 18

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Parts of the Handbook not covered in this Guide

MIGI 2.2.7

In addition, the Enforcement manual (ENF), Decision making manual (DEC) and Complaints against the FSA manual (COAF) contain information about the FSA's policies and procedures which will be of relevance to small mortgage and insurance intermediaries in certain circumstances. These manuals are not covered in the Guide but you can find further information about them on our website (www.fsa.gov.uk).

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MIGI 2.2.8

The following sourcebooks are unlikely to apply to small firms doing only mortgage and insurance mediation activities:

(1) ML (Money Laundering): the arrangements firms must have in place to prevent money laundering occurring; however, see Part 1, Chapter 15 for further information on what we do require of mortgage and insurance intermediaries in relation to financial crime.

(2) MAR (Market conduct): the requirements to ensure fair play in the market.

(3) COB (Conduct of Business): the requirements relating to business processes for firms carrying on regulated activities that are not covered by MCOB or ICOB.

(4) The interim prudential sourcebooks: these explain the financial resources requirements for firms carrying on FSA regulated activities other than mortgage and insurance mediation activities. The rules in these sourcebooks are interim rules that will be replaced in 2007.

(5) The specialist sourcebooks: these sourcebooks show how the Handbook applies to certain sectors, such as collective investment schemes and credit unions. If your firm is a member of a designated professional body, such as the Law Society, you will need to read the Professional Firms sourcebook (PROF).

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MIGI 2.2.9

Any word that is in italics in the Handbook is defined in the Handbook Glossary.

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MIGI 2.2.10

There is no index to the Handbook, however our website and CD-ROM contain search facilities that can be used to find particular words and phrases.

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How do you install the CD-Rom?

MIGI 2.2.11

A rule at the beginning of each chapter of the Handbook identifies those firms to which it applies. For example, PRU 9.1.1R states "This section applies to a firm with a permission to carry on insurance intermediary activity". So it is recommended that you read the application rule first before looking at the rest of the chapter, checking the terms in italics with the Handbook Glossary, where necessary.

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MIGI 2.2.12

There are tables of information at the end of each sourcebook or manual. These are numbered consistently throughout the Handbook and provide a summary of requirements as set out below.

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MIGI 2.2.13

Schedules of information at the end of each sourcebook or manual:

Schedule

Contents

1

Record keeping requirements (see Part I, Chapter 13 of the Guide)

2

Notification and reporting requirements (see Part I, Chapter 11 of the

Guide)

3

Fees (see Part I, Chapter 19 of the Guide)

4

FSA powers used in making the provisions

5

Rules where rights of action exist under Section 150 of the Act (action

for damages by a person who suffers loss as a result of a breach of the

rules)

6

Rules that we have powers to waive or modify (See Part I, Chapter 17 of the Guide)

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How do you install the CD-ROM?

MIGI 2.2.14

When you first install the CD-ROM, selecting 'Preferences' enables you to select the entire Handbook or one or more sourcebooks or manuals, so allowing you to refine your search within the Handbook. Tick each sourcebook or manual to select it for your search. You can amend your selection whenever you wish. This function does not remove any content from the CD-ROM.

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MIGI 2.3

Interpreting the Handbook

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What is the difference between rules and guidance?

MIGI 2.3.1

We have prepared a Reader's Guide to help firms generally to navigate the Handbook. You can access it via the CD-ROM (by clicking on 'Handbook') and on our website (by clicking on 'FSA Handbook' and scrolling down the page).

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MIGI 2.3.2

As explained more fully in the Reader's Guide, the provisions in the Handbook do not all have the same status. The difference between Rules and Guidance is important. The Rules in the Handbook (marked with an 'R') create binding obligations on firms. If a firm breaches such a rule, it may be subject to enforcement action and in some circumstances to an action for damages.

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MIGI 2.3.3

Guidance in the Handbook (marked with a 'G') is general Guidance given to more than one firm or individual. Guidance is not binding on a firm. As long as a firm follows Guidance that indicates possible means of compliance with a rule or recommends a course of action or arrangement, we intend to proceed on the basis that the firm has complied with the relevant Handbook rule. A firm may find that Guidance is a helpful indication of how compliance with a Rule may be achieved without devising its own approach to that Rule.

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MIGI 2.3.4

There are also Evidential Provisions. These are rules but they are not binding in their own right - they are marked with a status letter 'E' in the margin or header. You can find a more detailed explanation in the Reader's Guide.

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MIGI 3

The Principles and Senior Management
Arrangements, Systems and Controls

MIGI 3.1

Principles for businesses

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What are the Principles?

MIGI 3.1.1

The Principles apply to every firm. They are general statements of the main regulatory obligations of authorised firms. The Principles set out in simple terms the high level standards that all firms must meet. They express what is meant by the fit and proper standard set for firms. The rest of the Handbook contains more detailed requirements that expand on these standards.

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MIGI 3.1.2

If your firm contravenes one or more of the Principles, it could face enforcement action. This could, for example, result in your firm's authorisation being removed.

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Where are the relevant rules in the Handbook?

MIGI 3.1.3

The Principles are set out in the Principles for Businesses sourcebook (PRIN) and are also set out below:

The Principles

1

A firm must conduct its business with integrity.

2

A firm must conduct its business with due skill, care and diligence.

3

A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

4

A firm must maintain adequate financial resources.

5

A firm must observe proper standards of market conduct.

6

A firm must pay due regard to the interests of its customers and treat them fairly.

7

A firm must pay due regard to the information needs of its clients, and communicate information to them in a way, which is clear, fair and not misleading.

8

A firm must manage conflicts of interests fairly, both between itself and its customers and between a customer and another client.

9

A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.

10

A firm must arrange adequate protection for clients' assets when it is responsible for them.

11

A firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.

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MIGI 3.2

Senior Management Arrangements, Systems and Controls

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What are Senior management arrangements, systems and controls?

MIGI 3.2.1

Principle 3 requires firms to take reasonable care to organise and control their affairs responsibly and effectively. This Principle is amplified by our rules in the Senior Management Arrangements, Systems and Controls sourcebook (SYSC), which provides further details on what internal systems and controls we require regulated firms to have in place.

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MIGI 3.2.2

This means that a firm must (in line with SYSC 2 and SYSC 3):

(1) clearly apportion responsibilities amongst its directors and senior managers;

(2) ensure the business and affairs of the firm can be adequately monitored;

(3) allocate to the chief executive (if there is one), or a director or senior manager, the functions of dealing with the apportionment of responsibilities and overseeing the establishment and maintenance of systems and controls. This function may be allocated to one or more persons, but if your firm has a chief executive officer he must be one of them (or the only one if you appoint only one person);

(4) make and keep updated a record of these arrangements (for example, in an organisational chart); and

(5) take reasonable care to create and maintain such systems and controls as are appropriate to its business.

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MIGI 3.2.3

The rules and guidance in SYSC 3.2 cover some of the main issues that a firm is expected to consider in establishing and maintaining the systems and controls appropriate to its business. These include:

(1) the size of the firm, the scale and complexity of the business;

(2) the need to counter the risk that the firm might be used to further financial crime; and

(3) the need to establish and maintain compliance with regulatory requirements and record keeping.

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MIGI 3.2.4

The rules in SYSC are to a large extent intended to ensure good business practice by firms. Therefore, if your firm's business is well-run and well-organised you should find that your firm should satisfy much of what is required by SYSC.

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MIGI 3.2.5

We do not, therefore, expect the same kind of systems and controls in both small and large firms. The important point is that a firm's systems and controls should be fit for purpose given the size and the business of the firm. In the case of a sole trader, one person is responsible for all aspects of the firm, but we expect there to be adequate systems to allow that person to manage and monitor the firm.

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MIGI 3.2.6

The following chapters of this Guide are also relevant:

•

Threshold conditions in Authorisation - Part I, Chapter 4

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MIGI 4

Authorisation

MIGI 4.1

Introduction

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MIGI 4.1.1

Firms that want authorisation to carry out regulated activities will need to:

(1) apply to us for permission to carry on one or more regulated activities; and

(2) seek our approval for any individuals within the firm that carry on controlled functions to become approved persons (see Part I, Chapter 6).

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MIGI 4.1.2

Our assessment at the authorisation stage aims to allow only those firms and individuals satisfying the necessary criteria (including honesty, competence and financial soundness) to engage in a regulated activity. These criteria are called the threshold conditions.

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MIGI 4.1.3

The Authorisation manual (AUTH) sets out the background to the authorisation and approval processes and provides guidance on how we authorise firms. This chapter explains in general terms what we will consider in deciding whether to authorise a firm.

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MIGI 4.1.4

We have designed a new application form and a streamlined process for mortgage intermediaries applying to become authorised from 31 October 2004 and insurance intermediaries applying to become authorised from 14 January 2005. For a practical explanation of this process see our factsheet Becoming an authorised firm (on our website at www.fsa.gov.uk/mgi/factsheets/fsa_4_direct_p5.pdf). You can find the application form for authorisation at www.fsa.gov.uk/mgi/applying_for_authorisations.html.

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MIGI 4.2

The authorisation process

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MIGI 4.2.1

What are the FSA's powers during the authorisation and approval process?

We:

•authorise firms that satisfy the necessary conditions (the threshold conditions) by granting permission to carry on specified regulated activities;

•approve individuals to carry on controlled functions in firms as being fit and proper to carry out these functions;

•answer technical enquiries about whether firms require authorisation or individuals require approval;

•seek to ensure that regulated activities are not being carried out by unauthorised firms; and

•collect and maintain intelligence information about authorised firms and individuals so that, for example, we can take action if a firm's authorisation should be removed.

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How do you determine whether your firm requires permission?

MIGI 4.2.2

Before applying for authorisation you should decide whether your firm will carry on regulated activities for which it requires permission. If your firm will carry on regulated activities and you wish to seek authorisation your firm's application will need to specify the regulated activities you are applying for permission to carry on. The table below sets out the regulated activities that relate to mortgage and insurance mediation activities:

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MIGI 4.2.3

Regulated activities - mortgage and insurance mediation activities:

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The threshold conditions

MIGI 4.2.5

Before granting a permission for a firm to carry on regulated activities we must be satisfied that the firm meets (and will continue to meet) a set of criteria known as the threshold conditions. The threshold conditions are set out in Schedule 6 of the Act, and there is guidance on them in the Threshold Conditions sourcebook (COND). The threshold conditions that are relevant to mortgage and insurance intermediaries are in the table below. If your firm submits an application, you will need to provide us with certain information about your firm and the individuals who want to be approved persons so that we can assess whether your firm satisfies the threshold conditions.

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MIGI 4.2.6

The threshold conditions:

1. Location of offices

•

For mortgage intermediaries:

-

If your firm is a body corporate formed in the UK the head office and registered office must be in the UK.

-

If your firm is not a body corporate and has its head office in the UK, it must carry on business in the UK.

•

For insurance intermediaries

-

If your firm is a body corporate formed in the UK the registered office or, if it has no registered office, the head office must be in the UK.

-

If your firm is not a body corporate and has its head office in the UK, it must carry on business in the UK.

2. Close links

•

Close links between the firm and other persons must not prevent us from effectively supervising that firm.

3. Adequate resources

•

A firm must have adequate resources.

4. Suitability

•

The applicant must be fit and proper.

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MIGI 4.2.7

As part of the FSA's function of monitoring a firm's continuing satisfaction of the threshold conditions, we need to consider those persons closely linked with a firm. COND 2.3 explains what is meant by 'close links'. Similarly, the FSA needs to consider those persons who have control over firms. 'Controller' is defined in the Handbook Glossary. For that the FSA requires all firms, including sole traders, to submit certain information on their close links and individual controllers in forms HSF 1 (available at www.fsa.gov.uk/mgi/form_hsf1.pdf) and HSF 2 (available at www.fsa.gov.uk/mgi/form_hsf2.pdf) when they apply for authorisation. In addition, once they are authorised, all firms need to notify us of changes in the close links and the controllers of the firm, as well as of existing controllers of the firm changing their level of control through specified thresholds. Details of the change of control and close links requirements are in SUP 11. Further information about the notification requirements that apply to your firm is in Part I, Chapter 11.2.

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MIGI 4.2.8

Your firm is responsible for ensuring that it continues to meet the threshold conditions in order to keep its authorisation and scope of permission.

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What is meant by 'scope of permission'?

MIGI 4.2.9

Following a successful application, we will grant n applicant permission (see AUTH 3.4). The scope of your firm's permission will be set out in a Scope of Permission Notice. This will define the scope in terms of regulated activities together with any limitations and any other requirements or restrictions that may be applied. Limitations are explained in AUTH 3.6, requirements in AUTH 3.7. An example of a limitation is where a limit is placed on the number of clients a firm can deal with during an initial period until its systems are proven. An example of a requirement is the requirement that a firm does not hold client money.

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MIGI 4.2.10

Your firm is responsible for ensuring that it continues to hold the correct permission that includes the regulated activities it wishes to carry out.

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The FSA Register

MIGI 4.2.11

We maintain a public register (the FSA Register) which lists, amongst others, all FSA authorised firms, appointed representatives and approved persons. Firms and consumers may access the FSA Register to check your firm's permission, for example. When we grant an application for permission, we update the FSA Register with the activities the firm has permission to carry on. You can access the FSA Register at www.fsa.gov.uk/register/.

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Which parts of the Handbook apply?

MIGI 4.2.12

Both AUTH and the Supervision manual (SUP) are relevant. AUTH contains:

(1) an overview of the manual (AUTH 1);

(2) the Mortgage Perimeter Guidance (AUTH App 4) and the Insurance Mediation Perimeter Guidance (AUTH App 5); and

(3) an explanation of the authorisation process and the permission regime (AUTH 3).

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MIGI 4.2.13

After a permission has been granted, a firm can apply to vary or cancel that permission, including any limitation or requirement, at any time. The procedures that need to be followed are set out in full in SUP 6 and are summarised in Part I, Chapter 16 of this Guide.

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Where can you find further information?

MIGI 4.2.14

You can find factsheets that give further details on authorisation requirements for both mortgage and insurance intermediaries at www.fsa.gov.uk/mgi.

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MIGI 4.2.15

The Application Pack for mortgage and insurance intermediaries is available to view online at www.fsa.gov.uk/mgi/applying_for_authorisations.html, where you can also register to receive a personalised Application Pack for your firm. Alternatively you can order a copy of the Application Pack by telephoning 0845 6055525.

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MIGI 4.2.16

The following chapters of this Guide are also relevant:

•

FSA supervision of small firms - Part I, Chapter 10

•

Approved persons - Part I, Chapter 6

•

Variation and cancellation of permission - Part I, Chapter 16

•

Fees - Part I, Chapter 19

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MIGI 5

Disclosure of your Firm's Statutory Status

MIGI 5.1

Introduction

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MIGI 5.1.1

You need to disclose certain information about your firm when you conduct mortgage or insurance mediation activity with or for customers. This is in line with Principle 7 (Communications with clients) (see Part 1, Chapter 3), which requires you to pay due regard to the information needs of your clients and communicate information to them in a way that is clear, fair and not misleading.

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MIGI 5.1.2

This chapter covers the requirement in GEN 4 (see General Provisions (GEN)) that all authorised firms disclose their 'statutory status' in every letter (or electronic equivalent) sent to private customers. In addition, there are also specific requirements in MCOB (see Part 2, Chapter 2.2) and ICOB (see Part 3, Chapter 3.3) relating to what information mortgage and insurance intermediaries, respectively, have to disclose.

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MIGI 5.2

Statutory status disclosure

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MIGI 5.2.1

Our rules require firms to provide appropriate and adequate information about the identity of the firm's regulator, i.e. the FSA. The requirements regarding statutory status are in GEN 4.3 and GEN 4 Annex 1. These can be summarised as follows:

(1) Authorised firms must take reasonable care to ensure that every letter (or electronic equivalent) which it or its employees send to a private customer, with a view to or in connection with the firm carrying on a regulated activity, discloses that the firm is "Authorised and regulated by the Financial Services Authority".

(2) Appointed representatives are required to disclose that "[name of Appointed Representative] is an appointed representative of [Firm] which is authorised and regulated by the Financial Services Authority".

(3) You should not abbreviate the Financial Services Authority to FSA in this context.

(4) You are likely to find it convenient to include the required disclosure on your firm's letterhead.

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MIGI 5.2.2

To allow mortgage and insurance intermediaries who are not currently authorised time to make the necessary changes to their stationary, we have introduced a transitional provision which means that firms do not have to amend their stationary to include disclosure of their statutory status until 15 July 2005.

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MIGI 5.2.3

The following chapters of this Guide are also relevant:

•

Advising and selling standards (MCOB 4) - Part II, Chapter 2.2

•

Advising and selling standards (ICOB 4) - Part III, Chapter 3.3

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MIGI 6

Approved Persons

MIGI 6.1

Introduction

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MIGI 6.1.1

An individual within a firm or an appointed representative of that firm that will carry out a 'controlled function' in the firm or appointed representative must first be approved by us as fit and proper to carry out that function. Direct regulation of these individuals complements our regulation of the authorised firm itself.

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MIGI 6.1.2

Broadly, a person is likely to be performing a controlled function in a mortgage or insurance intermediary if he holds a position of significant influence in the firm. If your firm is small and has a simple organisational structure, it is likely that only those on the firm's governing body will need to be approved persons.

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MIGI 6.1.3

This chapter:

(1) helps you determine which individuals in your firm need to be approved persons (whether your firm is authorised or an appointed representative);

(2) explains what you need to do if these individuals are to be approved; and

(3) explains that there are continuing obligations on approved persons once they have been approved.

01/12/2004

MIGI 6.2

The approved persons requirements

01/12/2004

What are the controlled functions?

MIGI 6.2.1

The controlled functions are divided into 'customer functions' and 'significant influence functions'. Only the significant influence functions apply to insurance and mortgage intermediaries, so the customer functions are not covered in this Guide. There is a full list of the controlled functions in SUP 10.4.5 R to which you should refer to help you decide which controlled functions are relevant to your firm.

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What are the significant influence functions?

MIGI 6.2.2

The significant influence functions are carried on by individuals who exercise a significant influence over the conduct of a firm's affairs, such as a director or partner. You need to be an approved person to perform a significant influence function. The significant influence functions are divided into four types:

(1) governing functions (SUP 10.6);

(2) required functions (SUP 10.7);

(3) systems and controls functions (SUP 10.8); and

(4) significant management functions (SUP 10.9).

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How does the approved persons regime apply to sole traders?

MIGI 6.2.3

If you are a sole trader you will only need to be an approved person yourself if you employ other approved persons. The employees of a sole trader carrying on insurance or mortgage mediation activities will generally not be carrying on controlled functions. So, if you are a sole trader you are unlikely to need any approved persons (but see also paragraph 6.2.11 below). For further details see SUP 10.6.30 R to SUP 10.6.32 G.

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Which controlled functions are relevant to small intermediaries?

MIGI 6.2.4

As noted above, only the significant influence functions apply to insurance and mortgage intermediaries. Only the governing functions and the required functions are likely to be relevant to small mortgage and insurance intermediaries with simple organisational structures (but see paragraphs 6.2.7 to 6.2.9 of this Chapter).

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MIGI 6.2.5

Fewer controlled functions apply to firms that are 'secondary insurance intermediaries' than to 'primary insurance intermediaries'. A primary insurance intermediary is one whose main business is insurance mediation activities. A secondary intermediary is one whose main business is not insurance mediation activities and who does not carry on any regulated activities other than insurance mediation activities, for example a motor dealer that also sells car insurance.

01/12/2004

MIGI 6.2.6

The controlled functions that are likely to apply to mortgage and insurance intermediaries:

Function

Description

Who performs these controlled functions?

What types of firm do these controlled functions apply to?

Governing Functions ( SUP 10.6 )

Individuals responsible for directing the firm's affairs, such as a partner (CF4) or director (CF1) will be performing governing functions.
The appropriate governing function will depend on the type of firm. For example, the 'Partner' function would be relevant to a partnership whereas the relevant governing function for a company would be the 'Director' function.

All of those on the firm's governing body will perform these controlled functions.

Applies to mortgage intermediaries and to primary insurance intermediaries.
Does not apply to secondary insurance intermediaries.
Unlikely to apply to sole traders

Required Functions ( SUP 10.7 )

The only required function likely to be relevant to smaller insurance and mortgage intermediaries is the 'Apportionment and Oversight Function' (CF8).
The person approved to perform this function is responsible for apportioning significant responsibilities among the directors and senior managers and for ensuring that the firm establishes and maintains internal systems and controls that are appropriate for its business.

If a firm has a chief executive, he or she must be approved to carry on the apportionment and oversight function.
Otherwise, in small firms, this controlled function should generally be performed by someone on the firm's governing body.

Applies to all insurance and mortgage intermediaries.
Unlikely to apply to sole traders.

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Might other controlled functions also apply to a mortgage or insurance intermediary?

MIGI 6.2.7

Although in most cases only the controlled functions in the above table will be relevant to a small mortgage or insurance intermediary, other controlled functions could, in certain circumstances, also apply.

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MIGI 6.2.8

For example, in more complex firms, if significant managerial responsibilities are delegated to non-executive directors or individuals who are not on the firm's governing body (see SUP 10.6.2 R and SUP 10.6.3 G), these individuals must get approval from us if they are to perform:

(1) systems and controls functions (see SUP 10.8 and SYSC 3.2); or

(2) significant management functions (see SUP 10.9 and SYSC 2.1).

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MIGI 6.2.9

If you are approved to perform a governing function, for example as a director, you will not require separate approval to perform the systems and controls and significant management functions.

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Responsibility for insurance mediation

MIGI 6.2.10

An insurance intermediary (other than a sole trader) must make a director or senior manager responsible for the firm's insurance mediation activities. Typically, responsibility should be given to a person approved to perform a governing function. Where insurance mediation is not your main business activity, responsibility for insurance mediation should be allocated to the approved person performing the apportionment and oversight function (CF8). In the case of a sole trader, the sole trader him or herself will be responsible for the firm's insurance mediation activity, regardless of whether or not he or she is an approved person. The FSA Register will identify the person who has this responsibility. You should refer to PRU 9.1 for further details.

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Examples - controlled functions and firm types

MIGI 6.2.11

Examples to help you identify which controlled functions are likely to apply to your firm:

Type of firm

Relevant Controlled Functions

Points to Note

A small partnership that is a mortgage intermediary, a primary insurance intermediary, or both

•CF4 Partner Function (SUP 10.6.17 R)
•CF8 Apportionment & Oversight Function (SUP 10.7.1 R)
• Allocate responsibility for insurance mediation to one of the above (PRU 9.1.4 R)

Systems and Control Functions and Significant Management Functions are unlikely to apply.

A small company that is a mortgage intermediary, a primary insurance intermediary, or both

•CF1Director Function (SUP 10.6.4 R) CF2 Non Exec Director Function (SUP 10.6.8 R), CF3 Chief Exec Function (SUP 10.6.11 R)
•CF8 Apportionment & Oversight Function - (SUP 10.7.1 R)
• Allocate responsibility for insurance mediation to one of the above (PRU 9.1.4 R)

Systems and Control Functions and Significant Management Functions are unlikely to apply.

A sole trader that is a mortgage intermediary, an insurance intermediary, or both

• Unlikely to require any approved persons. (SUP 10.6.2 R and SUP 10.6.3 G)
• Sole trader will have responsibility for insurance mediation (PRU 9.1.5 G)

A sole trader only needs to be an approved person him or herself where he or she employs other approved persons

A small partnership that is a secondary insurance intermediary only

•CF8 - Apportionment & Oversight Function (SUP 10.7.1 R)
• Allocate responsibility for insurance mediation to the above (SUP 10.6.3A G, SUP 10.6.3B G and SUP 10.1.23R (1), SUP 10.1.23R (2))

Governing Functions, Systems and Control Functions and Significant Management Functions do not apply.

A small company that is a secondary insurance intermediary only

•CF8 - Apportionment & Oversight Function (SUP 10.7.1 R)
• Allocate responsibility for insurance mediation to the above (SUP 10.6.3A G,10.6.3B G and 10.7.4A G, 10.7.4B G)

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MIGI 6.3

Approved persons requirements for appointed representatives

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MIGI 6.3.1

Appointed representatives (ARs) are also required to have approved persons, though the requirements are different for appointed representatives than for authorised firms and are explained below. Part I, Chapter 9 covers the general requirements for mortgage and insurance intermediaries with ARs.

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MIGI 6.3.2

The approved persons requirements are different for different types of ARs.

(1)

All individuals that carry on, the governing functions within:•ARs carrying on mortgage mediation activities; and •ARs carrying on insurance mediation activities as their main business;

will need to be approved persons.

(2) Like secondary insurance intermediaries, 'secondary insurance mediation ARs' require only one approved persons, who will need to apply for and obtain approval to carry on the governing functions. A 'secondary insurance mediation AR' is one whose main business is not insurance mediation and who is limited by its principal to carrying on only insurance mediation activities and no other regulated activities.

(3) Introducer ARs are not required to have any approved persons (see Part I, paragraph 9.2.2 for an explanation of introducer ARs).

01/12/2004

MIGI 6.3.3

Examples to help you identify which controlled functions are likely to apply to your firm's ARs:

Type of AR

Potentially Relevant Controlled Functions

A small partnership that is a mortgage mediation AR, a primary insurance mediation AR, or both

•CF4 Partner Function (SUP 10.6.17 R)

A small company that is a mortgage mediation AR, a primary insurance mediation AR, or both

•CF1 Director Function (SUP 10.6.4 R)
•CF2 Non Exec Director Function (SUP 10.6.8 R)
•CF3 Chief Exec Function (SUP 10.6.11 R)

A sole trader that is a mortgage mediation AR, a primary insurance mediation AR, or both

• Unlikely to require any approved persons (but see SUP 10.6.2 R and SUP 10.6.3 G)

A sole trader that is a secondary insurance mediation AR only

• Unlikely to require any approved persons (but see SUP 10.6.2 R and SUP 10.6.3 G)

A small partnership that is a secondary insurance mediation AR only

•CF4 Partner Function (SUP 10.6.17 R)
•Only one approved person required

A small company that is a secondary insurance mediation AR only

•CF1 Director Function (SUP 10.6.4 R)
•CF2 Non Exec Director Function (SUP 10.6.8 R),
•CF3 Chief Exec Function (SUP 10.6.11 R)
•Only one approved person required

An introducer AR introducing mortgage business, insurance business, or both

•Not required to have any approved persons

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MIGI 6.4

Becoming an approved person

01/12/2004

What is the test for approval to become an approved person?

MIGI 6.4.1

We will only approve an individual to perform a controlled function if we are satisfied that person is a fit and proper person to perform that controlled function. We will look at a number of factors including an individual's honesty, integrity, reputation, competence, capability, and financial standing. Further details can be found in The Fit and Proper Person test for Approved Persons ( FIT).

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Applying to become an approved person

MIGI 6.4.2

Who should make the application?
Your firm is required to ensure that no-one performs a controlled function until we have granted approval. Applications must be submitted by, or on behalf of, the firm itself, not by the individual who wishes to become an approved person. The principal firm of an AR is responsible for submitting applications for the approval of anyone in the AR who is required to be an approved person.

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MIGI 6.4.3

When should your firm apply?

(1) Your firm will not be authorised until individual candidates have been approved to perform the relevant controlled functions.

(2) You will need to obtain our approval before anyone joining your firm can perform a controlled function, even if they were approved elsewhere. In most circumstances, you will also need our approval before an approved person moves from one controlled function to another within your firm. If an approved person ceases to perform a controlled function for your firm, you must notify us. Further details can be found in SUP 10.

01/12/2004

MIGI 6.4.4

Where can you find the relevant form? Where your firm is applying for authorisation as a mortgage or insurance intermediary by NM or NGI, respectively, it should apply for approval for any approved persons at the same time using Form HSF 2 (available at www.fsa.gov.uk/mgi/form_hsf2.pdf). We have not yet specified which forms mortgage and insurance intermediary should use for approved persons applications and notifications after regulation begins. You should refer to our website for guidance if and when you need to make one of these submissions.

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MIGI 6.4.5

How long will an application take?
We must respond to approved persons applications within three months. In practice, the majority of applications are processed much sooner than this.

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MIGI 6.5

Principles and Code of Practice for approved persons

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MIGI 6.5.1

An approved person must remain fit and proper and comply with the Statements of Principle and Code of Practice for Approved Persons (APER). The Statements of Principle for Approved Persons (APER 2) require, for example, that an approved person must act with due skill, care and diligence in carrying out its controlled function. The Code of Practice (APER 3 and APER 4) provides guidance on the factors which in our opinion should be taken into account when assessing whether an approved person has complied with the Statements of Principle. There are further details in APER.

01/12/2004

MIGI 6.5.2

The following chapters of this Guide are also relevant:

•

Authorisation - Part I, Chapter 4

•

Appointed representatives - Part I, Chapter 9

01/12/2004

MIGI 7

Financial resources requirements

MIGI 7.1

Introduction

01/12/2004

MIGI 7.1.1

Mortgage and insurance intermediaries are required by our rules:

(1) to hold a minimum amount of capital (capital resources requirement); and

(2) to ensure that they are able to meet their liabilities as they fall due (solvency requirement).

01/12/2004

MIGI 7.1.2

This chapter summarises these requirements, which are in PRU 9.3 (see the Integrated Prudential Sourcebook (PRU)).

01/12/2004

MIGI 7.1.3

By setting minimum financial resources standards, we aim to reduce the possibility of a shortfall of funds and to provide a cushion against disruption if the firm ceases to trade. There is a greater risk to consumers, and a greater adverse impact on market confidence, if a firm holds client money or client title documents (such as bearer instruments) and fails. For this reason, the capital resources requirements distinguish between mortgage and insurance intermediaries holding client money or title documents and those that do not.

01/12/2004

MIGI 7.1.4

The financial resources requirements are minimum requirements. In line with FSA Principles 3 and 4 (see the table at Part I, paragraph 3.1.3), your firm's senior management is responsible for maintaining adequate financial resources at all times. So, the onus is on senior management to ensure that your firm has such additional financial resources over and above our requirements as they consider necessary.

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MIGI 7.2

The capital resources requirements

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What are the capital resources requirements?

MIGI 7.2.1

The capital resources requirements are the same for mortgage and insurance intermediaries. They are set out in PRU 9.3.

01/12/2004

MIGI 7.2.2

The table below summarises the capital resources requirements. Generally, the larger your annual income from regulated activities (i.e. insurance mediation activities, mortgage mediation activities, or both) the more capital you have to hold.

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MIGI 7.2.3

Firms that hold client money or client title documents are required to hold more capital than those that do not. In addition, higher minimum resources requirements apply to insurance intermediaries that hold client money relating to retail customers in a non-statutory trust. There is more information on the rules that apply to insurance intermediaries when handling client money in Part III, Chapter 2 (statutory and non-statutory trusts are explained at 2.3.2 to 2.3.10).

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MIGI 7.2.4

There are no specific rules governing how mortgage intermediaries must handle client money but they must comply with the FSA's overarching Principles (see Part I, Chapter 3) and other generally applicable rules.

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MIGI 7.2.5

Summary of the capital resources requirements (in PRU 9.3.30 R) for a firm carrying on mortgage mediation activities, insurance mediation activities, or both:

Type of firm

Capital resources requirement

Mortgage intermediary, insurance intermediary, or both, that does not hold client money.

£5,000 or, if higher, 2.5% of the firm's annual income from regulated activities.

Mortgage intermediary that holds client money

£10,000 or, if higher, 5% of the firm's annual income from regulated activities.

Insurance intermediary that holds client money in a statutory trust account
Insurance intermediary that holds client money relating to transactions with commercial customers in a non-statutory trust account

£10,000 or, if higher, 5% of the firm's annual income from regulated activities.

Insurance intermediary that holds client money relating to transactions with retail customers in a non-statutory trust account

£50,000 or, if higher, 5% or the firm's annual income from regulated activities

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What counts towards your firm's annual income?

MIGI 7.2.6

When calculating your firm's capital resources requirement (see the table at paragraph 7.2.5 above), the only income that counts towards its annual income is that from its insurance mediation activities, mortgage mediation activities, or both, according to your most recent annual financial statement. You should not include income from any other sources in the calculation. So, for example, a motor dealer that is authorised to carry on insurance mediation activities would not need to include its income from selling cars, only from selling insurance.

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MIGI 7.2.7

Annual income includes all brokerages, fees, commissions or other related income earned by your firm. It includes commissions and other earnings which your firm pays out of its own income to other intermediaries involved in a transaction. Your firm's income does not, however, include any amounts due to the product provider, which you have collected on its behalf. If your firm has appointed representatives you should include in your income calculation the share of your income that you have paid out to them or that they have retained for their activities for which you have accepted responsibility as principal.

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MIGI 7.2.8

Any commission income your firm receives from a third party premium finance firm need not be included in your capital resources requirement calculation.

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MIGI 7.2.9

For full details of what we mean by annual income, see PRU 9.3.42 R to PRU 9.3.50 R.

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What counts towards your firm's capital resources?

MIGI 7.2.10

PRU 9.3.51 R to PRU 9.3.57 R sets out what you can include when calculating your firm's capital resources. This differs depending on whether your firm is a company, a sole trader, a partnership or a limited liability partnership.

01/12/2004

MIGI 7.2.11

Companies
If your firm is a UK-incorporated company, the items eligible for inclusion in its capital resources are:

(1) fully paid up ordinary shares in the company;

(2) preference shares in the company;

(3) audited reserves (i.e. retained earnings, as verified by your firm's auditors);

(4) interim net profits (i.e. profits made after the date of your firm's last annual financial statement, as verified by your firm's auditors);

(5) revaluation reserves (i.e. reserves for any reassessment of the value of your firm's capital assets compared to their original cost);

(6) general provisions (i.e. provisions held against unidentified potential losses - though we would not normally expect a mortgage or insurance intermediary to have any); and

(7) subordinated loans (i.e. loans that rank below other, unsubordinated, debt in the queue for repayment if the borrower has to be wound up. Subordinated loans can only be counted as part of your firm's capital if they satisfy the conditions in PRU 9.3.56 R-57. Because of the need for standard terms, there is an example of a subordinated loan form that meets these conditions on our website at www.fsa.gov.uk/mgi/jigsaw.html. Scroll down to the 'Integrated Prudential sourcebook' section and click on the links to the example loan agreements.

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MIGI 7.2.12

Sole traders
If your firm is a sole trader, your capital resources are the net balances (according to the sole trader's most recent annual financial statement) on your capital account and current account, plus any eligible subordinated loans.

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MIGI 7.2.13

Partnerships
If your firm is a partnership, your capital resources will normally consist of the net balances, (according to the partnership's most recent annual financial statement), on:

(1) the partners' capital account (i.e. the account into which the partners' capital contributions are paid); and

(2) the partners' current accounts;

plus any eligible subordinated loans.

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MIGI 7.2.14

Limited liability partnerships
If your firm is a limited liability partnership (LLP), your capital resources will normally consist of the net balances (according to the LLP's most recent annual financial statement) on the members' capital account and the members' reserves, plus any eligible subordinated loans.

01/12/2004

MIGI 7.2.15

Subordinated loans and redeemable preference shares
There is a limit on the amount of subordinated loans and redeemable preference shares that your firm may include in its capital resources if it holds client money or client title documents. For details of this restriction, see PRU 9.3.57 R.

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Deductions from capital resources

MIGI 7.2.16

To work out how much capital your firm has you must deduct the following items from the total of the above capital resources items:

(1) intangible assets (e.g. brand names, trademarks and, from 14 January 2008, goodwill);

(2) interim net losses (i.e. losses made after the date of your firm's last annual financial statement);

(3) investments in your own shares (if your firm is a company); and

(4) excess of drawings over profits (if your firm is a sole trader or partnership).

01/12/2004

What if my firm has a capital resources or solvency shortfall?

MIGI 7.2.17

If, after making the deductions set out above, your firm has a shortfall in meeting either its solvency or its capital resources requirement, there may be other options open to it to make good the shortfall (PRU 9.3.54 R) as shown in the table at paragraph 7.2.18.

01/12/2004

MIGI 7.2.18

Options available to your firm if it has a shortfall:

Type of firm

Options in the case of a shortfall

A sole trader or a partnership that does not hold client money or client title documents

Personal assets of the sole trader or of a partner may be used to make up the shortfall. This is provided that the personal assets in question are not needed to meet other liabilities arising from the sole trader or partner's personal activities or other business activities not regulated by us. Personal assets may include, for example, a car or a house.

A sole trader or a partnership that does hold client money or client title documents

Personal assets may not be used to make up a shortfall. Your firm will need to increase its capital resources.

A company, whether or not it holds client money or client title documents

Your firm will need to increase its capital resources.

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MIGI 7.2.19

The following chapters of this Guide are also relevant:

•

The Principles - Part I, Chapter 3.1

•

Client money - Part III, Chapter 2

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MIGI 7.3

Summary flowchart and worked examples

01/12/2004

Summary flowchart: does your firm meet its capital resources requirement?

MIGI 7.3.1

The flowchart below takes you through the questions you need to consider to work out whether or not your firm meets its capital resources requirement. In addition, on the next few pages you will find some worked examples to help you.

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MIGI 7.3.2

Does your firm meet its capital resources requirement?

01/12/2004

Financial resources requirements: worked examples

MIGI 7.3.3

Example 1: Limited company not holding client money or client title documents

Company A has annual mortgage mediation income of £20,000, according to its last financial statements. Company A does not hold client money.
Company A's capital resources requirement is the higher of £5,000 and 2.5% of its annual mortgage mediation income, i.e. the higher of:
• £5,000; and
• 2.5% of £20,000 = £500
So company A must have capital resources of at least £5,000. Company A's capital resources = share capital + audited reserves + subordinated loan = £1,000 + £10,000 + £5,000 = £16,000.
So Company A meets its capital resources requirement.
Note: from 14 January 2008, Company A must deduct the goodwill on its balance sheet, so from that date, its capital resources will be £14,000, based on this balance sheet and assuming that the subordinated loan has not matured.

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MIGI 7.3.4

Example 2: Partnership holding client money

Partnership B, which holds client money in a statutory trust, has annual insurance mediation income of £210,000, according to its last annual financial statement.
Partnership B's capital resources requirement is the higher of £10,000 and 5% of its annual insurance mediation income, i.e. the higher of:
•£10,000; and
• 5% of £210,000 = £10,500.
So Partnership B must have capital resources of at least £10,500.
Partnership B's capital resources = current account + capital account
= £20,000 + £1,000 = £21,000.
So Partnership B meets its capital resources requirement.

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MIGI 7.3.5

Example 3: Sole trader not holding client money or other client title documents

Sole trader C has annual mortgage mediation income of £40,000, according to its last financial statements. Sole trader C does not hold client money. In addition, Sole Trader C has personal assets of £30,000 and personal liabilities of £1,000.
Sole trader C's capital resources requirement is the higher of £5,000 and 2.5% of its annual mortgage mediation income, i.e. the higher of:
•£5,000; and
• 2.5% of £40,000 = £1,000.
So Sole Trader C must have capital resources of at least £5,000.
Sole trader C's capital resources = capital account + current account =
£1,000 + £1,000 = £2,000.
So Sole Trader C has a shortfall of £3,000 in meeting its capital resources requirement.
However, Sole Trader C has net personal assets of £29,000, so £3,000 of these may be used to make up this £2,000 shortfall.

01/12/2004

MIGI 8

Professional indemnity insurance ('PII')

MIGI 8.1

Introduction

01/12/2004

MIGI 8.1.1

PII helps to ensure that a firm has the resources to meet valid claims from customers and others even when the firm could not afford to do so out of its own resources. For example, a firm may agree to advise a customer but do so in a way that results in the customer acquiring a financial product that is not suitable. Most authorised insurance and mortgage intermediaries are required to maintain PII cover that satisfies the requirements in PRU 9.2. If you do not have compliant PII cover you risk breaching these rules and threshold condition 4, which is the requirement to maintain adequate resources.

01/12/2004

MIGI 8.1.2

This chapter explains:

(1) which mortgage and insurance intermediaries need to hold PII;

(2) the level of cover a PII policy must provide;

(3) the level of excess a PII policy must have; and

(4) the risks a PII policy must cover.

There are some worked examples at the end of this Chapter to help you calculate what level of cover and what level of excess your firm's PII policy is required to have.

01/12/2004

MIGI 8.1.3

The PII requirements for mortgage intermediaries and insurance intermediaries are different. If your firm carries on both regulated activities then it will need to comply with the PII requirements for each one. However, this does not necessarily mean that you will need to purchase two or more separate policies. You could, for example, purchase one policy that covers all your activities, which contains separate limits of indemnity and excesses for each activity.

01/12/2004

MIGI 8.1.4

The requirements are minimum requirements. In line with Principles 3 and 4 (see the table at Part I, paragraph 3.1.3), your firm's senior management is responsible for maintaining adequate financial resources at all times. So, the onus will be on your senior management to ensure that the firm has such additional financial resources over and above our requirements as they consider are necessary.

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MIGI 8.2

The requirement to hold PII

01/12/2004

Which mortgage and insurance intermediaries need to hold PII?

MIGI 8.2.1

Mortgage intermediaries must hold PII cover unless:

(1) the intermediary has net tangible assets of more than £1 million; or

(2) the intermediary has a 'comparable guarantee' from an FSA authorised firm with net tangible assets of £1 million.

01/12/2004

MIGI 8.2.2

Insurance intermediaries must hold PII cover unless the intermediary has a 'comparable guarantee' from an FSA authorised firm with net tangible assets of £10 million.

01/12/2004

MIGI 8.2.3

Broadly, a 'comparable guarantee' is an agreement by the guarantor to cover any claims that would be covered by a PII policy that satisfies our rules. You should be aware that, if your firm is a member of a group of companies that contains an FSA authorised firm, any comparable guarantee must come from that firm. For full details about whether your firm does or does not need to hold PII see PRU 9.2.1 R.

01/12/2004

MIGI 8.3

What must your firm's PII policy cover?

01/12/2004

Mortgage mediation: what minimum level of cover must your firm's policy provide?

MIGI 8.3.1

Our rules require a firm's PII policy to provide specified minimum levels of cover. In relation to the firm's mortgage mediation activities, the minimum level is either:

(1) cover per claim equal to £100,000 or, if higher, 10% of annual income; or

(2) aggregate cover equal to £500,000 or, if higher, 10% of annual income;

in each case subject to an upper limit of £1m cover.

01/12/2004

Insurance mediation: what minimum level of cover must your firm's policy provide?

MIGI 8.3.2

In relation to the firm's insurance mediation activities, the policy must provide cover of at least €1m per claim. In addition, the policy must provide a minimum aggregate level of cover of €1.5m or, if higher, 10% of annual income, subject to an upper limit of £30m cover.

01/12/2004

MIGI 8.3.3

Insurance intermediaries that hold a policy denominated in sterling will satisfy these limits if they are at least equivalent to our euro requirements based on the exchange rate when the policy is agreed. We do not expect firms to build in a margin or adjust cover in response to exchange rate movements throughout the duration of the policy. Further information about the minimum levels of cover are in PRU 9.2.13 R to PRU 9.2.15 R.

01/12/2004

What counts towards your firm's annual income?

MIGI 8.3.4

Your firm must calculate the minimum levels of cover required of its PII policy. For this, the only income that counts towards your firm's annual income is that from its insurance mediation activities, mortgage mediation activities, or both, according to its most recent annual financial statement. Income from any other source should not be included in the calculation. So, for example, a motor dealer that is authorised to carry on insurance mediation activities would not need to include its income from selling cars, only its income from selling insurance.

01/12/2004

MIGI 8.3.5

Annual income includes all brokerages, fees, commissions or other related income earned by your firm. It includes commissions and other earnings which your firm pays out of its own income to other intermediaries involved in a transaction. Your firm's income does not, however, include any amounts due to the product provider, which you have collected on its behalf. If your firm has appointed representatives you should include in your income calculation the share of your income that you have paid out to them or that they have retained for their activities for which you have accepted responsibility as principal.

01/12/2004

MIGI 8.3.6

Any commission income your firm receives from a third party premium finance firm need not be included in the calculation of your firm's minimum levels of cover.

01/12/2004

MIGI 8.3.7

For full details of what we mean by annual income, see PRU 9.3.42 R to PRU 9.3.50 R.

01/12/2004

What level of excess should your firm's PII policy have?

MIGI 8.3.8

Our rules also specify the maximum levels of excess on a firm's PII policy (although, as explained below, if the firm holds additional capital it may increase the level of excess). The excess limits are the same for policies covering mortgage mediation activities and insurance mediation activities. However, firms that hold client money or client title documents (such as bearer instruments) are permitted a higher maximum excess than those that do not (because they will be required by our rules to hold more capital). The details are set out in the table below. More information on the rules that apply to insurance intermediaries when handling client money are in Part II, Chapter 2. There are no specific rules governing how mortgage intermediaries must handle client money, but they must comply with our overarching Principles (see Part I, Chapter 3) and other generally applicable rules.

01/12/2004

MIGI 8.3.9

Maximum permitted excess for different types of firm:

Type of firm

Maximum permitted excess

Mortgage intermediary, insurance intermediary, or both that does not hold client money or client title documents

£2,500; or, if higher, 1.5% of annual income.

Mortgage intermediary, insurance intermediary, or both that does hold client money or client title documents.

£5,000 or, if higher, 3% of annual income.

01/12/2004

MIGI 8.3.10

A firm can hold an excess that is higher than the limits in the table above provided it holds more capital than the minimum required by our rules (see Part I, Chapter 7). So you can negotiate how much risk to transfer to an insurance company and how much to retain, but you will have to hold additional own funds in line with the tables in PRU 9.2.21 R and PRU 9.2.22 R.

01/12/2004

What risks must a PII policy cover?

MIGI 8.3.11

Your firm's PII policy must provide cover for claims that relate to the firm's insurance mediation activities, mortgage mediation activities, or both. The policy should cover not only claims arising as a result of the conduct of the firm itself, but also that of its employees and appointed representatives. Employees include (but are not limited to) partners, directors, individuals that are self-employed or operating under a contract hire agreement and any other individual that is employed in connection with the business.

01/12/2004

MIGI 8.3.12

Your firm must have cover for:

(1) awards determined by the Financial Ombudsman Service (FOS) (for more details about the FOS see Part I, Chapter 18.2); and

(2) legal defence costs.

01/12/2004

MIGI 8.3.13

The required cover need not all be under the same PII policy. So legal defence costs, for example, could be covered either under your PII policy or under a separate insurance policy.

01/12/2004

MIGI 8.3.14

Our rules specify that your firm's policy must cover all claims that relate to business carried out from the date the firm is authorised by the FSA.

01/12/2004

MIGI 8.4

Obtaining PII cover

01/12/2004

Who can you get PII cover from?

MIGI 8.4.1

Broadly, you can obtain a PII policy from:

(1) any insurance company authorised to underwrite professional indemnity insurance policies in the European Economic Area (EEA); or

(2) a non-EEA insurance company authorised in a Zone A country, the Channel Islands, Gibraltar, Bermuda or the Isle of Man.

(For further details see PRU 9.2.7 R and PRU 9.2.9 G. 'Zone A country' is defined in the Handbook Glossary.)

01/12/2004

PII policies providing cover for more than one firm

MIGI 8.4.2

Our rules allow firms to benefit from a policy that covers more than one firm, provided that:

(1) the minimum levels of cover of the policy are calculated on the basis of the combined annual income of all the firms named on the policy; and

(2) each firm named on the policy has the benefit of the required minimum levels of cover.

01/12/2004

MIGI 8.4.3

However, the maximum level of excess permitted must be calculated on the basis of the annual income of each firm individually, not the combined income of all the firms covered by the policy. So if the excess on the policy exceeds the maximum permitted for a firm named on the policy it will not meet our requirements. In such a case it may be open to a firm to satisfy the alternative requirement of holding additional capital as explained at paragraph 8.3.10 above. Example 2 below shows how to calculate the required minimum levels of cover and the maximum permitted level of excess for a PII policy that covers more than one firm.

01/12/2004

MIGI 8.4.4

As well as these requirements, if you decide to participate in such an arrangement you should ensure that the PII policy meets your needs. This will include assessing that the combined levels of cover are appropriate. Also, you should ensure that you are a named party to the PII policy, to avoid any doubt about whether or not you are covered by the policy.

01/12/2004

MIGI 8.4.5

The following chapters of this Guide are also relevant:

(2) Client money - Part III, Chapter 2

01/12/2004

MIGI 8.5

PII requirements: worked examples

01/12/2004

MIGI 8.5.1

Example 1: insurance intermediary that does not hold client money
An insurance intermediary that does not hold client money, with annual income of £50,000 receives a quote for a PII policy that has a general excess of £5,000.
Minimum level of cover: €1,000,000 for a single claim AND €1,500,000 for aggregate claims.
The policy contains the following limits: £725,000 for a single claim AND £1,250,000 for aggregate claims.
Assuming an exchange rate of 1.4 when the terms of the policy are agreed, these levels of cover would be sufficient as they convert to €1,015,000 for a single claim and €1,750,000 for aggregate claims.
Excess levels: The maximum permitted excess level is £2,500 (as this is higher than 1.5% of annual income), so the excess on the policy is too high and the policy would not meet our requirements. Using the table in PRU 9.2.21 R shows that the firm would need to hold additional capital of £5,000. The extract from the table below shows how this is calculated.

01/12/2004

MIGI 8.5.2

Example 2: two insurance intermediaries that both hold client money
Two unconnected insurance intermediaries, who both hold client money, wish to be covered by the same policy. Firm A has annual income of £1,250,000 and Firm B has annual income of £14,750,000. The policy quote has a general excess of £50,000.
Minimum level of cover required: €1,000,000 for a single claim AND £1,600,000 for aggregate claims. (The policy must cover single claims for €1,000,000 and it must cover aggregate claims for 10% of combined annual income (i.e. £1.6m), as this is greater than €1,500,000 (approx £1,100,000).)
Excess levels: As the £50,000 excess level is less than 3% of the annual income of firm B, the excess is acceptable for firm B. For firm A, the maximum permitted excess level is £37,500 (3% of £1,250,000). So the excess on the policy is too high for firm A and the policy would not meet our requirements. Using the table in PRU 9.2.22 R shows that firm A would need to additional capital of £16,000. The extract from the table below shows how this is calculated.

01/12/2004

MIGI 8.5.3

Example 3: a mortgage intermediary that does not hold client money
A mortgage intermediary, that does not handle client money, has annual income of £3,000,000, receives a quote for a PII policy that has a general excess of £2,500.
Minimum level of cover required: £300,000 for a single claim OR £500,000 for aggregate claims (The policy must either cover single claims for 10% of annual income (i.e. £300,000) as this is higher than £100,000 or it must cover aggregate claims for £500,000, as this is higher than 10% of annual income.)
Excess levels: As the £2,500 excess level is less than the maximum permitted (1.5% of £3 million), the firm would not need to hold additional capital.

01/12/2004

MIGI 9

Appointed representatives

MIGI 9.1

Introduction

01/12/2004

MIGI 9.1.1

This Chapter provides a brief explanation of how appointed representatives (ARs) carrying on mortgage mediation activities, insurance mediation activities, or both, are regulated. It will be helpful to firms that are, or are considering becoming, ARs. Such firms may also find it useful to read the factsheet Becoming an appointed representative. Most of the relevant rules are in SUP 12.

01/12/2004

MIGI 9.2

Appointed representatives

01/12/2004

What is an appointed representative?

MIGI 9.2.1

An AR is a person (this includes a firm) who carries on regulated activities and who, in doing so, acts under the responsibility of an authorised firm. There must be an express agreement to this effect and the authorised firm must accept responsibility in writing for what the AR does in the course of carrying on regulated activities. On this basis the AR does not need to be authorised by us. Our rules do not apply directly to an AR but everything the AR does (or omits to do) in carrying on the business for which the authorised firm has accepted responsibility is deemed to have been done (or omitted) by the authorised firm. An authorised firm must ensure that the prescribed details about each of its ARs appear on the FSA Register.

01/12/2004

MIGI 9.2.2

If an AR's insurance mediation activities are limited to only introducing and distributing non-real time financial promotions (see Part II, Chapter 2.1 and Part III, Chapter 3.2 for more on financial promotions) it can become an Introducer AR (IAR). For example, if a vet gives out information on pet insurance to customers and passes on the details of interested customers to an insurance intermediary, the intermediary might want to consider appointing the vet as its IAR. There is a more detailed explanation of when we consider introducing to be a regulated activity in the Insurance Mediation Perimeter Guidance at AUTH App 5.6.5 G to AUTH App 5.6.9 G (Exclusion: article 72C (Provision of information on an incidental basis)) and AUTH App 5.6.17 G to AUTH App 5.6.21 G (Exclusion from article 25(2) for introducing). Introducing and distributing non-real time financial promotions in relation to regulated mortgage contracts is unlikely to be a regulated activity (see AUTH App 4.5.10 G to AUTH App 4.5.19 G (Exclusion: article 25A(2) arrangements and introducing)), so a firm will not need to become an IAR because it carries on these activities.

01/12/2004

MIGI 9.2.3

An AR is not permitted to be authorised to conduct regulated activities and exempt from the need for authorisation at the same time. So, if your firm is already directly authorised by us, then it cannot become an AR unless it first cancels its permission.

01/12/2004

What are a principal's responsibilities?

MIGI 9.2.4

A principal is an authorised firm that has a written contract with one or more ARs. A principal can be a product provider, intermediary or network. A principal can restrict its ARs completely, or in part, from acting on behalf of other principals.

01/12/2004

MIGI 9.2.5

A principal is responsible for ensuring that the business of its ARs complies with the relevant regulatory requirements. At all times the principal must have adequate systems and controls to ensure that its ARs are fully compliant and that they are able to deliver the same level of protection to clients as if clients had dealt with the principal directly (SUP 12.1.3 G). A principal must make certain assessments (relating, for example, to the solvency and suitability of the AR) before it appoints an AR and on an ongoing basis (see SUP 12.4.1 R to SUP 12.4.5 G). Less strict requirements apply where a principal appoints an IAR (see SUP 12.4.6 R to SUP 12.4.8 G). Additional assessments are required where a principal appoints an AR to carry on insurance mediation activities (see SUP 12.4.8A R to SUP 12.4.10 G).

01/12/2004

What regulated activities can an AR carry on?

MIGI 9.2.6

As an AR, your firm can only carry on regulated activities that fall within the scope of your principal's permissions. Moreover, there are additional limitations as to what regulated activities an AR can undertake as shown in the following table (see also SUP 12.4.1 G (1)).

01/12/2004

MIGI 9.2.7

Regulated activities an AR can carry on:

Regulated activity

General insurance contract

Pure protection contract

Regulated mortgage

Arranging

Yes

Advising

Yes

Dealing as agent

Yes

N/A

Assisting in the administration and performance

Yes

N/A

01/12/2004

MIGI 9.2.8

An AR can provide a different service for different contracts, for instance it could advise on some products but simply arrange deals with regard to others.

01/12/2004

MIGI 9.2.9

An AR must enter into a written contractual agreement with its principal. This should cover arrangements to enable both parties to fulfil their regulatory duties and any other commercial arrangements (see SUP 12.5.5 R). The precise terms of the commercial arrangements a principal makes with its ARs are a matter for agreement between them.

01/12/2004

What if there is more than one principal?

MIGI 9.2.10

An AR may wish to have more than one principal. We impose limits on the number of principals an AR may have as shown in the table below (see also SUP 12.5.6A R to SUP 12.5.6CG

01/12/2004

MIGI 9.2.11

Limits on the number of principals an AR can have:

Type of AR

Limit on number of principals?

AR carrying on mortgage mediation activities in relation to regulated mortgage contracts

Up to two principals - one for standard mortgages and one for lifetime mortgages

AR carrying on insurance mediation activities in relation to non-investment insurance contracts

No limits

IAR (insurance mediation activities)

No limits

01/12/2004

MIGI 9.2.12

If your firm agrees with its principal that it may act for other principals, all the principals must enter into a "multiple principal agreement" (SUP 12.4.5B R). Your firm cannot act on behalf of another principal until this agreement is in place. The multiple principal agreement must set out the relationship between the principals of your firm and the agreement must address the matters set out at SUP 12.4.5C. A multiple principal agreement is not required for IARs.

01/12/2004

Can an AR hold client money?

MIGI 9.2.13

ARs are not restricted from holding client money that relates to their mortgage mediation activities. There are, however, rules governing the handling of client money by ARs carrying on insurance mediation activities (see the Client Assets Sourcebook (CASS), in particular CASS 5.2.3 R and CASS 5.5.5 R for the rules that relate to ARs holding money as agent and CASS 5.5.19 R to CASS 5.5.25 G for the rules that relate to ARs holding client money).

01/12/2004

Does an AR need to have approved persons?

MIGI 9.2.14

ARs, other than IARs, will usually need to have approved persons. Details of these requirements are in Part I, Chapter 6, and in particular paragraphs 6.3.1 to 6.3.3.

01/12/2004

MIGI 9.2.15

Like authorised firms, ARs are required to disclose their statutory status in certain letters (and their electronic equivalent) with private customers. This is explained in Part I, Chapter 5.

01/12/2004

MIGI 9.2.16

The following chapters of thus Guide are also relevant:

Approved Persons - Part I, Chapter 6.3

Statutory status disclosure - Part I, Chapter 5

01/12/2004

MIGI 10

FSA supervision of small firms

MIGI 10.1

Introduction

01/12/2004

MIGI 10.1.1

This chapter explains how we will supervise small mortgage and insurance intermediaries.

01/12/2004

MIGI 10.2

Framework

01/12/2004

What is the FSA's approach?

MIGI 10.2.1

We first described our approach to regulation in A New Regulator for the New Millennium, which we published in January 2000. We have continued to explain our progress and any new developments in our approach to regulation in a number of subsequent progress reports.

01/12/2004

MIGI 10.2.2

We have four statutory objectives which enable us to prioritise our efforts and focus on the most significant risks we face as a financial services regulator.

01/12/2004

MIGI 10.2.3

The FSA's four statutory objectives are:

1.

Maintaining confidence in the financial system;

2.

Promoting public understanding of the financial system;

3.

Securing the appropriate degree of protection for consumers; and

4.

Reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.

01/12/2004

MIGI 10.2.4

In setting our regulatory priorities, we assess the risks posed to our objectives by the firms we regulate. We quantify the risks posed by individual firms, taking into account the effect of factors such as prevailing market risk, product risk, and most importantly, customer risk. All risks identified are measured in terms of their severity if they occur (their impact) and the probability of their occurrence. The outcomes of this process are used in deciding how to supervise each authorised firm.

01/12/2004

How does the FSA monitor small firms?

MIGI 10.2.5

A small firm with a basic business model, a local retail client base, low turnover and no recent history of regulatory problems is likely to be low impact and its regulatory relationship with us will reflect this. These firms will not have a dedicated FSA relationship manager but will be able to deal with us online or via a dedicated contact centre. In the case of small insurance and mortgage intermediaries, details of these services will be available on our website before regulation begins.

01/12/2004

MIGI 10.2.6

An important part of the monitoring of low impact firms is the receipt and monitoring of data returns and other notifications. Firms will send us regulatory data required under the Handbook (e.g. the RMAR - see Part 1, Chapter 11) that we monitor to identify potential breaches of regulatory requirements. We are unlikely to carry out routine visits to these firms. Instead, we may make visits in response to risks identified from regulatory data or other information sources. In addition, the firm or its business may be covered from time to time by our sector-wide projects (thematic work) to monitor compliance standards and investigate cross-industry risks.

01/12/2004

What is the FSA's supervision strategy for small firms?

MIGI 10.2.7

We have developed a supervision strategy for small firms which includes the elements above. Its primary focus is on mitigating the risk posed to our objectives by financial and compliance failures by a substantial number of low impact firms within a sector. Although individually small firms are low impact, collectively the impact of these firms may be much greater.

01/12/2004

What is the FSA's supervision stategy for small firms?

MIGI 10.2.8

The overall strategy includes:

(1) gathering information on all firms;

(2) focusing resources on thematic work and where appropriate reacting to any issues that arise;

(3) helping newly authorised firms to raise their own standards; and

(4) helping good firms to maintain standards.

01/12/2004

MIGI 10.2.9

Where a firm is non-compliant, we will take enforcement action where we consider that is appropriate. Where firms show a lack of awareness of regulations we will try to help these firms to help themselves, for example, by providing regular guidance updates on our website and by means of a 'good practice guide'. We will also encourage these firms to increase their level of training and to make use of trade associations, product providers, auditors and consultants.

01/12/2004

MIGI 10.2.10

Where a firm is compliant, we will try to help it maintain high standards. Such a firm provides a benchmark of good practice that can be spread more widely within the total population of firms.

01/12/2004

MIGI 10.2.11

The following chapters of this Guide are also relevant:

01/12/2004

MIGI 11

Reporting and Notifications

MIGI 11.1

Reporting requirements

01/12/2004

MIGI 11.1.1

We require insurance and mortgage intermediaries to report certain information to us on a regular basis. Our rules relating to reporting requirements for mortgage and insurance intermediaries are in SUP 16.

01/12/2004

Why do we require periodic information from firms?

MIGI 11.1.2

We need to receive timely information from firms that carry on mortgage and insurance mediation activities so that we can effectively supervise them. The information we collect helps us to monitor firms' adherence to the threshold conditions (see Part I, paragraph 4.2.5) and specific rule requirements, and allows us to spot trends in individual firms and in the market as a whole. It also helps us to identify firms on which we should target supervisory attention.

01/12/2004

How is information submitted?

MIGI 11.1.3

The main reporting requirements for mortgage and insurance intermediaries are known as the Retail Mediation Activities Return (RMAR), which must be submitted electronically, using either:

(1) internet-based submission, where users will log in to the FSA's secure website area and complete forms online; or

(2) direct data submission, where a firm's system will connect directly to the FSA's system over a secure internet link.

The information requirements in the RMAR differ depending on firm type and the regulated activities carried on by a firm. This is to ensure that we only ask for information that is relevant to the supervision of each firm.

01/12/2004

What information do you need to submit in the RMAR?

MIGI 11.1.4

01/12/2004

When and how often do I have to submit the RMAR?

MIGI 11.1.5

RMAR reporting will not commence until 1 April 2005, even though firms will become authorised before this date. From 1 April 2005, we will require the RMAR to be submitted twice each year within 30 business days of the end of the relevant reporting period. The reporting periods are:

(1) the six months immediately following a firm's accounting reference date; and

(2) the six months immediately preceding a firm's accounting reference date.

Larger firms, defined as those with annual income of more than £5m in the previous year, will be required to submit the financial information sections every three months.

01/12/2004

MIGI 11.1.6

There is a transitional arrangement in place for smaller firms (defined as those with annual income of less than £60,000). For the first year this arrangement exempts these firms from the requirement to submit financial information at their financial year mid-point (making the financial reporting requirements annual rather than half yearly).

01/12/2004

MIGI 11.1.7

The reporting requirements are in SUP 16.7.76 R to SUP 16.7.81 G. SUP 16 Ann 18A contains a proforma of the RMAR and SUP 16 Ann 18B contains guidance notes to help you complete it.

01/12/2004

MIGI 11.1.8

The transitional rules for reporting are in SUP TR 12 BR to SUP TR 12 FR.

01/12/2004

Other reporting requirements

MIGI 11.1.9

Your firm is also required to confirm each year, within 30 business days of its accounting reference date, that we have the correct 'standing data' for the firm (16.10.4R). A firm's standing data is the information in SUP 16 Annex 16 and includes, for example, the name and registered office of the firm, the regulated activities for which the firm has permission, the name and address of the firm's auditor (if applicable) and its accounting reference date. Your firm should check its standing data through the FSA website as explained at SUP 16.10.4 R to SUP 16.10.6. This requirement is in addition to the notification requirements set out in Part I, paragraph 11.2 below.

01/12/2004

MIGI 11.1.10

We also collect data (known as product sales data or 'PSD') on individual transactions in mortgages and pure protection products. However, this data is submitted by the product providers rather than the intermediary firms (see SUP 16.11 for details). This information enables us to:

(1) identify which intermediaries (and product providers) are selling particular types of product (so helping us target both our firm specific and our thematic work);

(2) identify business being undertaken by particular intermediary firms; and

(3) identify trends in different marketplaces, in connection with particular types of products and in connection with individual firms.

01/12/2004

MIGI 11.2

Notifications

01/12/2004

MIGI 11.2.1

In addition to regular periodic reporting, your firm must make notifications in certain circumstances. The main circumstances are set out below.

01/12/2004

Matters having a serious regulatory impact

MIGI 11.2.2

Your firm must let us know immediately when it becomes aware, or has information that reasonably suggests, that any of the following has occurred, may have occurred or may occur in the foreseeable future:

(1) if your firm fails to satisfy one or more of the threshold conditions (there is more information on these in Part I, Chapter 4);

(2) any matter that could have a significant adverse impact on your firm's reputation;

(3) any matter that could affect your firm's ability to continue to provide adequate services to customers and which could result in serious detriment to a customer of the firm; or

(4) any matter in respect of your firm that could result in serious financial consequences to the financial system or to other firms(see SUP 15.3.1 R (4)).

01/12/2004

Communications with us in line with Principle 11

MIGI 11.2.3

As set out in SUP 15.3.8 G , compliance with Principle 11 includes, but is not limited to, giving us notice of:

1. Any proposed restructuring, reorganisation or business expansion, which could have a significant impact on your firm's risk profile or resources, including but not limited to:

Starting to provide a new product or service (you may need to apply for a variation of permission).

Ceasing to undertake a regulated or ancillary activity, or significantly reducing the scope of such activities. (You may need to apply for a variation of permission).

Entering into, or significantly changing, a material outsourcing arrangement.

Any change in your firm's prudential category.

2. Any significant failure of your firm's systems or controls (including those reported to your firm by your auditor - if applicable).

3. Any action that your firm proposes to take which would result in a material change in its capital adequacy or solvency including, but not limited to:

Any action that would result in a material change in your firm's financial resources or financial resources requirement.

A material change resulting from the payment of a special or unusual dividend or the repayment of share capital or a subordinated loan

4. Significant breaches of rules or other requirements under the Act, e.g. professional indemnity insurance cover being refused or cancelled.

01/12/2004

Core information where advance notice is required

MIGI 11.2.4

You need to give us advance notice if there is going to be a change to the following pieces of information:

Notification

Supervision sourcebook (SUP) reference

A change in your firm's name

SUP 15.5.1 R

A change in address (to the principal place of business)

SUP 15.5.4 R

A change to the legal status of your firm
(You may be required to send us a new application for Part IV permission.)

SUP 15.5.5 R

A change to supervision by an overseas regulator

SUP 15.5.7 R

01/12/2004

General notification requirements

MIGI 11.2.5

There are also the following general notification requirements:

Breaches of rules and other requirements in or under the Act

SUP 15.3.11 R

Civil, criminal or disciplinary proceedings against a firm

SUP 15.3.15 R

Fraud, errors and other irregularities

SUP 15.3.17 R

Insolvency, bankruptcy and winding up

SUP 15.3.21 R

Change of accounting reference date

SUP 16.3.17 R

Change of controller

SUP 11.3

Approved persons: employees who start performing controlled functions, those who change or add controlled functions or those who cease performing controlled functions.
(There are standard forms to use called 'Approved Persons regime forms' - see Part I, paragraph 6.4.4.)

SUP 10.11

Change of auditor (appointed under FSA rules)

SUP 3.3

01/12/2004

When should you notify us?

MIGI 11.2.6

If a notification rule requires you to send a notification within a specified period, you must send it in time for us to receive it before the end of the period. If the end of the period falls on a weekend or bank holiday, you must make sure it is received no later than the first business day after the end of the period. If a notification rule does not require notification within a specified period, then your firm should act reasonably in deciding when to notify us.

01/12/2004

How do you notify us?

MIGI 11.2.7

You must send a notification, preferably electronically, stating your firm's FSA Reference Number (unless stated otherwise in the notification rule). Further details of how you can do this will be available nearer the time.

01/12/2004

MIGI 11.2.8

In some cases, where the matter is urgent and significant, you will need to telephone the FSA Contact Centre (see Part I, paragraph 20.1.11 for contact details).

01/12/2004

MIGI 11.2.9

The relevant Handbook section is SUP 15.

01/12/2004

Other considerations

MIGI 11.2.10

You must take reasonable steps to ensure that all information that your firm sends to us is accurate, truthful, complete and not misleading.

01/12/2004

MIGI 11.2.11

The following chapters of this Guide are also relevant:

Authorisation - Part I, Chapter 4

Complaints Reporting to the FSA - Part I, Chapter 14.3

01/12/2004

MIGI 12

Auditors

MIGI 12.1

Introduction

01/12/2004

MIGI 12.1.1

We require mortgage and insurance intermediaries to appoint an auditor in certain circumstances. Mortgage and insurance intermediaries may also be required to appoint an auditor under the Companies Act 1985 ('CA 85') or other statutory provisions.

01/12/2004

MIGI 12.1.2

This chapter will help you determine whether your firm is caught by our requirements or the CA 85 requirements to appoint an auditor and, if so, what FSA rules consequently apply to your firm and to your firm's auditor. However, if you are obliged to appoint an auditor under CA 85 or other statutory provisions you will also need to refer to the relevant legislation for details of what other, non-FSA requirements apply to you.

01/12/2004

MIGI 12.2

FSA and Companies Act 1985 requirements to appoint an auditor

01/12/2004

FSA requirements - mortgage intermediaries

MIGI 12.2.1

Firms whose only regulated activities are mortgage mediation activities are not required to appoint an auditor under our rules (SUP 3.1) (but see paragraph 12.2.4 below).

01/12/2004

FSA requirements - insurance intermediaries

MIGI 12.2.2

Under our rules, firms that carry on insurance mediation activities, whether or not they also carry on mortgage mediation activities, are exempt under SUP 3.1 from the requirement to appoint an auditor if:

(1) they do not hold client money or client title documents (such as bearer instruments); or

(2) where they hold client money, they hold it under a statutory trust, and the balance of the client money bank account does not exceed £30,000 at any time during a financial year (see also CASS 5.3).

01/12/2004

MIGI 12.2.3

All other insurance intermediaries that hold client money or client title documents are required appoint an auditor. The auditor has to provide a report to the firm, for each relevant period, on the firm's client assets (and this includes its handling of client money) in accordance with SUP 3.10. There is more information on the rules that apply to insurance intermediaries when handling client money in Part II, Chapter 2.

01/12/2004

CA 85 requirements - mortgage and insurance intermediaries

MIGI 12.2.4

Mortgage and insurance intermediaries that are limited companies or limited liability partnerships and are authorised by us are required to appoint an auditor under the CA 85.

01/12/2004

Other FSA requirements relating to auditors

MIGI 12.2.5

A firm that has an auditor (whether appointed under the CA 85, other statutory provisions or our rules) will need to consider whether to notify us under Principle 11 (see Part I, Chapter 3) in the following circumstances:

(1) if the firm expects or knows its auditor will qualify his report on the audited annual financial statements or add an explanatory paragraph (SUP 3.7); or

(2) if the firm receives a written communication from its auditors commenting on internal controls (SUP 3.7).

01/12/2004

Summary table

MIGI 12.2.6

The table below summarises when your firm will be required to appoint an auditor, either under our rules or CA 85, and the Handbook rules which will consequently apply to the firm and the auditor. The table assumes that your firm does not have to appoint an auditor for any other reason.

01/12/2004

MIGI 12.2.7

Summary of audit requirements:

AUTHORISED FIRM TYPE

Requirement to appoint auditor under:

FSA auditor rules applicable to:

Companies Act 1985

FSA Rules (SUP 3.1)

Firm

Auditor

Insurance intermediaries

Incorporated under CA 85 and:

Para 12.2.3 (above) applies

Yes

SUP 3.1 - 3.7

SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.10

Para 12.2.2 (above) applies

Yes

No

SUP 3.1, SUP 3.2, SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8

Not incorporated and:

Para 12.2.3 (above) applies

No

Yes

SUP 3.1 - 3.7

SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.10

Para 12.2.2 (above) applies

No

None

Mortgage intermediaries

Incorporated under CA 85:

Yes

No

SUP 3.1, SUP 3.2, SUP 3.7

SUP 3.1, SUP 3.2, SUP 3.8

Not incorporated (and have no auditor)

No

None

01/12/2004

MIGI 12.2.8

The following chapters of this Guide are also relevant:

Client money - Part III, Chapter 2

01/12/2004

MIGI 13

Record Keeping

MIGI 13.1

Introduction

01/12/2004

MIGI 13.1.1

This chapter summarises our rules relating to the general requirement that firms maintain records of certain matters. This chapter also explains where you can find out more about the specific record keeping requirements that apply to mortgage and insurance intermediaries.

01/12/2004

MIGI 13.2

General Requirement

01/12/2004

MIGI 13.2.1

Your firm must take reasonable care to make and keep adequate records of matters and dealings (including accounting records) which are the subject of requirements and standards under the regulatory system. The records should be capable of being reproduced on paper in English (SYSC 3.2.20 R).

01/12/2004

MIGI 13.2.2

Your firm should have appropriate systems and controls to fulfil its regulatory and statutory obligations on the adequacy, access, periods of retention and security of records. The general principle is that records should be kept for as long as is relevant for the purposes for which they are made. Records can be kept on computer disc so long as they are capable of being reproduced on paper.

01/12/2004

MIGI 13.2.3

You will find detailed record keeping requirements throughout the Handbook. Schedule 1 to each of the sourcebooks and manuals is an overall summary of these requirements. For example, Schedule 1 to ICOB and Schedule 1 to MCOB summarise the record keeping requirements in those sourcebooks.

01/12/2004

MIGI 14

Complaints

MIGI 14.1

Introduction

01/12/2004

MIGI 14.1.1

This chapter explains how your firm is required by our rules to handle complaints from your customers. It also explains that our rules require mortgage and insurance intermediaries to submit regular complaints reports to us so that we can monitor firms' regulatory compliance. The rules are in Dispute Resolution: Complaints (DISP).

01/12/2004

MIGI 14.2

How to handle a complaint

01/12/2004

MIGI 14.2.1

There are many reasons why customers complain to firm. A complaint is any written or oral expression of dissatisfaction, and may arise in a wide variety of circumstances.

01/12/2004

MIGI 14.2.2

If your firm receives a complaint from, or on behalf of, an eligible complainant about the way in which your firm has conducted its business, our rules require you to follow certain procedures. Broadly, an eligible complainant is a private individual or a business with an annual turnover of less than £1 million. There is a full list of eligible complainants in DISP 2.4.3 R. ( DISP 1.1.7 R explains how to notify us if your firm does not conduct business with eligible complainants.) Eligible complainants can refer a complaint to the Financial Ombudsman Service (FOS) if they are unhappy with your firm's final response or if the firm is not in a position to give a final response after 8 weeks. (See Part I, Chapter 18 for more on the FOS.)

01/12/2004

MIGI 14.2.3

Your firm is required to have in place and operate appropriate and effective procedures for handling any expression of dissatisfaction from an eligible complainant, whether oral or written, and whether or not you think the complaint is justified. The general requirements to have internal complaints handling procedures are set out in DISP 1.2. The procedures must be written down and must cover:

(1) receiving complaints;

(2) responding to complaints;

(3) the appropriate investigation of complaints; and

(4) notifying complainants of their right to go to the FOS where relevant.

DISP 1.2.16 R explains who in the firm should deal with complaints.

01/12/2004

MIGI 14.2.4

Insurance intermediaries are also required to have in place and operate effective procedures for registering and responding to any expression of dissatisfaction received from, on or behalf of, someone who is not an eligible complainant and which relates to insurance mediation activity carried on by the firm (for example a complaint from a large corporate customer) (DISP 1.2.1A R). Note, however, that this procedure only needs to cover complaints about how your firm carries on insurance mediation activities. It does not, for example, need to cover complaints arising out of contractual disputes your firm may have about an agency agreement with an insurance company.

01/12/2004

Where and when should you publicise your procedures?

MIGI 14.2.5

The requirements are as follows (see also DISP 1.2.9 R to DISP 1.2.15 G):

(1) You have to display a notice stating that the FOS covers your firm. The notice should be displayed in all of your branches or offices to which your customers have access.

(2) At or immediately after the point of sale, your firm has to refer your customers in writing to the availability of your internal complaint handling procedures - for example, in your initial disclosure documents, status disclosure or policy summary.

(3) If you receive a complaint (unless it is resolved by the close of business the next day) or a request for a copy of the procedures, you have to supply a copy of your complaints handling procedures to the complainant.

(4) All of your employees need to be aware of the procedures.

01/12/2004

How quickly do you need to deal with a complaint?

MIGI 14.2.6

You will want to resolve complaints quickly and efficiently, though the length of time that it takes you to investigate a complaint may vary. Under our rules, there are fixed periods, summarised in the flowchart below, within which you will have to inform your customer of your progress (full details of the time limits for dealing with complaints are in DISP 1.4):

01/12/2004

MIGI 14.2.7

Complaints handling flowchart:

01/12/2004

Where are the relevant Handbook sections?

MIGI 14.2.8

The complaints handling procedures are explained fully in chapter 1 of DISP which includes:

(1) the general and additional requirements: DISP 1.2;

(2) additional requirements for internal complaint handling procedures: DISP 1.3; and

(3) the time limits for dealing with a complaint: DISP 1.4.

01/12/2004

Complaints about matters that occurred prior to the commencement of regulation

MIGI 14.2.9

The applicability of the complaints handling rules and the FOS is not limited to complaints that relate to the activities of your firm after NM or NGI. The complaints handling rules and the FOS also apply where the activity to which the complaint relates occurred before NM (in relation to mortgage mediation activities) or NGI (in relation to insurance mediation activities), provided that:

(1) the complaint is made after NM or NGI (whichever is relevant);

(2) the firm concerned was a member of the Mortgage Code Compliance Board (MCCB) prior to NM or the General Insurance Standards Council (GISC) prior to NGI at the time the activity occurred; and

(3) the complaint is made by a complainant who is eligible under the relevant legislation (this will vary depending on whether the firm was a member of MCCB or GISC - the legislation is available at www.legislation.hmso.gov.uk/si/si2004/20040454.htm).

01/12/2004

Record keeping requirements

MIGI 14.2.10

You are required to keep a record for a minimum of three years from when you receive a complaint from an eligible complainant . This is so that you meet our requirements and are able to co-operate with FOS if they ask for information about a complaint that is referred to them. The record should include the following information:

(1) the name of the complainant;

(2) the substance of the complaint;

(3) copies of correspondence between your firm and the complainant; and

(4) details of any redress offered by your firm.

01/12/2004

MIGI 14.3

Complaints reporting to the FSA

01/12/2004

MIGI 14.3.1

Under our rules, you need to send in a complaints report unless your firm only conducts business with clients who are not eligible complainants (which will be unlikely for small mortgage and insurance intermediaries) (DISP 1.1.7 R). Reports must be submitted electronically (see DISP 1.5.10 R to DISP 1.5.10A R), must cover the information in DISP 1.5.4 R and be in the format set out in DISP 1 Annex 1R

01/12/2004

When and how often should I submit complaints reports?

MIGI 14.3.2

You are required to send a report to us twice each year within 30 business days of the end of the relevant reporting period. The reporting periods are:

(1) the six months immediately following a firm's accounting reference date; and

(2) the six months immediately preceding a firm's accounting reference date.

01/12/2004

MIGI 14.3.3

There are transitional arrangements governing when mortgage and insurance intermediaries must submit their first and second complaints reports if they become authorised before 1 April 2005. The transitional provisions, which relate to DISP 1.5.4 R, can be found in the table at DISP TP 1.

01/12/2004

How do I submit a report?

MIGI 14.3.4

Reports must be submitted electronically. The 'About E-Regulation' section in the 'Industry Help' area of our website (www.fsa.gov.uk) explains how you report to us electronically.

01/12/2004

MIGI 14.3.5

The following chapters of this Guide are also relevant:

Reporting Requirements - Part I, Chapter 11.1

The FCSC and The FOS - Part I, Chapter 18

01/12/2004

MIGI 15

Financial Crime

MIGI 15.1

Introduction

01/12/2004

MIGI 15.1.1

One of our statutory objectives under the Act is to reduce financial crime. This chapter explains how our rules aimed at reducing financial crime apply to mortgage and insurance intermediaries.

01/12/2004

MIGI 15.2

Financial Crime

01/12/2004

What action does your firm have to take in relation to financial crime?

MIGI 15.2.1

Our money laundering rules, which are set out in the Money Laundering sourcebook (ML), do not apply to mortgage intermediaries or to insurance intermediaries carrying on insurance mediation activities relating to general insurance and pure protection contracts. However, your firm is still required to maintain appropriate safeguards against financial crime and to comply with the general legal requirements relating to money laundering. Under the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) (see Part I, Chapter 3) an FSA authorised firm must ensure that it maintains adequate systems and controls to counter the risk of that firm being used to further financial crime.

01/12/2004

MIGI 15.2.2

The following chapters of this Guide are also relevant:

•

Senior Management Arrangements, Systems and Controls - Part I, Chapter 3.2

01/12/2004

MIGI 16

Variation and cancellation of permission

MIGI 16.1

Variation of Permission (VOP)

01/12/2004

MIGI 16.1.1

A firm must apply to us to vary its permission if it wants to do one or more of the following:

(1) carry on extra regulated activities;

(2) reduce the number of regulated activities it is permitted to undertake;

(3) vary the description of its regulated activities (including the removal or variation of any limitations); or

(4) add, remove or vary any requirement.

01/12/2004

MIGI 16.1.2

Our rules on variation of permission are in SUP 6. There is a flowchart at SUP 6 Annex 2 that summarises the procedures for applying for a VOP. Limitations and requirements are covered in AUTH 3.6 and AUTH 3.7 and are also described in Part I, Chapter 4 of this Guide. Our powers are described in SUP 7.

01/12/2004

MIGI 16.1.3

If your firm intends to expand its business you should assess, taking appropriate professional advice where necessary, whether you will need to apply to us for a variation of permission before making any changes. If your firm is planning on varying its permission substantially, you should discuss these plans with us as early as possible.

01/12/2004

MIGI 16.1.4

If your firm applies for a VOP to add new regulated activities, you should bear in mind that it is required to begin the activity within 12 months of being granted a variation of permission. We have the power to alter a firm's permission if it does not adhere to this rule, or if it ceases to provide a permitted regulated activity for a period of 12 months or more (regardless of when the permission was granted).

01/12/2004

MIGI 16.1.5

If your firm is applying for a VOP that will require a change in the controlled functions of its approved persons, you should submit the necessary form at the same time as your application for the VOP. For more information on approved persons and where to find the relevant forms see Part I, Chapter 6 of the Guide.

01/12/2004

MIGI 16.2

Cancellation of Permission

01/12/2004

MIGI 16.2.1

If your firm wishes to cease carrying on all regulated activities for which your firm holds permission, you may apply for a cancellation of permission. You may do this whilst still carrying out business so long as your firm has formal plans to cease all regulated activities in the short term (normally 6 months from the date of application for the cancellation of permission). Our rules on cancellation of permission are in SUP 6. There is a flowchart at SUP 6 Annex 3 that summarises the procedures for applying for a cancellation of permission.

01/12/2004

MIGI 17

Waivers and rule modifications

MIGI 17.1

Introduction

01/12/2004

MIGI 17.1.1

We may, on the application or with the consent of your firm, direct that certain rules:

(1) are not to apply to your firm; or

(2) are to apply to your firm with specified modifications.

01/12/2004

MIGI 17.1.2

This chapter explains the circumstances in which we will grant a waiver or rule modification and how you should apply for one.

01/12/2004

MIGI 17.2

Waivers and rule modifications

01/12/2004

What is the FSA's general approach to waivers and rule modifications?

MIGI 17.2.1

We can only grant a waiver where we are satisfied that:

(1) compliance by your firm with the rule would be unduly burdensome or would not achieve the purpose for which the rule was made; and

(2) the waiver would not result in undue risk to persons whose interests the rules are intended to protect.

01/12/2004

MIGI 17.2.2

SUP 8 sets out our approach to waivers. Not all rules can be waived (see SUP 8.2.6 G to SUP 8.2.8 G). Schedule 6 to each sourcebook or manual identifies the rules in that sourcebook that can and cannot be waived.

01/12/2004

MIGI 17.2.3

Unless there are exceptional circumstances, we normally publish details of waivers we have given. You can view the details of published waivers through the FSA Register. Before you do so, you will need to know the name of the firm. You can also view waivers in a consolidated list by rule. We update the list monthly.

01/12/2004

MIGI 17.2.4

If you consider that the conditions in paragraphs 17.2.1 and 17.2.2 above are satisfied and you wish to apply for a waiver, please get in touch with the Contact Centre (see Part I, paragraph 20.1.11 for contact details) for further information about how to apply.

01/12/2004

What is waiver by consent?

MIGI 17.2.5

In exceptional circumstances where we consider that a waiver should apply to a number of firms, we may tell the firms concerned that the waiver is available. These firms will not have to make a formal application but will have to give their consent for the waiver to apply to them.

01/12/2004

MIGI 18

The FSCS and the FOS

MIGI 18.1

The Financial Services Compensation Scheme (FSCS)

01/12/2004

What is the FSCS?

MIGI 18.1.1

We are required by the Act to establish a scheme for compensating consumers when authorised firms are unable, or are unlikely to be able, to satisfy claims against them. The body established to operate and administer the compensation scheme is the Financial Services Compensation Scheme Ltd (FSCS). The relevant FSA rules are in the Compensation sourcebook (COMP).

01/12/2004

What is the scope of the FSCS?

MIGI 18.1.2

The application of the FSCS will be extended to include mortgage and insurance intermediaries. We have not yet finalised all our rules on how the FSCS will apply to mortgage and insurance intermediaries. We are currently consulting on the detailed funding arrangements for the FSCS in respect of mortgage and insurance intermediaries in CP 04/4 So, we plan to update this Chapter later in the year when we have finalised our rules.

01/12/2004

MIGI 18.1.3

If an authorised mortgage or insurance intermediary fails and it is unable to meet its obligations to its customers, then eligible claimants can seek compensation from the FSCS for their losses. The protection provided would broadly cover two types of situation where a firm has failed. The first covers the risk that the intermediary is holding a premium that it has not passed to the insurer or money from a paid claim is being held. The second situation covers mis-selling or bad advice given by the intermediary.

01/12/2004

MIGI 18.1.4

For a claimant to receive compensation from the FSCS in relation to insurance or mortgage mediation carried on by an authorised firm, three criteria must be satisfied:

(1) the claimant must be eligible (broadly speaking, cover is limited to private individuals and small businesses) (COMP 4.2);

(2) the claim must be against an authorised firm that is unable, or likely to be unable, to satisfy claims against it (broadly speaking, insolvent); and

(3) it must be a 'protected' claim, that is to say that the claim must be in respect of a non-investment insurance contract or regulated mortgage contract (COMP 5.2.1 R).

01/12/2004

What levels of compensation are provided by the FSCS?

MIGI 18.1.5

The compensation limit for insurance mediation where the intermediary fails is 100% of the first £2,000 and 90% of the remainder and 100% for compulsory classes of insurance (COMP 10.2.3 R). (There are further details about what is compulsory insurance in the Handbook Glossary under the definition 'liability subject to compulsory insurance'.)

01/12/2004

MIGI 18.1.6

The compensation limit for mortgage mediation is 100% of the first £30,000 and 90% of the next £20,000, making the maximum compensation £48,000 (COMP 10.2.3 R).

01/12/2004

What is the contribution structure of FSCS?

MIGI 18.1.7

The FSCS is funded by contributions from authorised firms. So, in addition to their FSA fees (see Part I, Chapter 19) authorised mortgage and insurance intermediaries will need to pay annual contributions to the FSCS. We are currently consulting on the detailed funding arrangements for the FSCS for mortgage and insurance intermediaries in CP 04/4.

01/12/2004

MIGI 18.2

The Financial Ombudsman Scheme (FOS)

01/12/2004

What is the FOS?

MIGI 18.2.1

The FOS has been set up to resolve disputes between consumers and firms. Its decision making is independent of the FSA. The FOS provides a mechanism for resolving disputes which is a simple, informal and accessible alternative to the courts. FOS's compulsory jurisdiction covers complaints against authorised firms concerning their regulated activities and certain other specified financial services activities. It is provided free of charge to complainants. FOS's decisions are based on what is 'fair and reasonable' and are binding on firms if a complainant accepts them. The rules relating to the FOS are in DISP. Further information about the FOS can also be found on their website at www.financial-ombudsman.org.uk.

01/12/2004

What is the scope of the FOS?

MIGI 18.2.2

The compulsory jurisdiction of the FOS will be extended to include mortgage and insurance intermediaries. Firms will be required to contribute to the funding of the FOS. We have not yet finalised all our rules on how the FOS will apply to mortgage and insurance intermediaries. We are currently consulting on the detailed funding arrangements for the FOS in CP 04/4. So, we plan to update this Chapter later in the year when we have finalised our rules.

01/12/2004

MIGI 18.2.3

The following chapters of this Guide are also relevant:

Complaints - Part I, Chapter 14

01/12/2004

MIGI 19

Fees

MIGI 19.1

Introduction

01/12/2004

MIGI 19.1.1

We are an independent, non-governmental body, which is funded by levies on the financial services industry. We receive no funds from the public purse. Broadly, we use three main types of fee to finance our activities:

(1) Application fees contribute to the cost of processing applications for authorisation or recognition, or requests for significant variations to the permission of firms that are already authorised.

(2) Periodic fees are paid annually, to provide most of the funding we require to undertake our statutory functions.

(3) Special Project fees. These are unlikely to apply to small firms, so they are not covered in this Guide.

01/12/2004

MIGI 19.1.2

This chapter explains more about application fees and periodic fees and how we propose that they will apply to your firm.

01/12/2004

MIGI 19.2

FSA fees

01/12/2004

How do FSA fees work?

MIGI 19.2.1

We have a number of 'fee-blocks', which group together firms carrying out similar regulated activities, reflecting the fact that they pose similar risks to our objectives. A firm may fall into one, or more than one, fee-block, depending on the scope of its permission.

01/12/2004

What are application fees?

MIGI 19.2.2

Any firm applying to us for authorisation has to pay an application fee. We also charge an application fee where currently authorised firms seek significant variations to their permission. Application fees must be paid whether or not the application is successful and are not refundable. This reflects the fact that we commit resources to applications when they are received, so all applications have a cost to us regardless of their outcome.

01/12/2004

MIGI 19.2.3

Until the date we begin to regulate mortgage and insurance intermediaries in October 2004 (NM) and January 2005 (NGI) respectively, application fees for firms wishing to carry out mortgage and insurance mediation activities are tiered depending upon a firm's income level. Discounts apply depending on when, and how, a firm applies for authorisation. We will consult in 2004 on how application fees for these activities will be set after NM and NGI.

01/12/2004

MIGI 19.2.4

An authorised firm may seek to significantly vary the scope of its permission, and that variation, if granted, may cause it to fall into new fee-blocks it was not allocated to before the variation. In these cases, a variation of permission fee is payable, charged at 50% of the equivalent application fee that a new firm falling into the new fee-block(s) would pay.

01/12/2004

MIGI 19.2.5

Application fee rates for mortgage and insurance intermediaries up to NM and NGI are in AUTH 4 Annex 2.

01/12/2004

What are periodic fees?

MIGI 19.2.6

We use our periodic (annual) fees to recover the costs we expect to incur in undertaking our functions. From our budget we derive each year our Annual Funding Requirement (AFR). This total figure is split into an AFR for each fee-block, using our internal costing system. Typically, the permission granted to a firm advising on or arranging mortgages would cause the firm to be allocated to fee-block A.18. A firm carrying out general insurance mediation would typically be allocated to the A.19 fee-block. If a firm is carrying out both types of activities it would be allocated to both fee blocks, and pay a fee in each.

01/12/2004

MIGI 19.2.7

The scale on which a firm undertakes activities is measured by each fee-block's 'tariff-base'. The tariff-base is a 'size of business' measure. We have stated that the tariff-base for the A.18 and A.19 fee-blocks will be based on the income a firm earns from carrying out mortgage mediation and insurance mediation activities, respectively. A further explanation of what counts towards the income of a firm conducting mortgage mediation activities, or insurance mediation activities, or both, can be found in AUTH 4 Annex 2 Note 3.

01/12/2004

MIGI 19.2.8

By applying the tariff-base to its business a firm obtains its own 'individual tariff data'. The periodic fees for the firm can then be calculated by combining the firm's individual tariff data with the fee tariff rates for each fee-block it falls into. So, for each fee-block that a firm falls into, the fee calculation is:
Periodic fee = (tariff base data for firm) applied to (fee-block tariff rates)

01/12/2004

MIGI 19.2.9

The fee tariff rates for each fee-block are in the SUP 20 Annexes. We will consult on tariff rates for the 2004/05 'stub' period for the A.18 and A.19 fee-blocks in the second quarter of 2004.

01/12/2004

Where are the relevant Handbook sections?

MIGI 19.2.10

The main sections of the FSA Handbook relating to fees that small firms should be aware of are:

(1) general provisions regarding fees: GEN 3 ;

(2) application fee rules: and current rates per fee-block: AUTH 4 and associated Annexes;

(3) periodic fee rules, current rates per fee-block and fee-block definitions: SUP 20 and associated Annexes; and

(4) permission variations: SUP 6 (SUP 6.3.22 R).

01/12/2004

MIGI 19.2.11

Firms should also be aware that in January of each year we produce a consultation paper indicating the proposed fee rates for the coming financial year (1 April - 31 March). The FSA Board makes the final fee rates for the financial year in May (with the exception of application fee rates, which are made in March, before the beginning of the financial year). Small firms should expect to receive a periodic fee invoice in June/July each year.

01/12/2004

MIGI 19.2.12

In June each year our Consolidated Policy Statement on our fee raising arrangements is updated. This document provides further detail on our fee policy, and you will find it under the Publications section of our website

01/12/2004

MIGI 19.2.13

The following chapters of the Guide are also relevant:

Authorisation - Part I, Chapter 4

Variation of Permission - Part I, Chapter 16.1

01/12/2004

MIGI 20

Further information

MIGI 20.1

FSA contacts

01/12/2004

Handbook and publications

MIGI 20.1.1

FSA Website: www.fsa.gov.uk

(A) Mortgage and general insurance home page: www.fsa.gov.uk/mgi

(B) Mortgage and general insurance enquiries: by email at fsaenquiries@mgi.fsa.gov.uk or by telephone 0845 6055525

(C) Handbook orders: online at www.tso.co.uk/bookshop

(D) Handbook subscriptions and amendments helpline: 0845 608 2372

(E) Technical queries on the CD-ROM: fsa@techindex.co.uk or 0134 440 4457

(F) Other comments on the CD-ROM contents: cdhelp@fsa.gov.uk

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MIGI 20.1.2

The FSA Website is an essential resource for firms and provides fully updated information and help. Clicking on 'Firms' and then 'Handbook' gives you access to the full FSA Handbook (though, as explained in Part I, paras 2.2.2 to 2.2.4, not all our rules that apply to mortgage and insurance intermediaries have yet been incorporated into the Handbook). You will also be able to gain access to the Reader's Guide, Tables of Derivation and Destination for FSA Rules, Forms and Pance Notes. Our website will also include information on periodic Fees for mortgage and insurance intermediaries once these have been published.

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MIGI 20.1.3

Clicking on 'Industry Help' gives you access to information on a range of topics that are relevant to firms. The Act may also be accessed from our website, under Industry Help.

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MIGI 20.1.4

Clicking on 'What We Do' shows an explanation of the functions of different parts of the FSA.

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MIGI 20.1.5

The FSA Register is also on the website (www.fsa.gov.uk/register). It lists the permission of every FSA authorised firm and the controlled functions allocated to every registered individual.

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MIGI 20.1.6

There is also an area of our website specifically dedicated to mortgage and general insurance regulation -www.fsa.gov.uk/mgi. This includes a series of factsheets, answers to frequently asked questions, details of mortgage and general insurance publications, information about the authorisation process, details of workshops, seminars and other training events, plus other information that you might find useful.

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MIGI 20.1.7

FSA Industry Training Department: see our website for further details www.fsa.gov.uk/industry-training
FSA Events and Conferences: Contact the FSA Events team by phone on 020 7066 0098, by fax on 020 7676 0063 or email at events@fsa.gov.uk

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FSA Authorisation and Approved persons

MIGI 20.1.8

If your firm is considering whether to apply for FSA authorisation for the first time you should refer to the Application Pack and Guidance. You can view this online at www.fsa.gov.uk/mgi/applying_for_authorisations.html where you can also register to receive a personalised Application Pack for your firm. Alternatively you can order a copy of the Application Pack by telephoning 0845 6055525.

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MIGI 20.1.9

Any queries about approved persons should be directed to the Contact Centre by email at fsaenquiries@mgi.fsa.gov.uk or by telephoning 0845 6055525.

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FSA Fees

MIGI 20.1.10

For invoice calculation, tariff data and payment queries including moving to direct debit, contact the Fees Helpline by email: fsafees@fsa.gov.uk or telephone 020 7066 1888. You can also write to The Revenue Department, Finance and Business Planning at the FSA.

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Contact Centre

MIGI 20.1.11

The Contact Centre provides a dedicated helpline for firms that will be supervised within High Street Firms Division. This is where you should direct any queries relating to mortgage and general insurance regulation, including enquiries about the authorisation process and how to complete the application form. You can reach the Contact Centre by email at fsaenquiries@mgi.fsa.gov.uk or by telephoning 0845 6055525.

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MIGI 20.2

Other contacts

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Financial Ombudsman Service (FOS)

MIGI 20.2.1

For queries about payment and accounts for the FOS annual levy, contact the FOS by email: levy@financial-ombudsman.org.uk or telephone 020 7964 1222.

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MIGI 20.2.2

For informal advice and guidance on ombudsman procedures, policy and decisions - contact the technical advice desk by email: technical.advice@financial-ombudsman.org.uk or telephone 020 7964 1400.

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Financial Services Compensation Scheme (FSCS)

MIGI 20.2.3

Contact by email: enquiries@fscs.org.uk or telephone 020 7892 7300.

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MIGI APP 1

Appendix A: brief description of key terms in the Guide

MIGI APP 1.1

Appendix A: brief description of key terms in the Guide

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MIGI APP 1.1.1

Defined term

Meaning

Appointed representative (AR)

A person or firm that carries on certain regulated activities under the responsibility of a principal. The principal must be an authorised firm and has full responsibility for ensuring that the AR complies with our requirements.

Approved person

A person to whom the FSA has given its approval for the performance of a controlled function.

Client assets

Assets that you hold on behalf of a client, for example, client money and client title documents such as bearer bonds.

Client money

Money that a firm holds on behalf of a client in the course of carrying on mortgage or insurance mediation activities. In the case of insurance mediation activities, this includes money that a firm treats as client money in line with the FSA client money rules set out in CASS.

Controlled function

Controlled functions are those jobs or functions within an authorised firm that have a particular regulatory significance, such as being a member of the governing body of the firm. You will find a full list of the controlled functions at SUP 10.4.5 R.

Customer

In relation to insurance mediation activities, a 'customer' is, broadly, a policyholder or potential policyholder. This can include a member of a group insurance policy who has direct rights under the policy, e.g. to claim.
In relation to mortgage mediation activities, a 'customer' is, broadly, a borrower or potential borrower (who is an individual or trustee).

Eligible complainant

A person eligible to have a complaint considered by the Financial Ombudsman Service as defined in DISP 2.4.

Financial Ombudsman Service (FOS)

The scheme provided under Part XVI of the Act (the Ombudsman Scheme) under which certain disputes may be resolved quickly and with minimum formality by an independent person. Further details are in DISP.

Financial Services Compensation Scheme (FSCS)

The scheme set up to pay compensation to customers of FSA authorised firms. It can pay compensation if an FSA authorised firm is unable to pay claims against it, usually because it has gone out of business. Further details are in COMP.

The Act

The Financial Services and Markets Act 2000.

FSA Register

This is a public record of financial services firms, individuals and other bodies that fall under our regulatory jurisdiction. It can be accessed on our website at www.fsa.gov.uk/register/.

General insurance contract

Any contract of insurance within Part 1 Schedule 1 to the Regulated Activities Order (Contracts of General Insurance), for example motor insurance and home contents insurance.

Governing body

The board of directors, committee of management or other governing body of a firm. In relation to a sole trader, the sole trader him or herself would be the governing body.

The Handbook

The FSA Handbook of Rules and Guidance.

Insurance intermediary

A firm carrying on insurance mediation activities.

Insurance mediation activity

Any of the following regulated activities:
(1) dealing as agent in contracts of insurance;
(2) arranging (bringing about) deals in contracts of insurance;
(3) making arrangements with a view to transactions in contracts of insurance;
(4) assisting in the administration and performance of a contract of insurance;
(5) advising on contracts of insurance; and
(6) agreeing to carry on any of the above activities.

Mortgage intermediary

A firm that arranges regulated mortgages or makes arrangements with a view to regulated mortgages.

Mortgage lender

A firm with permission (or which ought to have permission) for entering into a regulated mortgage contract.

Mortgage mediation activity

Advising on, arranging or making arrangements with a view to regulated mortgages.

Non-investment insurance contract

A contract of insurance that is a general insurance contract or a pure protection contract but which is not a long-term care insurance contract.

Permission

Permission given by the FSA under Part IV of the Act to carry on regulated activities.

Principles

One of the principles set out in PRIN 2.1.1 R (Principles for Businesses) contained in the Principles for Businesses sourcebook.

Pure protection contract

A long-term insurance contract that is not an investment product, e.g. critical illness insurance.

Retail Mediation Activities Return (RMAR)

This is the information we propose to require mortgage and insurance intermediaries to submit to us electronically.

Regulated activity

Any of the activities specified in Part II of the Regulated Activities Order.

Regulated Activities Order

The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

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