IPRU-INV 13.1 APPLICATION, GENERAL REQUIREMENTS AND PROFESSIONAL INDEMNITY INSURANCE REQUIREMENTS
Application
This chapter applies to a firm which is a personal investment firm as set out in the table below1.
- (2)
[deleted]1
- (3)
[deleted]1
1 Type of personal investment firm |
Application of this Chapter |
A personal investment firm which is an exempt CAD firm |
13.1, 13.1A, 13.13 and 13.14 |
A personal investment firm which is a category B firm whose permission includes establishing, operating or winding up a personal pension scheme |
13.1 and 13.9 to 13.12 |
A personal investment firm which is a category B firm whose permission does not include establishing, operating or winding up a personal pension scheme |
13.1 and 13.13 to 13.15 |
Purpose
This chapter amplifies threshold condition 2D1 (Appropriate1 resources) by providing that a firm must meet, on a continuing basis, a basic solvency requirement and a minimum capital resources requirement. This chapter also amplifies Principles 3 and 4 which require a firm to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems and to maintain adequate financial resources by setting out capital resources for a firm according to the regulated activity or activities it carries on.
Although financial resources and appropriate systems and controls can generally mitigate operational risk, professional indemnity insurance has a role in mitigating the risks a firm faces in its day-to-day operations, including those arising from not meeting the legally required standard of care when advising on investments. The purpose of the rules in this section is also to ensure that a firm has in place the type, and level, of professional indemnity insurance necessary to mitigate these risks. This includes, in the case of a UK firm exercising an EEA right, cover for breaches of obligations imposed by or under laws, or provisions having the force of law, in each EEA State in which the firm carries on business.
GENERAL CAPITAL RESOURCES AND SOLVENCY REQUIREMENTS
CAPITAL RESOURCES: GENERAL ACCOUNTING PRINCIPLES
- (1)
1Unless a rule provides otherwise, a firm must:
- (a)
recognise an asset or liability; and
- (b)
measure the amount of that asset or liability,
by using the accounting principles it applies in preparing the firm's reporting form in (2).
- (a)
- (2)
The accounting principles are referred to in:
- (a)
the Notes for completion of the Retail Mediation Activities Return (RMAR) (under the heading “Accounting Principles”) in SUP 16 Annex 18BG for a category B firm; and
- (b)
the Guidance notes for data items in FSA032 (under the heading “Defined terms”) in SUP 16 Annex 25AG for an exempt CAD firm.
- (a)
Requirement to Hold Professional Indemnity Insurance
A firm must take out and maintain at all times professional indemnity insurance that is at least equal to the requirements in this section from:
- (1)
an insurance undertaking which is authorised to transact professional indemnity insurance in the EEA; or
- (2)
a person of equivalent status in:
- (a)
a Zone A country;
- (b)
the Channel Islands, Gibraltar, Bermuda or the Isle of Man.
- (a)
[Note:
Article 4(3) of the Insurance Mediation Directive]
An exempt CAD firm is not required to effect and maintain professional indemnity insurance unless it chooses this option (see 13.1A).
Comparable Guarantee
- (1)
A firm is not required to effect or maintain professional indemnity insurance if a bank, building society or an insurer provides the firm with a comparable guarantee.
- (2)
If the firm is a member of a group in which there is a bank, building society or an insurer, the firm's comparable guarantee must be from that bank, building society or insurer.
- (3)
A comparable guarantee means an enforceable, written agreement on terms at least equal to those required by IPRU-INV 13.1.9R to 13.1.13R, as appropriate.
Relevant income
The term "relevant income" in this section refers to all income received or receivable which is commission, brokerage, fees or other related income, whether arising from the firm'spermitted activities or not, for the last accounting year prior to inception or renewal of the professional indemnity insurance policy ("the policy").
Policy Terms
The policy must incorporate terms which are appropriate and must make provision for cover in respect of any claim for loss or damage, for which the firm may be liable as a result of an act or omission by:
Limits of Indemnity
If the firm is an IMD insurance intermediary, whether or not it is also an exempt CAD firm, the appropriate minimum limits of indemnity per year are no lower than:
- (1)
EUR 1,120,200 for a single claim against the firm; and
- (2)
EUR 1,680,300 in the aggregate.
[Note: Article 4(3) of the Insurance Mediation Directive]
If the firm is an exempt CAD firm that maintains professional indemnity insurance under 13.1A.3(1)(b), the appropriate minimum limits of indemnity per year are no lower than:
- (1)
EUR 1,000,000 for a single claim against the firm; and
- (2)
EUR 1,500,000 in the aggregate.
[Note: Article 67(3) of MiFID and article 31(1) of the CRD (see also rule 13.1A.3)]
If the firm is both an IMD insurance intermediary and an exempt CAD firm that maintains professional indemnity insurance under 13.1A.4(1)(b), the appropriate additional limits of indemnity to 13.1.10R per year are no lower than:
- (1)
EUR 500,000 for a single claim against the firm; and
- (2)
EUR 750,000 in the aggregate.
[Note: Article 67(3) of MiFID and article 31(2) of the CRD (see also rule 13.1A.4)]
If the firm is not an IMD insurance intermediary or an exempt CAD firm, then the following limits of indemnity apply:
- (1)
if the firm has relevant income of up to £3,000,000, no lower than £500,000 for a single claim against the firm and £500,000 in the aggregate; or
- (2)
if the firm has relevant income of more than £3,000,000, no lower than £650,000 for a single claim against the firm and £1,000,000 in the aggregate.
Article 4(7) of the Insurance Mediation Directive requires the limits of indemnity to be reviewed every five years to take into account movements in European consumer prices. These limits will therefore be subject to further adjustments on the basis of index movements advised by the European Commission.
If a policy is denominated in any currency other than euros, a firm must take reasonable steps to ensure that the limits of indemnity are, when the policy is effected (i.e. agreed) and at renewal, at least equivalent to those denominated in euros.
The cover provided by the policy should be wide enough to include the liability of the firm, its appointed representatives, its tied agents, employees and its agents for breaches under the regulatory systems or civil law. If the firm operates outside the United Kingdom then the policy should cover other regulatory requirements imposed under the laws of other countries in which the firm operates.
Policies Providing for more than one Firm
If the policy provides cover to more than one firm then:
- (1)
The relevant income for calculating the limits of indemnity is that of all the firms named in the policy combined;
- (2)
each firm named in the policy must have the benefit of the minimum limits of indemnity as required in this section; and
- (3)
each firm named in the policy must notify the FCA1 if the aggregate cover in the policy falls below the minimum limits of indemnity.
Limits of Indemnity - Additional Requirements
In addition to the specific requirements in
, the policy must make provision for the following:
- (1)
for a firm with relevant income of more than £6,000,000, the aggregate limit identified in the table below:
- (2)
full retroactive cover in respect of the kinds of liabilities described in 13.1.9R for claims arising from work carried out by the firm, or on its behalf, in the past; and
- (3)
Relevant income is (£) |
Minimum aggregate limit of indemnity |
|
more than |
up to |
(£) |
6,000,000 |
7,000,000 |
1,150,000 |
7,000,000 |
8,000,000 |
1,300,000 |
8,000,000 |
9,000,000 |
1,450,000 |
9,000,000 |
10,000,000 |
1,600,000 |
10,000,000 |
12,500,000 |
2,000,000 |
12,500,000 |
15,000,000 |
2,400,000 |
15,000,000 |
17,500,000 |
2,800,000 |
17,500,000 |
20,000,000 |
3,150,000 |
20,000,000 |
25,000,000 |
3,800,000 |
25,000,000 |
30,000,000 |
4,250,000 |
30,000,000 |
35,000,000 |
4,500,000 |
35,000,000 |
40,000,000 |
4,750,000 |
40,000,000 |
50,000,000 |
5,500,000 |
50,000,000 |
60,000,000 |
6,000,000 |
60,000,000 |
70,000,000 |
6,750,000 |
70,000,000 |
80,000,000 |
7,250,000 |
80,000,000 |
90,000,000 |
7,750,000 |
90,000,000 |
100,000,000 |
8,500,000 |
100,000,000 |
150,000,000 |
11,250,000 |
150,000,000 |
200,000,000 |
14,000,000 |
200,000,000 |
250,000,000 |
17,000,000 |
250,000,000 |
300,000,000 |
19,750,000 |
300,000,000 |
n/a |
22,500,000 |
Limitations
The policy must not be subject to conditions or exclusions which unreasonably limit its cover (whether by exclusion of cover, by policy excesses or otherwise).
Exclusions
The policy must not:
- (1)
exclude any type of business or activity that has been carried out by the firm in the past or will be carried out by the firm during the time for which the policy is in force; or
- (2)
exclude liabilities which are identified or crystallised as a result of regulatory action against the firm (either individually or as a member of a class of authorised persons);
unless the firm holds additional capital resources, in accordance with 13.1.23R.
Additional Capital Resources - Exclusions
The amount of additional capital resources that a firm must hold as a result of an exclusion under IPRU-INV 13.1.21R1 must1 be calculated by referring to the firm's relevant income in the following table:
Relevant income £000s |
Minimum additional capital resources |
|
more than |
up to |
£000s |
(Notes 1 and 2) |
||
0 |
100 |
5 |
100 |
200 |
12 |
200 |
300 |
18 |
300 |
400 |
21 |
400 |
500 |
23 |
500 |
600 |
25 |
600 |
700 |
27 |
700 |
800 |
28 |
800 |
900 |
30 |
900 |
1,000 |
31 |
1,000 |
1,500 |
37 |
1,500 |
2,000 |
42 |
2,000 |
2,500 |
46 |
2,500 |
3,000 |
51 |
3,000 |
3,500 |
55 |
3,500 |
4,000 |
59 |
4,000 |
4,500 |
63 |
4,500 |
5,000 |
67 |
5,000 |
6,000 |
73 |
6,000 |
7,000 |
79 |
7,000 |
8,000 |
85 |
8,000 |
9,000 |
90 |
9,000 |
10,000 |
95 |
10,000 |
100,000 |
95y |
100,000 |
n/a |
950 |
Note 1 - For firms with relevant income of more than £10m but up to £100m value y is calculated by relevant income/ £10m. |
||
Note 2 - The calculation of a firm's capital resources is set out in sections 13.1A to 13.151 (see IPRU-INV 13.1.1R1 for application of these sections to an exempt CAD firm or1 a category B firm1). |
Excess Level
The reference to "excess" is to the highest excess level required to be paid under the policy unless that excess relates to a type of business that has not been carried out by the firm in the past. In those circumstances, the reference is to the next highest excess level required by the policy applicable to a type of business that has been carried out by the firm in the past.
Additional Capital Resources - Excess
The amount of additional capital resources that a firm must hold where the policy's excess on any claim is more than £5,000 must be calculated by referring to the firm's relevant income and excess obtained in the following table:
All amounts are shown in £000s (Notes 1 and 2)
Relevant income is |
Excess obtained, up to and including |
||||||||||||
more than |
up to |
5 |
10 |
15 |
20 |
25 |
30 |
40 |
50 |
75 |
100 |
150 |
200+ |
0 |
100 |
0 |
4 |
7 |
9 |
12 |
14 |
18 |
21 |
28 |
34 |
45 |
54 |
100 |
200 |
0 |
7 |
11 |
14 |
17 |
20 |
25 |
29 |
38 |
46 |
59 |
70 |
200 |
300 |
0 |
9 |
14 |
18 |
21 |
24 |
30 |
35 |
45 |
54 |
69 |
82 |
300 |
400 |
0 |
11 |
16 |
21 |
24 |
28 |
34 |
39 |
50 |
60 |
77 |
91 |
400 |
500 |
0 |
13 |
18 |
23 |
27 |
30 |
37 |
43 |
55 |
66 |
83 |
98 |
500 |
600 |
0 |
14 |
20 |
25 |
29 |
33 |
40 |
46 |
59 |
70 |
89 |
105 |
600 |
700 |
0 |
16 |
22 |
27 |
31 |
35 |
42 |
49 |
63 |
74 |
94 |
111 |
700 |
800 |
0 |
17 |
23 |
28 |
33 |
37 |
45 |
52 |
66 |
78 |
99 |
117 |
800 |
900 |
0 |
18 |
24 |
30 |
35 |
39 |
47 |
54 |
69 |
82 |
103 |
122 |
900 |
1,000 |
0 |
19 |
26 |
31 |
36 |
41 |
49 |
56 |
72 |
85 |
107 |
126 |
1,000 |
1,500 |
0 |
23 |
31 |
37 |
43 |
48 |
57 |
66 |
83 |
99 |
124 |
146 |
1,500 |
2,000 |
0 |
26 |
35 |
42 |
48 |
54 |
64 |
73 |
93 |
109 |
138 |
161 |
2,000 |
2,500 |
0 |
29 |
38 |
46 |
53 |
59 |
71 |
81 |
102 |
121 |
152 |
179 |
2,500 |
3,000 |
0 |
32 |
42 |
51 |
58 |
65 |
78 |
89 |
112 |
132 |
166 |
195 |
3,000 |
3,500 |
0 |
35 |
46 |
55 |
63 |
71 |
84 |
96 |
121 |
142 |
179 |
210 |
3,500 |
4,000 |
0 |
38 |
50 |
59 |
68 |
76 |
90 |
102 |
129 |
152 |
191 |
223 |
4,000 |
4,500 |
0 |
41 |
53 |
63 |
72 |
80 |
95 |
108 |
137 |
161 |
202 |
236 |
4,500 |
5,000 |
0 |
43 |
56 |
67 |
76 |
85 |
100 |
114 |
144 |
169 |
212 |
248 |
5,000 |
6,000 |
0 |
48 |
62 |
73 |
84 |
93 |
110 |
125 |
157 |
185 |
231 |
271 |
6,000 |
7,000 |
0 |
52 |
67 |
79 |
90 |
101 |
119 |
135 |
169 |
199 |
249 |
291 |
7,000 |
8,000 |
0 |
56 |
72 |
85 |
97 |
107 |
127 |
144 |
181 |
212 |
265 |
310 |
8,000 |
9,000 |
0 |
59 |
76 |
90 |
103 |
114 |
134 |
152 |
191 |
224 |
280 |
328 |
9,000 |
10,000 |
0 |
63 |
80 |
95 |
108 |
120 |
141 |
160 |
201 |
236 |
294 |
344 |
10,000 |
100,000 |
0 |
63y |
80y |
95y |
108y |
120y |
141y |
160y |
201y |
236y |
294y |
344y |
100,000 |
n/a |
0 |
630 |
800 |
950 |
1080 |
1200 |
1410 |
1600 |
2010 |
2360 |
2940 |
3440 |
Note 1 - For firms with relevant income more of £10m but up to £100m value y is calculated by relevant income/ £10m. |
|||||||||||||
Note 2 - The calculation of a firm's capital resources is set out in sections 13.1A to 13.151 (see IPRU-INV 13.1.1R1 for application of these sections to an exempt CAD firm or1 a category B firm). |
Notification Requirements
A firm must notify the FCA1 immediately if it becomes aware, or has information which reasonably suggests, that any of the following matters in relation to its professional indemnity insurance has occurred, may have occurred or may occur in the foreseeable future:
- (1)
professional indemnity insurance cannot be obtained within 28 days of the inception or renewal date;
- (2)
professional indemnity insurance is cancelled;
- (3)
the amount of aggregate cover is exhausted;
- (4)
the firm commences business lines for which it had not obtained cover;
- (5)
the firm is relying on a policy cover for more than one firm; or
- (6)
the firm is relying on a comparable guarantee provided in accordance with the rules in this chapter.
- (1)
1For the purposes of the provisions relating to professional indemnity insurance, “additional capital resources” means readily realisable own funds or capital resources under IPRU-INV 13.15.3R, depending on the type of firm1.
- (2)
1The FCA1 expects items included in own funds or capital resources under IPRU-INV 13.15.3R, depending on the type of firm,1 to be regarded as “readily realisable” only if they can be realised, at any given time, within 90 days.