In6 relation to insurance distribution activity8, this chapter does not apply to a firm if another authorised person which has net tangible assets of more than £10 million provides a comparable guarantee; for this purpose:
A 'comparable guarantee' means a written agreement on terms at least equal to those in a contract of professional indemnity insurance (see MIPRU 3.2.4 R) to finance the claims that might arise as a result of a breach by the firm of its duties under the regulatory system or civil law.
- (a) 5
- (b) 55
This chapter does not apply to:
In6 relation to home finance mediation activityor MCD article 3(1)(b) credit intermediation activity,5 this chapter does not apply to an authorised professional firmwhich is not an MCD credit intermediary:511
In6 relation to home finance mediation activity or MCD article 3(1)(b) credit intermediation activity, this chapter does not apply to an MCD credit intermediary if it holds a comparable guarantee (as specified in (4)(b)(ii)) against liability arising from professional negligence.11
In6 relation to MCD article 3(1)(b) credit intermediation activity, only MIPRU 3.2.9A R applies.11
The purposes of this chapter are to:
reflect the UK provisions which implemented9 articles 10(4) and 10(5)8 of the IDD8 in so far as it required 9insurance intermediaries to hold professional indemnity insurance, or some other comparable guarantee, against any liability that might arise from professional negligence; and
meet the statutory objectives12 of consumer protection and protecting and enhancing the integrity of the UK financial system12 by ensuring that firms have adequate resources to protect themselves, and their customers, against losses arising from breaches in its duties under the regulatory system or civil law.1212
Any breach in the duty of a firm or of its agents under the regulatory system or civil law can give rise to claims being made against the firm. Professional indemnity insurance has an important role to play in helping to finance such claims. In so doing, this chapter amplifies threshold condition 4 (Adequate resources). This threshold condition provides that a firm must have, on a continuing basis, resources that are, in the opinion of the appropriate regulator, adequate in relation to the regulated activities that the firm carries on.
Under Principles 3 and 4 a firm is required to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems and to maintain adequate financial resources. Under Principle 9 a firm is obliged to take reasonable care to ensure the suitability of its advice on investments and discretionary decisions for any customer who is entitled to rely upon its judgement.
Although financial resources and appropriate systems and controls can generally mitigate operational risk, professional indemnity insurance has a role in mitigating the risks a firm faces in its day to day operations, including those arising from not meeting the legally required standard of care when advising on investments. The purpose of this chapter is to ensure that a firm has in place the type, and level, of professional indemnity insurance necessary to mitigate these risks.