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

An insurance intermediary, other than a sole trader, must allocate the responsibility for the firm's insurance mediation activity to a director or senior manager.

The firm may allocate the responsibility for its insurance mediation activity under PRU 9.1.3 R to an approved person (or persons) performing:

1. (1)

   a governing function (other than the non-executive director function)2; or

2. (2)

   the apportionment and oversight function; or

3. (3)

   the significant management (other business operations) function.

An insurance intermediary must establish on reasonable grounds that:

1. (1)

   a reasonable proportion of the persons within its management structure who are responsible for insurance mediation activity; and

2. (2)

   all other persons directly involved in its insurance mediation activity;

demonstrate the knowledge and ability necessary for the performance of their duties; and

1. (3)

   all the persons in its management structure and any staff directly involved in insurance mediation activity are of good repute.

In considering a person's repute under PRU 9.1.8 R (3), the firm must ensure that the person:

1. (1)

   has not been convicted of any serious criminal offences linked to crimes against property or other crimes related to financial activities (other than spent convictions under the Rehabilitation of Offenders Act 1974 or any other national equivalent); and

2. (2)

   has not been adjudged bankrupt (unless the bankruptcy has been discharged);

under the law of any part of the United Kingdom or under the law of a country or territory outside the United Kingdom.

1. (1)

   This section applies to a firm with Part IV permission to carry on any of the activities in (2) unless (3), (4), (5) or (6) applies.

2. (2)

   The activities are:

   1. (a)

      insurance mediation activity;

   2. (b)

      mortgage mediation activity.

3. (3)
   1. (a)

      In relation to insurance mediation activity, this section does not apply to a firm if another authorised person which has net tangible assets of more than ?10 million provides a comparable guarantee.

   2. (b)

      If the firm is a member of a group in which there is an authorised person with net tangible assets of more than ?10 million, the comparable guarantee must be from that person.

   3. (c)

      A 'comparable guarantee' means a written agreement on terms at least equal to those in PRU 9.2.10 R to finance the claims that might arise as a result of a breach by the firm of its duties under the regulatory system or civil law.

4. (4)

   In relation to mortgage mediation activity, this section does not apply to a firm if:

   1. (a)

      it has net tangible assets of more than ?1 million; or

   2. (b)

      the comparable guarantee provisions of (3) apply (as if the firm was carrying on insurance mediation activity) but substituting ?1 million for ?10 million in (a) and (b).

5. (5)

   In relation to all the activities in (2), this section does not apply to:

   1. (a)

      an insurer; or

   2. (b)

      a managing agent; or

   3. (c)

      a firm to which IPRU(INV) 13.1.4(1) (Financial resource requirements for personal investment firms: requirement to hold professional indemnity insurance) applies.

6. (6)

   In relation to mortgage mediation activity, this section does not apply to an authorised professional firm:

   1. (a)

      which is subject to IPRU(INV) 2.3.1 (Professional indemnity insurance requirements for authorised professional firms); and

   2. (b)

      whose mortgage mediation activity is incidental to its main business.

A firm must take out and maintain professional indemnity insurance that is at least equal to the requirements of PRU 9.2.10 R from:

1. (1)

   an insurance undertaking authorised to transact professional indemnity insurance in the EEA; or

2. (2)

   a person of equivalent status in:

   1. (i)

      a Zone A country; or

   2. (ii)

      the Channel Islands, Gibraltar, Bermuda or the Isle of Man.

In relation to the activities referred to in PRU 9.2.1 R (2), the contract of professional indemnity insurance must incorporate terms which make provision for:

1. (1)

   cover in respect of claims for which a firm may be liable as a result of the conduct of itself, its employees and its appointed representatives (acting within the scope of their appointment);

2. (2)

   the minimum limits of indemnity per year2 as set out in PRU 9.2.13 R (in relation to insurance mediation activity) and PRU 9.2.15 R (in relation to mortgage mediation activity);

3. (3)

   an excess as set out in PRU 9.2.17 R to PRU 9.2.22 R;

4. (4)

   appropriate cover in respect of legal defence costs;

5. (5)

   continuous cover in respect of claims arising from work carried out from the date on which the firm was given Part IV permission in relation to any of the activities referred to in (2); and

6. (6)

   cover in respect of Ombudsman awards made against the firm.

If the firm is an insurance intermediary, then 1the minimum limits of indemnity referred to in PRU 9.2.10 R (2) are:

1. (1)

   for a single claim, ?1 million; and

2. (2)

   in aggregate, ?1.5 million or, if higher, 10% of annual income (see PRU 9.3.42 R) up to ?30 million.

If a policy is denominated in any currency other than euros, a firm must take reasonable steps to ensure that the limits of indemnity are, when the policy is effected and at renewal, at least equivalent to those required in PRU 9.2.13 R.

If the firm is a mortgage intermediary, then1 the minimum limit of indemnity referred to in PRU 9.2.10 R (2) is the higher of 10% of annual income (see PRU 9.3.42 R) up to ?1 million, and:

1. (1)

   for a single claim, ?100,000; or

2. (2)

   in aggregate, ?500,000.

In this section, "client assets" includes a document only if it has value, or is capable of having value, in itself (such as a bearer instrument).

For a firm which does not hold client money or other client assets, the excess referred to in PRU 9.2.10 R (3) is not more than the higher of:

1. (1)

   ?2,500; and

2. (2)

   1.5% of annual income (see PRU 9.3.42 R).

For a firm which holds client money or other client assets, the excess referred to in PRU 9.2.10 R (3) is not more than the higher of:

1. (1)

   ?5,000; and

2. (2)

   3% of annual income (see PRU 9.3.42 R).

If a policy provides cover to more than one firm, then in relation to PRU 9.2.13 R, PRU 9.2.14 R and PRU 9.2.15 R:

1. (1)

   the limits of indemnity must be calculated on the combined annual income (see PRU 9.3.42 R) of all the firms named in the policy; and

2. (2)

   each firm named in the policy must have the benefit of the minimum limits of indemnity as required in PRU 9.2.13 R or PRU 9.2.15 R.

If a firm seeks to have an excess which is higher than the limits in PRU 9.2.17 R (for a firm not holding client money or other client assets) or PRU 9.2.18 R (for a firm holding client money or other client assets), it must hold additional capital as calculated in PRU 9.2.21 R or PRU 9.2.22 R (as appropriate).

1. (1)

   This section applies to a firm with Part IV permission to carry on any of the activities in (2) unless any of PRU 9.3.4 R to PRU 9.3.11 R applies.

2. (2)

   The activities are:

   1. (a)

      insurance mediation activity;

   2. (b)

      mortgage mediation activity;

   3. (c)

      entering into a regulated mortgage contract (that is, mortgage lending);

   4. (d)

      administering a regulated mortgage contract (that is, mortgage administration).

This section does not apply to:

1. (1)

   a bank; or

2. (2)

   a building society; or

3. (3)

   a solo consolidated subsidiary of a bank or a building society; or

4. (4)

   an insurer; or

5. (5)

   a friendly society.

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

This section does not apply to:

1. (1)

   a 'small credit union', that is one with:

   1. (a)

      assets of ?5 million or less; and

   2. (b)

      a total number of members of 5,000 or less (see CRED 8.3.14 R); or

2. (2)

   a credit union whose Part IV permission includes mortgage lending or mortgage administration (or both) and no other activities in PRU 9.3.1 R (2).

1. (1)

   This section does not apply to an authorised professional firm:

   1. (a)

      whose main business is the practice of its profession; and

   2. (b)

      whose regulated activities in PRU 9.3.1 R (2) are incidental to its main business.

2. (2)

   A firm's main business is the practice of its profession if the proportion of income it derives from professional fees is, during its annual accounting period, at least 50% of the firm's total income (a temporary variation of not more than 5% may be disregarded for this purpose).

3. (3)

   Professional fees are fees, commissions and other receipts receivable in respect of legal, accountancy or actuarial services provided to clients but excluding any items receivable in respect of regulated activities.

This section does not apply to a managing agent.

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

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

A firm must recognise an asset or liability, and measure its amount, in accordance with the relevant accounting principles applicable to it for the purpose of preparing its annual financial statements 3unless a rule requires otherwise.

In this section, "client assets" includes a document only if it has value, or is capable of having value, in itself (such as a bearer instrument).

The capital resources requirement for a firm (other than a credit union) carrying on regulated activities, including designated investment business, is the higher of:2

1. (1)

   the requirement which is applied by this section according to the activity or activities of the firm (treating the relevant rules as applying to the firm by disregarding its designated investment business); and

2. (2)

   the financial resource requirement which is applied by IPRU(INV).

The capital resources requirement for a credit union to which this section applies (see PRU 9.3.8 R) is the highest of:2

1. (1)

   the requirement which is applied by PRU 9.3.30 R (Capital resources requirement: mediation activity only) treating that rule as applying to the credit union by disregarding activities which are not insurance mediation activity or mortgage mediation activity;2

2. (2)

   the amount which is applied by CRED 8 (Capital requirements); and2

3. (3)

   if the credit union is a CTF provider that has a permission to carry on designated investment business, the amount which is applied by IPRU(INV) Chapter 8.2

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

1. (1)

   mortgage lender; or

2. (2)

   mortgage administration (or both);

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

Unless any of PRU 9.3.24 R to PRU 9.3.26 R applies (firms carrying on designated investment business, credit unions and social housing firms), the table in PRU 9.3.29 R specifies the provisions for calculating the capital resources requirement for a firm according to the regulated activity or activities it carries on.

1. (1)

   If a firm (carrying on the activities in row 1 of the table in PRU 9.3.29 R) does not hold client money or other client assets in relation to its insurance mediation activity or mortgage mediation activity, its capital resources requirement is the higher of:

   1. (a)

      ?5,000; and

   2. (b)

      2.5% of the annual income (see PRU 9.3.42 R) from its insurance mediation activity or mortgage mediation activity (or both).

2. (2)

   If a firm (carrying on the activities in row 1 of the table in PRU 9.3.29 R) holds client money or other client assets in relation to its insurance mediation activity or mortgage mediation activity, its capital resources requirement is the higher of:

   1. (a)

      ?10,000; and

   2. (b)

      5% of the annual income (see PRU 9.3.42 R) from its insurance mediation activity or mortgage mediation activity (or both).

1. (1)

   The capital resources requirement of a firm (carrying on the activities in row 2 of the table at PRU 9.3.29 R) is the higher of:

   1. (a)

      ?100,000; and

   2. (b)

      1% of:

      1. (i)

         its total assets plus total undrawn commitments; less:

      2. (ii)

         loans excluded by PRU 9.3.33 R plus intangible assets (see Note 1 in the table in PRU 9.3.53 R).

2. (2)

   Undrawn commitments in (1)(b)(i) means the total of those amounts which a borrower has the right to draw down from the firm but which have not yet been drawn down, excluding those under an agreement:

   1. (a)

      which has an original maturity of up to one year; or

   2. (b)

      which can be unconditionally cancelled at any time by the lender.

When calculating total assets for the purposes of PRU 9.3.31 R, the firm may exclude a loan which has been transferred to a third party only if it meets the following conditions:

1. (1)

   the loan must have been transferred in a legally effective manner by one of the following means:

   1. (a)

      novation; or

   2. (b)

      legal or equitable assignment; or

   3. (c)

      sub-participation; or

   4. (d)

      declaration of trust; and

2. (2)

   the lender:

   1. (a)

      retains no material economic interest in the loan; and

   2. (b)

      has no material exposure to losses arising from it.

The capital resources requirement of a firm (carrying on the activities in row 3 of the table in PRU 9.3.29 R), which has all or part of the regulated mortgage contracts that it administers on its balance sheet, is the amount which is applied to a firm by PRU 9.3.31 R.

The capital resources requirement of a firm (carrying on the activities in row 3 of the table in PRU 9.3.29 R), which has all the regulated mortgage contracts that it administers off its balance sheet, is the higher of:

1. (1)

   £100,000; and

2. (2)

   10% of its annual income (see PRU 9.3.42 R and PRU 9.3.48 R).

The capital resources requirement for a firm (carrying on the activities in row 4 of the table in PRU 9.3.29 R) is the sum of the requirements which are applied to the firm by:

1. (1)

   PRU 9.3.30 R; and

2. (2)
   1. (a)

      PRU 9.3.31 R; or

   2. (b)

      if, in addition to its insurance mediation activity, the firm carries on only mortgage administration and has all the assets that it administers off balance sheet, PRU 9.3.38 R.

1. (1)

   If a firm (carrying on the activities in row 5 of the table in PRU 9.3.29 R) does not hold client money or other client assets in relation to its mortgage mediation activity, the capital requirement is the amount applied to a firm, according to the activities carried on by the firm, by:

   1. (a)

      PRU 9.3.31 R; or

   2. (b)

      if, in addition to its mortgage mediation activity, the firm carries on only mortgage administration and has all the assets that it administers off balance sheet, PRU 9.3.38 R.

2. (2)

   If a firm (carrying on the activities in row 5 of the table in PRU 9.3.29 R) holds client money or other client assets in relation to its mortgage mediation activity, the capital resources requirement is:

   1. (a)

      the amount calculated under (1); plus

   2. (b)

      the amount which is applied to a firm by PRU 9.3.30 R (2).

The capital resources requirement for a firm (carrying on the activities in row 6 of the table in PRU 9.3.29 R) is the amount which is applied to a firm by PRU 9.3.39 R.

PRU 9.3.43 R to PRU 9.3.50 R contain provisions relating to the calculation of annual income for the purposes of:

1. (1)

   PRU 9.2.13 R (2), PRU 9.2.15 R, PRU 9.2.17 R (2) and PRU 9.2.18 R (2) (all concerning the limits of indemnity for professional indemnity insurance); and

2. (2)

   PRU 9.3.30 R (1)(b) and PRU 9.3.30 R (2)(b), and PRU 9.3.38 R (2).

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

For a firm which carries on insurance mediation activity or mortgage mediation activity, annual income in PRU 9.3.43 R is the amount of all brokerage, fees, commissions and other related income (for example, administration charges, overriders, profit shares) due to the firm in respect of or in relation to those activities.

If a firm is a principal, its annual income includes amounts due to its appointed representative in respect of activities for which the firm has accepted responsibility.

For the purposes of PRU 9.3.38 R (2) (Mortgage administration only) annual income is the sum of:

1. (1)

   revenue (that is, commissions, fees, net interest income, dividends, royalties and rent); and

2. (2)

   gains;

3. (3)

   arising in the course of the ordinary activities of the firm, less profit:

   1. (a)

      on the sale or termination of an operation;

   2. (b)

      arising from a fundamental reorganisation or restructuring having a material effect on the nature and focus of the firm's operation; and

   3. (c)

      on the disposal of fixed assets, including investments held in a long-term portfolio.

If the firm's most recent annual financial statement does not cover a 12 month period, the annual income is taken to be the amount in the statement converted, proportionally, to a 12 month period.

If the firm does not have an annual financial statement, the annual income is to be taken from the forecast or other appropriate accounts which the firm has submitted to the FSA.

1. (1)

   A firm must calculate its capital resources only from the items in PRU 9.3.52 R from which it must deduct the items in PRU 9.3.53 R.

2. (2)

   If the firm is subject to IPRU(INV) or CRED, the capital resources are the higher of:

   1. (a)

      the amount calculated under (1); and

   2. (b)

      the financial resources calculated under IPRU(INV) or the capital calculated under CRED 8(Capital requirements).

In relation to a sole trader's firm or a firm which is a partnership, the sole trader or a partner in the firm may use personal assets to meet the requirements of PRU 9.3.20 R or PRU 9.3.21 R, or both, to the extent necessary to make up any shortfall in meeting those requirements, unless:

1. (1)

   those assets are needed to meet other liabilities arising from:

   1. (a)

      personal activities; or

   2. (b)

      another business activity not regulated by the FSA; or

2. (2)

   the firm holds client money or other client assets.

In row 7 in the table at PRU 9.3.52 R, subordinated debt must not form part of the capital resources of the firm unless it meets the following conditions:

1. (1)

   (for a firm which carries on insurance mediation activity or mortgage mediation activity (or both) but not mortgage lending or mortgage administration) it has an original maturity of:

   1. (a)

      at least two years; or

   2. (b)

      it is subject to two years' notice of repayment;

2. (2)

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

   1. (a)

      at least five years; or

   2. (b)

      it is subject to five years' notice of repayment;

3. (3)

   the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;

4. (4)

   the only events of default must be non-payment of any interest or principal under the debt agreement or the winding up of the firm;

5. (5)

   the remedies available to the subordinated creditor in the event of non-payment or other default in respect of the subordinated debt must be limited to petitioning for the winding up of the firm or proving the debt and claiming in the liquidation of the firm;

6. (6)

   the subordinated debt must not become due and payable before its stated final maturity date except on an event of default complying with (4);

7. (7)

   the agreement and the debt are governed by the law of England and Wales, or of Scotland or of Northern Ireland;

8. (8)

   to the fullest extent permitted under the rules of the relevant jurisdiction, creditors must waive their right to set off amounts they owe the firm against subordinated amounts owed to them by the firm;

9. (9)

   the terms of the subordinated debt must be set out in a written agreement or instrument that contains terms that provide for the conditions set out in (1) to (8); and

10. (10)

    the debt must be unsecured and fully paid up.

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

1. (1)

   insurance business; or

2. (2)

   mortgage lending;

3. (3)

   and which uses, or proposes to use, the services of another person consisting of:

   1. (a)

      insurance mediation; or

   2. (b)

      insurance mediation activity; or

   3. (c)

      mortgage mediation activity.

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

1. (1)

   insurance mediation; or

2. (2)

   insurance mediation activity; or

3. (3)

   mortgage mediation activity;

unless the conditions in PRU 9.4.5 R and PRU 9.4.7 R are satisfied.

The first condition in PRU 9.4.4 R is that the person, in relation to the activity:

1. (1)

   has permission; or

2. (2)

   is an exempt person; or

3. (3)

   is an exempt professional firm; or

4. (4)

   is registered in another EEA State for the purposes of the IMD; or

5. (5)

   in relation to insurance mediation activity, is not carrying this activity on in the EEA; or

6. (6)

   in relation to mortgage mediation activity, is not carrying this activity on in the United Kingdom.

The second condition in PRU 9.4.4 R is that the firm takes all reasonable steps to ensure that the person in PRU 9.4.5 R in relation to the activity, is not, directly or indirectly, carrying out the activity as a consequence of the activities of another person which:1

1. (1)

   contravene section 19 of the Act (The general prohibition); or1

2. (2)

   in the case of activities provided from an establishment in an EEA State, contravene the IMD registration requirements.1

In order to comply with PRU 9.4.7 R, a firm may rely on a confirmation provided by the other person in writing if:

1. (1)

   the confirmation is provided by a person within PRU 9.4.5 R;

2. (2)

   the firm checked that this is the case; and

3. (3)

   the firm is not aware that the confirmation is inaccurate and has no grounds for reasonably being aware that the confirmation is inaccurate.