IPRU-INV 13.1 APPLICATION, GENERAL REQUIREMENTS AND PROFESSIONAL INDEMNITY INSURANCE REQUIREMENTS

A firm must at all times:

1. (1)

   have and maintain capital resources at least equal to its relevant capital resources requirement1; and

2. (2)

   be able to meet its liabilities as they fall due.

1. (1)

   1Unless a rule provides otherwise, a firm must:

   1. (a)

      recognise an asset or liability; and

   2. (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).

2. (2)

   The accounting principles are referred to in:

   1. (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

   2. (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 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. (1)

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

2. (2)

   a person of equivalent status in:

   1. (a)

      a Zone A country;

   2. (b)

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

[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).

1. (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. (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. (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.

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's permitted activities or not, for the last accounting year prior to inception or renewal of the professional indemnity insurance policy ("the policy").

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:

1. (1)

   the firm; or

2. (2)

   any person acting on behalf of the firm including employees, appointed representatives or its other agents.

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. (1)

   EUR 1,120,200 for a single claim against the firm; and

2. (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. (1)

   EUR 1,000,000 for a single claim against the firm; and

2. (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. (1)

   EUR 500,000 for a single claim against the firm; and

2. (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. (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. (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.

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.

If the policy provides cover to more than one firm then:

1. (1)

   The relevant income for calculating the limits of indemnity is that of all the firms named in the policy combined;

2. (2)

   each firm named in the policy must have the benefit of the minimum limits of indemnity as required in this section; and

3. (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.

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).

The policy must not:

1. (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. (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.

The policy must not make provision for payment by the firm of an excess on any claim of more than £5,000, unless the firm holds additional capital resources, in accordance with 13.1.27R.

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.

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. (1)

   professional indemnity insurance cannot be obtained within 28 days of the inception or renewal date;

2. (2)

   professional indemnity insurance is cancelled;

3. (3)

   the amount of aggregate cover is exhausted;

4. (4)

   the firm commences business lines for which it had not obtained cover;

5. (5)

   the firm is relying on a policy cover for more than one firm; or

6. (6)

   the firm is relying on a comparable guarantee provided in accordance with the rules in this chapter.