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

Application

IPRU-INV 13.1.1 R 01/09/2016

This chapter applies to a firm which is a personal investment firm as set out in the table below1.

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 1	13.1 and 13.13 to 13.151
1	1

(2)
[deleted]1
(3)
[deleted]1

Purpose

IPRU-INV 13.1.2 G 30/06/2016

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.

IPRU-INV 13.1.3 G 01/01/2021

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. 6

General capital resources and solvency requirements

IPRU-INV 13.1.4 R 30/06/2016

A firm must at all times:

(1)
have and maintain capital resources at least equal to its relevant capital resources requirement1; and
(2)
be able to meet its liabilities as they fall due.

Capital resources: general accounting principles

IPRU-INV 13.1.4A R 30/06/2016

(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)
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.

Requirement to hold professional indemnity insurance

IPRU-INV 13.1.5 R 01/01/2021

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 UK 6
(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: articles 10(4) and 10(5) of the IDD 4

IPRU-INV 13.1.6 R 30/12/2015

An exempt CAD firm is not required to effect and maintain professional indemnity insurance unless it chooses this option (see 13.1A).

Comparable guarantee

IPRU-INV 13.1.7 R 30/12/2015

(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

IPRU-INV 13.1.8 R 30/12/2015

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").

Policy terms

IPRU-INV 13.1.9 R 30/12/2015

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)
the firm; or
(2)
any person acting on behalf of the firm including employees, appointed representatives or its other agents.

Limits of indemnity

IPRU-INV 13.1.10 R 01/08/2021

If the firm is an IDD insurance intermediary 4, whether or not it is also an exempt CAD firm, the appropriate minimum limits of indemnity per year are no lower than:

(1)
EUR 1,300,3807 for a single claim against the firm; and
4
(2)
EUR 1,924,5607 in the aggregate.
4

[Note: articles 10(4) and 10(5)4 of the IDD 4]

IPRU-INV 13.1.11 R 03/01/2018

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: 3article 31(1) of the CRD (see also IPRU-INV 13.1A.3R2)]

IPRU-INV 13.1.12 R 01/10/2018

If the firm is both an IDD insurance intermediary 4 and an exempt CAD firm that maintains professional indemnity insurance under IPRU(INV) 13.1A.4(1)(b)4 , the appropriate additional limits of indemnity to IPRU(INV) 13.1.10R4 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: 3article 31(2) of the CRD (see also IPRU-INV 13.1A.4R2)]

IPRU-INV 13.1.13 R 01/10/2018

If the firm is not an IDD insurance intermediary 4 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.

IPRU-INV 13.1.14 G 01/01/2021

[deleted]6

4 4

IPRU-INV 13.1.15 R 30/12/2015

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.

IPRU-INV 13.1.16 G 30/12/2015

A firm should consider whether the overall cover is adequate taking account of 13.1.22G(2) and whether the firm should seek additional cover or legal expenses insurance. (Legal defence costs are costs of defence against claims that fall under the terms of the policy.)

IPRU-INV 13.1.17 G 30/12/2015

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

IPRU-INV 13.1.18 R 30/06/2016

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 FCA 1 if the aggregate cover in the policy falls below the minimum limits of indemnity.

Limits of indemnity – additional requirements

IPRU-INV 13.1.19 R 01/10/2018

In addition to the specific requirements in IPRU(INV) 13.1.9R to IPRU(INV) 13.1.13R4

, the policy must make provision for the following:

(1)
for a firm with relevant income of more than £10,000,0004, the aggregate limit identified in the table below:

Relevant income is (£)		Minimum aggregate limit of indemnity
more than	up to	(£)
4	4	4
4	4	4
4	4	4
4	4	4
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

(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)
cover in respect of Ombudsman awards made against the firm.

Limitations

IPRU-INV 13.1.20 R 01/06/2019

The policy must not be subject to conditions or exclusions which unreasonably limit its cover5.

IPRU-INV 13.1.20A R 01/06/2019

5The policy must not limit cover which would otherwise be provided by the policy where:

(1)
any of the following default:
1. (a)
  the firm; or
2. (b)
  a person or fund relevant to a potential claim; or
(2)
a person other than the firm is entitled to make a claim on the policy.

IPRU-INV 13.1.20B R 01/06/2019

(1)
5IPRU(INV) 13.1.20AR does not limit the generality of the scope of IPRU(INV) 13.1.20R.
(2)
In IPRU(INV) 13.1.20R and IPRU(INV) 13.1.20AR, “limit cover” includes limiting by exclusion, by policy excesses or otherwise.
(3)
In IPRU(INV) 13.1.20AR, “default” means becoming:
1. (a)
  in default;
2. (b)
  insolvent or likely to be unable to satisfy claims against it; or
3. (c)
  the subject of one or more of the proceedings listed in COMP 6.3.3R in the United Kingdom (or of equivalent or similar proceedings in another jurisdiction) whether or not a determination under COMP 6.3.3R has been made.

IPRU-INV 13.1.20C R 01/06/2019

5The policy’s terms must include a statement confirming that the policy complies with IPRU(INV) 13.1.20AR.

IPRU-INV 13.1.20D G 01/06/2019

(1)
5An example of a person or fund relevant to a potential claim (see IPRU(INV) 13.1.20AR(1)(b)) is a fund the firm advised its customers to invest in.
(2)
An example of a person entitled to make a claim under the policy (see IPRU(INV) 13.1.20AR(2)) is:
1. (a)
  a customer of the firm or related person by virtue of the Third Parties (Rights Against Insurers) Act 2010; or
2. (b)
  the FSCS.
(3)
One of the purposes of IPRU(INV) 13.1.20AR(2), taken with COMP, is that a claim on the policy by the FSCS is treated as each of the claims the FSCS’s claim represents, taken separately. For example, the FSCS may make a claim on the policy in relation to each claim under (2)(a) as a result of assignment.

Exclusions

IPRU-INV 13.1.21 R 30/12/2015

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.

IPRU-INV 13.1.22 G 30/06/2016

(1)
The FCA 1 considers it reasonable for a firm's policy to exclude cover for:
1. (a)
  specific business lines if that type of business has not been carried out by the firm in the past and will not be carried out by the firm during the life of the policy; or
2. (b)
  specific claims that have been previously notified to the firm's insurer and claimed for under another policy.
(2)
The FCA 1 does not consider it reasonable for a firm's policy to treat legal defence costs cover as part of the limits of indemnity if this reduces the cover available for any individual substantive claim.

Additional capital resources - exclusions

IPRU-INV 13.1.23 R 30/06/2016

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 firm 1).

IPRU-INV 13.1.24 G 30/12/2015

The firm should hold additional capital resources in excess of those minimum amounts set out in the table in 13.1.23R where the required amounts of additional capital resources provide insufficient cover, taking into account the firm's individual circumstances.

Excess level

IPRU-INV 13.1.25 R 30/12/2015

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.

IPRU-INV 13.1.26 R 30/12/2015

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

IPRU-INV 13.1.27 R 30/06/2016

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

IPRU-INV 13.1.28 R 30/06/2016

A firm must notify the FCA 1 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.

IPRU-INV 13.1.29 G 30/06/2016

(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 FCA 1 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.

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