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MIPRU 3.1 Application and purpose

Application

MIPRU 3.1.1RRP

2This chapter applies to a firm with Part 4A permission to carry on any of the activities:

  1. (1)

    insurance mediation activity;

  2. (2)

    home finance mediation activity;1unless any of the following exemptions apply:

    1
  3. (3)

    in relation to insurance mediation activity, 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:

    1. (a)

      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;

    2. (b)

      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.

  4. (4)

    in relation to home finance mediation activity,1 this chapter does not apply to a firm if:

    1
    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 (3)(a) and (b);

  5. (5)

    This chapter does not apply to:

    1. (a)

      an insurer; or

    2. (b)

      a managing agent; or

    3. (c)

      a firm to which IPRU(INV) 13.1.5R(1)4(Financial resource requirements for personal investment firms: requirement to hold professional indemnity insurance) applies; or3

      34
    4. (d)

      an exempt CAD firm to which IPRU(INV) 9.2.5R (Initial capital and professional indemnity insurance requirements - exempt CAD firms that are also IMD insurance intermediaries) applies.3

  6. (6)

    in relation to home finance mediation activity,1 this chapter does not apply to an authorised professional firm:

    1
    1. (a)

      that is required by another rule to hold professional indemnity insurance (see IPRU(INV) 2.3.1R); and

    2. (b)

      whosehome finance mediation activity,1 is incidental to its main business.

      1
MIPRU 3.1.2GRP

The definition of insurance mediation activity is any of several activities 'in relation to a contract of insurance' which includes a contract of reinsurance. This chapter, therefore, applies to a reinsurance intermediary in the same way as it applies to any other insurance intermediary.

Purpose

MIPRU 3.1.3GRP

The purposes of this chapter are to:

  1. (1)

    implement article 4.3 of the Insurance Mediation Directive in so far as it requires insurance intermediaries to hold professional indemnity insurance, or some other comparable guarantee, against any liability that might arise from professional negligence; and

  2. (2)

    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
MIPRU 3.1.4GRP

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.

MIPRU 3.1.5GRP

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.

MIPRU 3.1.6GRP

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.