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MIPRU 4.2 Capital resources requirements

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General solvency requirement

MIPRU 4.2.1RRP

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

MIPRU 4.2.1AG

2Specific liquidity requirements for a firm carrying on any home financing or home finance administration connected to regulated mortgage contracts are set out in MIPRU 4.2D.

General capital resource requirement

MIPRU 4.2.2RRP

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

Capital resources: relevant accounting principles

MIPRU 4.2.3RRP

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 unless a rule requires otherwise.

Capital resources: client assets

MIPRU 4.2.4RRP

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

Capital resources requirement: firms carrying on regulated activities including designated investment business

MIPRU 4.2.5RRP

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

  1. (1)

    the requirement which is applied by this chapter 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 the Interim Prudential sourcebook for investment businesses, the Prudential sourcebook for Investment Firms and the EU CRR3 or the General Prudential sourcebook and the 3Prudential sourcebook for Banks, Building Societies and Investment Firms.

Capital resources requirement: social housing firms

MIPRU 4.2.7RRP

The capital resources requirement for a social housing firm whose Part 4A permission is limited to carrying on the regulated activities of:

  1. (1)

    home financing;1 or

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  2. (2)

    home finance administration 1(or both);

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

MIPRU 4.2.8GRP

If a social housing firm is carrying on home financing 1or home finance administration 1(and no other regulated activity), its net tangible assets must be greater than zero. However, if it carries on insurance mediation activity or home finance mediation activity1, there is no special provision and the capital resources requirement for firms carrying on designated investment business or mediation activities only applies to it as appropriate.

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Capital resources requirement: application according to regulated activities

MIPRU 4.2.9RRP

Unless any of the rules on capital resources for firms carrying on designated investment business, for credit unions or for social housing firms apply, the capital resources requirement for a firm varies according to the regulated activity or activities it carries on.

MIPRU 4.2.10AGRP

2MIPRU 4.2.12 R to MIPRU 4.2.23 R have the effect that a firm carrying on any home financing or home finance administration which is connected to regulated mortgage contracts will be subject to different capital requirements to a firm that carries on those activities without connection to regulated mortgage contracts. To identify which of the rules in MIPRU 4.2.12 R to MIPRU 4.2.23 R is applicable, a firm should consider which regulated activities it performs as part of its home financing and home finance administration activities and determine whether any of those regulated activities (no matter what proportion) are connected to regulated mortgage contracts.

Capital resources requirement: mediation activity only

MIPRU 4.2.11RRP
  1. (1)

    If a firm carrying on insurance mediation activity or home finance mediation activity 1(and no other regulated activity) does not hold client money or other client assets in relation to these activities, its capital resources requirement is the higher of:

    1
    1. (a)

      £5,000; and

    2. (b)

      2.5% of the annual income from its insurance mediation activity or home finance mediation activity 1(or both).

      1
  2. (2)

    If a firm carrying on insurance mediation activity or home finance mediation activity 1(and no other regulated activity) holds client money or other client assets in relation to these activities, its capital resources requirement is the higher of:

    1
    1. (a)

      £10,000; and

    2. (b)

      5% of the annual income from its insurance mediation activity or home finance mediation activity 1(or both).

11Capital resources requirement: home financing and home finance administration not connected to regulated mortgage contracts2

MIPRU 4.2.12RRP
  1. (1)

    The capital resources requirement for a firm carrying on only2home financing, 1which is not connected to regulated mortgage contracts, 2or home financing 1and home finance administration 1 which is not connected to regulated mortgage contracts 2 (and no other regulated activity) is the higher of:

    111111
    1. (a)

      £100,000; and

    2. (b)

      1% of:

      1. (i)

        its total assets plus total undrawn commitments and unreleased amounts under the home reversion plan1; less:

      2. (ii)

        excluded loans or amounts 1plus intangible assets (see Note 1 in the table in MIPRU 4.4.4 R).

  2. (2)

    Undrawn commitments and unreleased amounts 1means the total of those amounts which a customer1has the right to draw down or to receive 1from the firm but which have not yet been drawn down or received1, excluding those under an agreement:

    1
    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 or provider.1

MIPRU 4.2.13GRP

When considering what is an undrawn commitment or unreleased amount1, the appropriate regulator takes into account an amount which a customer1has the right to draw down or to receive under a home finance transaction1, but which has not yet been drawn down or received1, whether the commitment or obligation1is revocable or irrevocable, conditional or unconditional.

1
MIPRU 4.2.14RRP

When calculating total assets, the firm may exclude a loan or plan 1which has been transferred to a third party only if it meets the following conditions:

  1. (1)

    the first condition is that the loan or the plan 1has been transferred in a legally effective manner by:

    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 second condition is that the home finance provider1:

    1
    1. (a)

      retains no material economic interest in the loan or the plan1; and

    2. (b)

      has no material exposure to losses arising from it.

MIPRU 4.2.15ERP
  1. (1)

    When seeking to rely on the second condition, a firm should ensure that the loan or plan1 qualifies for the 'linked presentation' accounting treatment under Financial Reporting Standard 5 (Reporting the substance of transactions) issued in April 1994, and amended in December 1994 and September 1998 (if applicable to the firm).

  2. (2)

    Compliance with (1) may be relied upon as tending to establish compliance with the second condition.

MIPRU 4.2.16GRP

The requirement that the loan qualifies for the 'linked presentation' accounting treatment under FRS 5 is aimed at those firms which report according to FRS 5. Other firms which report under other standards, including International Accounting Standards, need not adopt FRS 5 in order to meet the second condition.

MIPRU 4.2.17ERP
  1. (1)

    When seeking to rely on the second condition, a firm should not provide material credit enhancement in respect of the loan or plan1 unless it deducts the amount of the credit enhancement from its capital resources before meeting its capital resources requirement.

  2. (2)

    Credit enhancement includes:

    1. (a)

      any holding of subordinated loans or notes in a transferee that is a special purpose vehicle; or

    2. (b)

      over collateralisation by transferring loans or plans1 to a larger aggregate value than the securities to be issued; or

    3. (c)

      any other arrangement with the transferee to cover a part of any subsequent losses arising from the transferred loan or plan1.

  3. (3)

    Contravention of (1) may be relied upon as tending to establish contravention the second condition.

Capital resources requirement: home finance1 administration only

MIPRU 4.2.18RRP

The capital resources requirement for a firm carrying on home finance administration 1only, which has all or part of the home finance transactions 1that it administers on its balance sheet, is:2

11121111112
  1. (1)

    in the case of a firm carrying on only home finance administration which is not connected to regulated mortgage contracts, the amount which is applied to a firm under MIPRU 4.2.12 R; or2

  2. (2)

    in the case of a firm carrying on any home finance administration which is connected to regulated mortgage contracts, the amount which is applied to a firm under MIPRU 4.2.23 R.2

MIPRU 4.2.19RRP

The capital resources requirement for a firm carrying on home finance administration only, which has all the home finance transactions1 that it administers off its balance sheet, is the higher of:

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  1. (1)

    £100,000; and

  2. (2)

    10% of its annual income.

1Capital resources requirement: insurance mediation activity and home financing or home finance administration1

MIPRU 4.2.20RRP

The capital resources requirement for a firm carrying on insurance mediation activity and home financing1 or home finance administration1 is the sum of :

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  1. (1)

    the capital resources requirement2 for a firm carrying on insurance mediation activity or home finance mediation activity1 (and no other regulated activity) (see MIPRU 4.2.11 R); and

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  2. (2)
    1. (a)

      in the case of a firm carrying on home financing which is not connected to regulated mortgage contracts, or home finance administration which is not connected to regulated mortgage contracts, the amount which is applied to a firm under MIPRU 4.2.12 R; or 2

      1111112
    2. (aa)

      in the case of a firm carrying on any home financing which is connected to regulated mortgage contracts or any home finance administration that it administers on its balance sheet which is connected to regulated mortgage contracts, the amount which is applied to a firm under MIPRU 4.2.23 R; or2

    3. (b)

      in the case of a firm carrying on home finance administration with all the home finance transactions that it administers off balance sheet, the amount which is applied to a firm under MIPRU 4.2.19 R.2

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1Capital resources requirement: home finance mediation activity and home financing or home finance administration1

MIPRU 4.2.21RRP
  1. (1)

    If a firm carrying on home finance mediation activity1 and home financing1 or home finance administration1 does not hold client money or other client assets in relation to itshome finance mediation activity1, the capital resources2 requirement is:

    1111112
    1. (a)

      in the case of a firm carrying on home financing which is not connected to regulated mortgage contracts or home finance administration which is not connected to regulated mortgage contracts, the amount applied to a firm under MIPRU 4.2.12 R; or 2

      1111112
    2. (aa)

      in the case of a firm carrying on any home financing which is connected to regulated mortgage contracts or any home finance administration that it administers on its balance sheet which is connected to regulated mortgage contracts, the amount applied to a firm under MIPRU 4.2.23 R; or 2

    3. (b)

      in the case of a firm carrying on home finance administration with all the home finance transactions that it administers off balance sheet, the amount applied to a firm under MIPRU 4.2.19 R2

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  2. (2)

    If the firm holds client money or other client assets in relation to its home finance mediation activity1, the capital resources requirement is:

    1
    1. (a)

      the amount calculated under (1); plus

    2. (b)

      the amount which is applied to a firm carrying on insurance mediation activity or home finance mediation activity 1(and no other regulated activity) that holds client money or other client assets in relation to these activities (see MIPRU 4.2.11R (2)).

      1

Capital resources requirement: other combinations of activities

MIPRU 4.2.22RRP

The capital resources requirement for a firm carrying on any combination of regulated activities which is not set out in MIPRU 4.2.10 R to MIPRU 4.2.21 R and MIPRU 4.2.23 R is: 2

11112
  1. (1)

    2if the combination of regulated activities includes carrying on any home financing connected to regulated mortgage contracts or home finance administration connected to regulated mortgage contracts, the sum of the amounts which are applied to a firm under:

    1. (a)

      MIPRU 4.2.20R (1); and

    2. (b)

      MIPRU 4.2.23 R; or

  2. (2)

    2in all other cases, the sum of the amounts which are applied to a firm under:

    1. (a)

      MIPRU 4.2.20R (1); and

    2. (b)

      MIPRU 4.2.12 R.

Capital resources requirement: home financing and home finance administration connected to regulated mortgage contracts

MIPRU 4.2.23RRP

2The capital resources requirement 4for a firm carrying on any home financing which is connected to regulated mortgage contracts, or home financing and home finance administration which is connected to regulated mortgage contracts (and no other regulated activity), is the higher of:

4
  1. (1)

    £100,000; and

  2. (2)

    the sum of:

    1. (a)

      the credit risk capital requirement 4calculated in accordance with MIPRU 4.2A; and

      4
    2. (b)

      1% of:

      1. (i)

        its total assets plus total undrawn commitments and unreleased amounts under the home reversion plan; less

      2. (ii)

        intangible assets (see Note 1 in the table in MIPRU 4.4.4 R) plus loans, securitisation positions and fund4 positions subject to MIPRU 4.2A.4 R.

        4