2This chapter applies to a firm with Part IV permission to carry on any of the following activities, unless an exemption in this section applies:

1. (1)

   insurance mediation activity;

2. (2)

   home finance mediation activity;1

   1
3. (3)

   home financing1;

   14114
4. (4)

   home finance administration1.

   14114

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

This chapter 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 CREDS 5.3.13 R)6; or

      6
2. (2)

   a credit union whose Part IV permission includes mortgage lending or mortgage administration (or both) but not insurance mediation activity or mortgage mediation activity.

1. (1)

   This chapter 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 covered by this chapter 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, actuarial, conveyancing and surveying services provided to clients but excluding any items receivable in respect of regulated activities.

This chapter 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 unless a rule requires otherwise.

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)

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 EUCRR or the Prudential sourcebook for Banks, Building Societies and Investment Firms.

The capital resources requirement for a credit union to which this chapter applies is the highest of:

1. (1)

   the requirement which is applied to firms carrying on mediation activities only (see MIPRU 4.2.11 R) treating that rule as applying to the credit union by disregarding activities which are not insurance mediation activity or mortgage mediation activity;

2. (2)

   the amount which is applied by the Credit Unions sourcebook; and

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 Chapter 8 of the Interim Prudential sourcebook for investment businesses.

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

1. (1)

   home financing;1 or

   11
2. (2)

   home finance administration1(or both);

   11

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

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.

1. (1)

   If a firm carrying on insurance mediation activity or home finance mediation activity1(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 activity1(or both).

      1
2. (2)

   If a firm carrying on insurance mediation activity or home finance mediation activity1(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 activity1(or both).

1. (1)

   The capital resources requirement for a firm carrying on home financing, 1or home financing1and home finance administration1 (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

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.

The capital resources requirement for a firm carrying on home finance administration1only, which has all or part of the home finance transactions1that it administers on its balance sheet, is the amount which is applied to a firm carrying on home financing1or home financing1and home finance administration1(and no other regulated activity) (see MIPRU 4.2.12 R).

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:

1. (1)

   £100,000; and

2. (2)

   10% of its annual income.

The capital resources requirement for a firm carrying on insurance mediation activity and home financing1 or home finance administration1 is the sum of the requirements which are applied to the firm by:

1. (1)

   the capital resources rule 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

   1
2. (2)
   1. (a)

      the capital resources requirement rule for a firm carrying on home financing1 or home financing1 and home finance administration1 (and no other regulated activity) (see MIPRU 4.2.12 R); or

      111111
   2. (b)

      if, in addition to its insurance mediation activity, the firm carries on home finance administration1 with all the assets that it administers off balance sheet, the capital resources rule for such a firm (see MIPRU 4.2.19 R).

      11

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 requirement isthe amount applied to a firm, according to the activities carried on by the firm, by:

   111111
   1. (a)

      the capital resources requirement rule for a firm carrying on home financing1 or home financing1 and home finance administrator1 (and no other regulated activity) (see MIPRU 4.2.12 R); or

      111111
   2. (b)

      if, in addition to its home finance mediation activity1, the firm carries on home finance administration1 with all the assets that it administers off balance sheet, the capital resources rule for such a firm (see MIPRU 4.2.19 R).

      11
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 activity1(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

The capital resources requirement for a firm carrying any other combination of regulated activities is the amount which is applied to a firm carrying on insurance mediation activity and home financing1or home finance administration1(see MIPRU 4.2.20 R).

This section contains provisions relating to the calculation of annual income for the purposes of:

1. (1)

   the limits of indemnity for professional indemnity insurance; and

2. (2)

   the capital resources requirements.

'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 home finance mediation activity1, annual income 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 the calculation of the capital resources of a firm carrying on home finance administration1only with all the assets it administers off balance sheet, 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 annual financial statements, 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 which are eligible to contribute to a firm's capital resources from which it must deduct certain items (see MIPRU 4.4.4 R).

2. (2)

   If the firm is subject to the Interim Prudential sourcebook for investment businesses, the Prudential sourcebook for Banks, Building Societies and Investment Firms or the Credit Unions sourcebook, the capital resources are the higher of:

   1. (a)

      the amount calculated under (1); and

   2. (b)

      the financial resources calculated under those sourcebooks .

In relation to a sole trader'sfirm or a firm which is a partnership, the sole trader or a partner in the firm may use personal assets to meet the general solvency requirement and the general capital resource requirement, 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.

A 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, home finance mediation activity1 (or both) but not home financing1or home finance administration1) it has an original maturity of:

   1111
   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 this rule; and

10. (10)

    the debt must be unsecured and fully paid up.

1. (1)

   1If the reversion provider agrees under the terms of an instalment reversion plan to pay the reversion occupier for the qualifying interest in land over a period of time, then the provider must:

   1. (a)

      take out and maintain adequate insurance from an insurance undertaking authorised in the EEA or 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; or

   2. (b)

      enter into a written agreement with a credit institution;

   to meet these obligations in the event that the reversion provider is unable to do so.

2. (2)

   This rule does not apply if:

   1. (a)

      the instalment reversion plan is linked to an investment and it is reasonably anticipated that the amounts due to the reversion occupier under the plan will be paid out of the proceeds of the investment to the occupier by a product provider other than the reversion provider; or

   2. (b)

      the reversion provider acquires its interest in the property in steps proportionate to the instalments paid.

4If a SRB agreement provider agrees, under the terms of a regulated sale and rent back agreement, to account to the SRB agreement seller for any monetary sum, whether after a qualifying period, over a period of time, on the occurrence of a contingent event or otherwise, the provider must:

1. (1)

   take out and maintain adequate insurance from an insurance undertaking authorised in the EEA or a person of equivalent status in:

   1. (a)

      a Zone A country; or

   2. (b)

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

2. (2)

   enter into a written agreement with a credit institution;

to meet these obligations in the event that the SRB agreement provider is unable to do so.