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MIPRU 4.1 Application and purpose

Application

MIPRU 4.1.1 R RP

2This chapter applies to a firm with Part 4A 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
MIPRU 4.1.2 G RP

As this chapter applies only to a firm with Part 4A permission, it does not apply to an incoming EEA firm (unless it has a top-up permission). An incoming EEA firm includes a firm which is passporting into the United Kingdom under the Insurance Mediation Directive3.

3
MIPRU 4.1.3 G RP

The definition of insurance mediation activity refers to 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.

Application: banks, building societies, insurers and friendly societies

MIPRU 4.1.4 R RP

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.

MIPRU 4.1.5 G RP

The capital resources of the firms above are calculated in accordance with the appropriate prudential sourcebook.

Application: firms carrying on designated investment business only

MIPRU 4.1.6 R RP

This chapter does not apply to a firm whose Part 4A permission is limited to regulated activities which are designated investment business.

MIPRU 4.1.7 G

A firm which carries on designated investment business, and no other regulated activity, may disregard this chapter. For example, a firm with permission limited to dealing in investments as agent in relation to securities is only carrying on designated investment business and the Interim Prudential sourcebook for investment businesses or the Prudential sourcebook for Banks, Building Societies and Investment Firms, as appropriate, will apply. However, if its permission is varied to enable it to arrange motor insurance as well, this activity is not designated investment business so the firm will be subject to the higher of the requirements in this chapter and those sourcebooks (see MIPRU 4.2.5 R).

Application: professional firms

MIPRU 4.1.10 R RP
  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.

Application: social housing firms

MIPRU 4.1.13 G RP

There are special provisions for a social housing firm when it is carrying on home financing1or home finance administration1(see MIPRU 4.2.7 R).

1 1 1 1

Purpose

MIPRU 4.1.14 G RP

This chapter amplifies threshold condition 4 (Adequate 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 Principle 4 which requires a firm to maintain adequate financial resources by setting out capital requirements for a firm according to the regulated activity or activities it carries on.

MIPRU 4.1.15 G RP

Capital has an important role to play in protecting consumers and complements the roles played by professional indemnity insurance and client money protection (see the client money rules). Capital provides a form of protection for situations not covered by a firm's professional indemnity insurance and it provides the funds for the firm's PII excess, which it has to pay out of its own finances (see MIPRU 3.2.11 R and MIPRU 3.2.12 R for the relationship between the firm's capital and its excess).

MIPRU 4.1.16 G RP

More generally, having adequate capital gives the firm a degree of resilience and some indication to consumers of creditworthiness, substance and the commitment of its owners. It reduces the possibility of a shortfall of funds and provides a cushion against disruption if the firm ceases to trade.

MIPRU 4.1.17 G RP

There is a greater risk to consumers, and a greater adverse impact on market confidence, if a firm holding client money or other client assets fails. For this reason, the capital resources rules in this chapter clearly distinguish between firms holding client assets and those that do not.

Purpose: social housing firms

MIPRU 4.1.18 G RP

Social housing firms undertake small amounts of home finance1business even though their main business consists of activities other than regulated activities. Their home financing1is only done as an adjunct to their primary purpose (usually the provision of housing) and is substantially different in character to that done by commercial lenders. Furthermore, they are subsidiaries of local authorities or registered social landlords which are already subject to separate regulation. The FCA does not consider that it would be proportionate to the risks involved with such business to impose significant capital requirements for these firms. The capital resources requirement for social housing firms therefore simply provides that, where their Part 4A permission is limited to home financing1and home finance administration1, their net tangible assets must be greater than zero.

1 1 1 1 1 1
MIPRU 4.1.19 G RP

A registered social landlord is a non-profit organisation which provides and manages homes for rent and sale for people who might not otherwise be able to rent or buy on the open market. It can be a housing association, a housing society or a non-profit making housing company. The Homes and Communities Agency and the Tenant Services Authority were set up by Parliament in 2008 and cooperate in providing financial assistance for social housing.5

5

MIPRU 4.2 Capital resources requirements

Applicable guidance within BIPRU

MIPRU 4.2.-1 G RP

2Unless otherwise specified, where MIPRU 4.2 to MIPRU 4.2D refers to a guidance provision contained in BIPRU, a firm should regard that guidance provision as applying to it in the same way that that provision applies to a BIPRUfirm.

General solvency requirement

MIPRU 4.2.1 R RP

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

MIPRU 4.2.1A G

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 4.2.2 R RP

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 4.2.3 R RP

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 4.2.4 R RP

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 4.2.5 R RP

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 EUCRR3 or the General Prudential sourcebook and the 3Prudential sourcebook for Banks, Building Societies and Investment Firms.

Capital resources requirement: social housing firms

MIPRU 4.2.7 R RP

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

    11
  2. (2)

    home finance administration1(or both);

    11

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

MIPRU 4.2.8 G RP

If a social housing firm is carrying on home financing1or home finance administration1(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.

1 1 1 1 1

Capital resources requirement: application according to regulated activities

MIPRU 4.2.9 R RP

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 4.2.10 R RP
MIPRU 4.2.10A G RP

2 MIPRU 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 4.2.11 R RP
  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)

      ÂŁ5,000; 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)

      ÂŁ10,000; and

    2. (b)

      5% of the annual income from its insurance mediation activity or home finance mediation activity1(or both).

1 1Capital resources requirement: home financing and home finance administration not connected to regulated mortgage contracts2

MIPRU 4.2.12 R RP
  1. (1)

    The capital resources requirement for a firm carrying on only2home financing, 1which is not connected to regulated mortgage contracts, 2or home financing1and home finance administration1 which is not connected to regulated mortgage contracts2 (and no other regulated activity) is the higher of:

    111111
    1. (a)

      ÂŁ100,000; 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 4.2.13 G RP

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 4.2.14 R RP

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 4.2.15 E RP
  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 4.2.16 G RP

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 4.2.17 E RP
  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 4.2.18 R RP

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:2

1 1 1 2 1 1 1 1 1 1 2
  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 4.2.19 R RP

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
  1. (1)

    ÂŁ100,000; and

  2. (2)

    10% of its annual income.

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

MIPRU 4.2.20 R RP

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

1 1 1 1 2
  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

    21
  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

      11

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

MIPRU 4.2.21 R RP
  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

      112
  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

Capital resources requirement: other combinations of activities

MIPRU 4.2.22 R RP

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

1 1 1 1 2
  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 4.2.23 R RP

2The capital resources requirementfor 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:

  1. (1)

    ÂŁ100,000; and

  2. (2)

    the sum of:

    1. (a)

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

    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 CIU positions subject to MIPRU 4.2A.4 R.

MIPRU 4.2A Credit risk capital requirement

Application

MIPRU 4.2A.1 R RP

1This section applies to a firm to which MIPRU 4.2.23 R applies.

Purpose

MIPRU 4.2A.2 G RP

The purpose of3MIPRU 4.2A is to:3

  1. (1)

    set out how a firm should calculate its credit risk capital requirement;

  2. (2)

    set out how a firm should calculate its risk weighted exposure amounts for exposures on its balance sheet; and3

  3. (3)

    identify which provisions of BIPRU 3 will apply to a firm, in addition to the provisions of MIPRU 4.2A, to enable it to make those calculations. 3

MIPRU 4.2A.3 G RP

A firm should refer to BIPRU 5 (as amended by MIPRU 4.2C.3 R3) with regard to the effect of credit risk mitigation on the calculation of3risk weighted exposure amounts.

3 3 3

Calculation of credit risk

MIPRU 4.2A.4 R RP

The credit risk capital requirement of a firm is 8% of the total of its risk weighted exposure amounts for exposures that:

  1. (1)

    are on its balance sheet; and

  2. (2)

    derive from:

    1. (a)

      a loan entered into; or

    2. (b)

      a securitisation position originated; or

    3. (c)

      a CIU position entered into;

    on or after 26 April 2014; and

  3. (3)

    have not been deducted from the firm'scapital resources under MIPRU 4.4.4 R or MIPRU 4.2BA;

calculated in accordance with MIPRU 4.2A.

MIPRU 4.2A.5 R RP

Any arrangements entered into on or after 26 April 20142 which increase the amount of a loan already advanced or change the security to a loan already advanced or change the contractual terms (other than if the firm is exercising forbearance) of a loan already advanced will be subject to the credit risk capital requirement under MIPRU 4.2A.4R (2)(a) provided that, where the arrangements only increase the amount of a loan already advanced, such requirement shall only apply to the amount of such increase.

MIPRU 4.2A.5A G RP

The arrangements excluded from the credit risk capital requirement include:

  1. (1)

    a loan acquired by a firm after 26 April 2014 if that loan was made before 26 April 2014;

  2. (2)

    arrangements made as a result of forbearance procedures, including:

    1. (a)

      a change in the basis of interest payments from variable to fixed rate; or

    2. (b)

      a change from a repayment mortgage to interest only; or

    3. (c)

      the capitalisation of interest which increases the principal outstanding, where there is no element of new borrowing.

MIPRU 4.2A.6 R RP

The exposure value of an asset itemmust be its balance sheet value.

MIPRU 4.2A.7 R

When calculating risk weighted exposure amounts, a firm must comply with BIPRU 3.2.3 R, BIPRU 3.2.9 R to BIPRU 3.2.19 G, and BIPRU 3.2.38 R in the same way that these provisions apply to a BIPRU firm, except to the extent that a provision is modified or excluded in the table in MIPRU 4.2A.8 R.

MIPRU 4.2A.8 R

This table belongs to MIPRU 4.2A.7 R

BIPRU provision

Adjustment

All provisions of BIPRU 3.2

A reference to a provision of BIPRU 3, BIPRU 5 or BIPRU 9 must be read in conjunction with MIPRU 4.2A.8 R, MIPRU 4.2B.3 R and MIPRU 4.2C.3 R

All provisions of BIPRU 3.2

All references to capital resources in BIPRU 3.2 are replaced by references to capital resources calculated under MIPRU 4.4

BIPRU 3.2.14 G

The last two sentences do not apply

BIPRU 3.2.38 R

The references to BIPRU 14, BIPRU 13.3.13 R and BIPRU 13.8.8 R (Exposure to a central counterparty) do not apply

BIPRU 3.2.10 R and BIPRU 3.2.19 G

The references to €1m are replaced by references to £1m.

MIPRU 4.2A.9 R RP

For the purposes of applying a risk weight, the exposure value must be multiplied by the risk weight determined in accordance with MIPRU 4.2A.10 R, MIPRU 4.2A.11 R, MIPRU 4.2A.12 R or MIPRU 4.2A.13 R.

MIPRU 4.2A.10 R RP

To calculate risk weighted exposure amounts on exposures secured by mortgages on residential property, risk weights must be applied to all such exposures,unless deducted from capital resources calculated under MIPRU 4.4, in accordance with BIPRU 3.4.56 R to BIPRU 3.4.88 G.

MIPRU 4.2A.11 R RP

To calculate risk weighted exposure amounts on exposures in CIUs, risk weights must be applied to all such exposures, unless deducted from capital resources under MIPRU 4.4, in accordance with BIPRU 3.4.114 R to BIPRU 3.4.125 R.

MIPRU 4.2A.12 R RP

Risk weighted exposure amounts for securitised exposures must be calculated in accordance with MIPRU 4.2B.

MIPRU 4.2A.13 R

To calculate risk weighted exposure amounts on exposures other than those provided for in MIPRU 4.2A.10 R to MIPRU 4.2A.12 R, risk weights must be applied to all such exposures, unless deducted from capital resources calculated under MIPRU 4.4, in accordance with BIPRU 3.5.5 G as though that provision were a rule.

MIPRU 4.2A.14 G

Rather than risk weighting exposures individually under MIPRU 4.2A.13 R, a firm should apply a single risk weight to all exposures in each exposure class.

MIPRU 4.2A.15 R

If a firm calculates risk weighted exposure amounts under MIPRU 4.2A.13 R and is directed by BIPRU 3.5.5 G to the "normal rules", it must, in the calculation of those risk weighted exposure amounts, comply with BIPRU 3.4 in the same way that that section applies to a BIPRU firm.

MIPRU 4.2A.16 R

Exposures must be assigned a risk weight of 100% if MIPRU 4.2A.10 R to MIPRU 4.2A.13 R do not set out a calculation for risk weighted exposure amounts applicable to that exposure.

MIPRU 4.2A.17 R

A firm must apply BIPRU 3.4.96 R to BIPRU 3.4.102 R to all past items due.

MIPRU 4.2A.18 G

A firm may apply BIPRU 3.5.6 G and BIPRU 3.5.7 G to exposures. MIPRU 4.2C sets out the amendments to the BIPRU 5rules referenced within these provisions.

MIPRU 4.2B Securitisation

Application

MIPRU 4.2B.1 R

This section applies to a firm to which MIPRU 4.2.23 R applies.

Purpose

MIPRU 4.2B.2 G

The purpose of MIPRU 4.2B is to set out:

  1. (1)

    how a firm that is required to calculate the credit risk capital requirement under MIPRU 4.2.23 R should calculate the risk weighted exposure amounts for securitisation positions; and

  2. (2)

    the requirements that investors, originators and sponsors of securitisations on the balance sheet will have to meet (BIPRU 9.3.1A R and BIPRU 9.3.15 R to BIPRU 9.3.20 R).

Calculation of risk weighted exposure amount for securitisation positions

MIPRU 4.2B.3 R

To calculate the risk weighted exposure amount for securitisation positions, a firm must comply with BIPRU 9 in the same way that that section applies to a BIPRU firm, except to the extent that a provision of BIPRU 9 is modified or excluded in the table in MIPRU 4.2B.4 R.

MIPRU 4.2B.4 R

This table belongs to MIPRU 4.2B.3 R

BIPRU provision

Adjustment

All sections of BIPRU 9

All references to capital resources in BIPRU 9 are replaced by references to capital resources calculated under MIPRU 4.4

All sections of BIPRU 9

A reference to a provision of BIPRU 3, BIPRU 5 or BIPRU 9 must be read in conjunction with MIPRU 4.2A.8 R, MIPRU 4.2B.4 R and MIPRU 4.2C.4 R

BIPRU 9.1.1 R

This rule does not apply

BIPRU 9.1.2 G

This provision does not apply

BIPRU 9.1.8A G (3)

The words "and these should be taken into account under the overall Pillar 2 rule" do not apply

BIPRU 9.1.9 G

This provision does not apply

BIPRU 9.1.10 G

This provision does not apply

BIPRU 9.2

This section does not apply

BIPRU 9.3.7 R to BIPRU 9.3.14 G

These rules do not apply

BIPRU 9.3.15 R

The first sentence of this rule is amended to read as follows: "A firm, whether acting as sponsor or originator, must apply the same sound and well defined criteria used for credit granting in respect of exposures held on its balance sheet to exposures to be securitised."

BIPRU 9.3.16 R

This rule is amended to read as follows: "A firm must apply the same standards of analysis to exposures under BIPRU 9.3.15 R regardless of whether it has purchased or originated those exposures."

BIPRU 9.3.17 R

Where a firm is an originator, it must comply with this rule as it applies to a credit institution

BIPRU 9.3.18 R

Where a firm is an originator or sponsor of a securitisation, it must comply with this rule in the same way that it applies to a credit institution

BIPRU 9.3.19 R

Where a firm is an originator or sponsor of a securitisation, it must comply with this rule in the same way that it applies to a credit institution

BIPRU 9.3.21 G

This provision does not apply

BIPRU 9.3.22 G

This provision does not apply

BIPRU 9.4.1 R

This rule is amended to read as follows: "The originator of a traditional securitisation may exclude securitised exposures from the calculation of risk weighted exposure amounts and expected loss amounts if significant credit risk associated with the securitised exposures has been transferred to third parties and the transfer complies with the conditions in BIPRU 9.4.2 R to BIPRU 9.4.10 R."

BIPRU 9.4.11 R to BIPRU 9.4.18 G

These provisions do not apply

BIPRU 9.5.1 R (1)

This rule is amended to read as follows: "An originator of a synthetic securitisation may calculate risk weighted exposure amounts, and, as relevant, expected loss amounts, for the securitised exposures in accordance with BIPRU 9.5.3 R and BIPRU 9.5.4 R, if significant credit risk has been transferred to third parties, either through funded or unfunded credit protection, and the transfer complies with the conditions in (2) - (5)."

BIPRU 9.5.1 R (3)

The reference to BIPRU 4.10 (Credit risk mitigation under the IRB approach) does not apply

BIPRU 9.5.1 R (6)

This rule does not apply

BIPRU 9.5.1 R (7)

This rule does not apply

BIPRU 9.5.1A G to BIPRU 9.5.1F G

These provisions do not apply

BIPRU 9.5.3 R (1)

The reference to BIPRU 9.9 to BIPRU 9.14 is replaced by a reference to BIPRU 9.9 to BIPRU 9.11

The reference to BIPRU 3 is replaced by a reference to MIPRU 4.2A

The reference to BIPRU 4 (IRB approach) does not apply

BIPRU 9.5.3 R (2)

This rule does not apply

BIPRU 9.5.4 R

The reference to BIPRU 9.9 to BIPRU 9.14 is replaced by a reference to BIPRU 9.9 to BIPRU 9.11

BIPRU 9.5.7 R

The reference to BIPRU 4.10 (Credit risk mitigation under the IRB approach) does not apply

BIPRU 9.5.8 R

The reference to BIPRU 9.9 to BIPRU 9.14 is replaced by a reference to BIPRU 9.9 to BIPRU 9.11

BIPRU 9.6.8 G

This provision does not apply

BIPRU 9.7.3 G

This provision does not apply

BIPRU 9.8.1 R

The reference to BIPRU 9 is replaced by a reference to MIPRU 4.2B

BIPRU 9.8.2 R

The reference to BIPRU 9 is replaced by a reference to MIPRU 4.2B

BIPRU 9.8.7 R

The references to BIPRU 4.10 (Credit risk mitigation under the IRB approach) do not apply

BIPRU 9.9.1 R

The reference to BIPRU 9.9 to BIPRU 9.14 is replaced by a reference to BIPRU 9.9 to BIPRU 9.11

BIPRU 9.9.2 R

The reference to BIPRU 9.9 to BIPRU 9.14 is replaced by a reference to BIPRU 9.9 to BIPRU 9.11

BIPRU 9.9.4 R (2)

This rule does not apply

BIPRU 9.9.5 R

This rule does not apply

BIPRU 9.9.6 R

The reference to BIPRU 9.14 does not apply

BIPRU 9.9.7 R

The reference to BIPRU 4.10 (Credit risk mitigation under the IRB approach) and the reference to BIPRU 9.14 do not apply

BIPRU 9.9.9 R

The words "subject to the provisions of GENPRU that deal with the deduction of securitisation positions at stage M in the relevant capital resources table" do not apply

BIPRU 9.10.1 R

The references to the IRB approach do not apply

BIPRU 9.10.2 R

This rule does not apply

BIPRU 9.10.3 R

The reference to BIPRU 9.12.8 R does not apply

BIPRU 9.10.4 R to BIPRU 9.10.7 R

These rules do not apply

BIPRU 9.12

This section does not apply

BIPRU 9.13

This section does not apply

BIPRU 9.14

This section does not apply

BIPRU 9.15

This section does not apply

MIPRU 4.2B.5 G

Subject to BIPRU 9.3.6 G, for the purposes of BIPRU 9.4.1 R and BIPRU 9.5.1 R the transfer of credit risk to third parties should only be considered significant if the proportion of risk transferred is broadly commensurate with, or exceeds, the proportion by which risk weighted exposure amounts are reduced.

MIPRU 4.2B.6 G

For measuring the reduction in risk and risk weighted exposure amounts, an originator should assess the securitisation positions it holds against the underlying exposures as if they had never been securitised.

MIPRU 4.2B.7 G

An originator should use an appropriate method, consistent with its own internal processes, to assess whether the risk transferred is significant.

MIPRU 4.2B.8 G

If the result of:

  1. (1)

    applying a risk weight of 1250% to all positions that an originator holds in the securitisation; or

  2. (2)

    deducting all those positions from capital resources;

is a reduction in the originator's capital requirement compared to the capital requirements that would apply had it not transferred the securitised exposures, then the originator may treat the risk transferred as significant for the purposes of BIPRU 9.4.1 R and BIPRU 9.5.1 R.

MIPRU 4.2C Credit risk mitigation

Application

MIPRU 4.2C.1 R RP

This section applies to a firm to whichMIPRU 4.2.23 R applieswherethat firm wishes to apply credit risk mitigation to the calculation of its risk weighted exposure amounts under MIPRU 4.2A.

Purpose

MIPRU 4.2C.2 G RP

The purpose of MIPRU 4.2C is to set out which provisions of BIPRU 5 a firm should comply with in the recognition of credit risk mitigation in the calculation of risk weighted exposure amounts for the purposes of the calculation of the credit risk capital requirement under MIPRU 4.2.23 R.

General

MIPRU 4.2C.3 R

A firm that wishes to recognise credit risk mitigation in the calculation of risk weighted exposure amounts, must comply with BIPRU 5 in the same way that that section applies to a BIPRU firm, except to the extent that a provision of BIPRU 5 is modified or excluded in the table in MIPRU 4.2C.4 R.

MIPRU 4.2C.4 R

This table belongs to MIPRU 4.2C.3 R

BIPRU provision

Adjustment

All provisions of BIPRU 5

A reference to a provision of BIPRU 3, BIPRU 5 or BIPRU 9 must be read in conjunction with MIPRU 4.2A.8 R, MIPRU 4.2B.4 R and MIPRU 4.2C.4 R

BIPRU 5.1

This section does not apply

BIPRU 5.3.2 R

The words "without prejudice to BIPRU 5.6.1 R" do not apply

BIPRU 5.4.1 R

This rule does not apply

BIPRU 5.4.8 R

This rule does not apply

BIPRU 5.4.16 R

This rule does not apply

BIPRU 5.4.18 R

The second sentence of this rule does not apply

The words "BIPRU 5.4.19 R to BIPRU 5.4.21 R" are replaced by the words "BIPRU 5.4.21 R"

BIPRU 5.4.19 R

This rule does not apply

BIPRU 5.4.20 R

This rule does not apply

BIPRU 5.4.22 R

The reference to BIPRU 5.4.20 R does not apply

BIPRU 5.4.23 R to BIPRU 5.4.66 R

These provisions do not apply. A firm must only use the financial collateral simple method

BIPRU 5.6

This section does not apply

BIPRU 5.7.4 R

This rule does not apply

BIPRU 5.7.12 R

This rule does not apply

BIPRU 5.7.19 R

This rule does not apply

BIPRU 5.7.23 R

The words "BIPRU 3.2.20 R to BIPRU 3.2.26 R" are replaced by the words "MIPRU 4.2A.8 R to MIPRU 4.2A.11 R and MIPRU 4.2A.14 G"

BIPRU 5.7.23 R (3)

The first clause of this rule is amended to read as follows: "E is the exposure value according to MIPRU 4.2A.5A G and BIPRU 3.2.3 R;"

The second clause of this rule does not apply

BIPRU 5.7.24 R

The words "BIPRU 3.2.20 R to BIPRU 3.2.26 R" are replaced by the words "MIPRU 4.2A.8 R to MIPRU 4.2A.11 R and MIPRU 4.2A.14 G".

BIPRU 5.7.24 R (1)

This rule is amended to read as follows: "E is the exposure value according to MIPRU 4.2A.5A G and BIPRU 3.2.3 R."

BIPRU 5.7.27 R

The references to BIPRU 4.10 and the IRB approach do not apply

BIPRU 5.8.8 R and BIPRU 5.8.9 R

These rules do not apply

MIPRU 4.2D Liquidity resources requirements

Application

MIPRU 4.2D.1 R RP

This section applies to a firm carrying on any home financing or home finance administration connected to regulated mortgage contracts, unless as at 26 April 2014 its Part 4A permission was and continues to remain subject to a restriction preventing it from undertaking new home financing or home finance administration connected to regulated mortgage contracts.

Adequacy of liquidity resources

MIPRU 4.2D.2 R RP

A firm must at all times maintain liquidity resources which are adequate, both as to amount and quality, to ensure that there is no significant risk that its liabilities cannot be met as they fall due.

MIPRU 4.2D.3 G RP

In assessing the adequacy of liquidity resources, a firm should have regard to the overall character of the resources available to it, which enable it to meet its liabilities as they fall due. A firm should ensure that:

  1. (1)

    it holds sufficient assets which are marketable, or otherwise realisable;

  2. (2)

    it is able to generate funds from those assets in a timely manner; and

  3. (3)

    it maintains a prudent funding profile in which its assets are of appropriate maturities, taking into account the expected timing of its liabilities.

Systems and controls requirements

MIPRU 4.2D.4 R RP

A firm must have in place robust strategies, policies, processes and systems that enable it to identify, measure, manage and monitor liquidity risk over the appropriate set of time horizons for its business activities, to ensure that it maintains adequate levels of liquidity resources. These strategies, policies, processes, and systems must be appropriate to the firm's business lines, currencies in which it operates, and its group companies and must include adequate allocation mechanisms of liquidity costs, benefits and risks.

MIPRU 4.2D.5 R RP

The strategies, policies, processes and systems referred to in MIPRU 4.2D.4 R must be proportionate to the nature, scale and complexity of the firm's activities and the risk profile of the firm.

MIPRU 4.2D.6 R RP

A firm must have in place reliable management information systems to provide its governing body, senior managers and other appropriate personnel with timely and forward-looking information on the liquidity position of the firm.

MIPRU 4.2D.7 R RP

A firm must ensure that its governing body reviews regularly (and not less frequently than annually) the continued adequacy of any strategies, policies, processes and systems in place in accordance with MIPRU 4.2D.4 R

Stress testing and contingency funding plans

MIPRU 4.2D.8 R RP

A firm must consider alternative scenarios in which its liquidity position could be impacted. The consideration of alternative scenarios must include and deal with off-balance sheet items and other contingent liabilities, including those of securitisation special purpose entities (SSPEs) or other special purpose entities, in relation to which the firm acts as sponsor or provides material liquidity support. These scenarios must be incorporated into the stress testing under MIPRU 4.2D.9 R.

MIPRU 4.2D.9 R RP

In order to ensure compliance with MIPRU 4.2D.2 R, a firm must:

  1. (1)

    conduct on a regular basis appropriate stress tests so as to:

    1. (a)

      identify sources of potential liquidity strain; and

    2. (b)

      ensure that the risks of current liquidity exposures can be adequately managed; and

  2. (2)

    analyse the separate and combined impact of possible future liquidity stresses on its:

    1. (a)

      cash flows;

    2. (b)

      liquidity position; and

    3. (c)

      solvency; and

  3. (3)

    make, as soon as is practicable after a test has been performed, and maintain a written record of all stress tests and their results

MIPRU 4.2D.10 R RP

A firm must ensure that its governing body reviews regularly the stresses and scenarios tested and the assumptions underlying the funding position of the firm to ensure that their nature and severity remain appropriate and relevant to it.

MIPRU 4.2D.11 G RP

For the purpose of MIPRU 4.2D.10 R a review should take into account:

  1. (1)

    changes in market conditions;

  2. (2)

    changes in funding sources and inflows;

  3. (3)

    changes in the nature, scale or complexity of the firm's business model and activities; and

  4. (4)

    the firm's practical experience in periods of stress.

MIPRU 4.2D.12 R RP

A firm must adjust its strategies, internal policies and limits on liquidity risk, taking into account the outcome of the alternative scenarios referred to in MIPRU 4.2D.8 R.

MIPRU 4.2D.13 R RP
  1. (1)

    A firm must have in place contingency funding plans setting out adequate strategies and proper implementation measures in order to address potential liquidity shortfalls.

  2. (2)

    The contingency funding plans must be:

    1. (a)

      in writing;

    2. (b)

      approved by the firm'sgoverning body;

    3. (c)

      regularly tested; and

    4. (d)

      updated on the basis of the outcome of the stress tests, testing alternative scenarios set out in MIPRU 4.2D.8 R.

MIPRU 4.2D.14 G RP

A contingency funding plan sets out a firm's strategies for managing liquidity shortfalls in emergency situations. Its aim should be to ensure that, in each of the stresses set out in MIPRU 4.2D.11 G, it would have sufficient liquidity resources to ensure that it can meet its liabilities as they fall due.

MIPRU 4.3 Calculation of annual income

Annual income

MIPRU 4.3.1 R RP

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.

MIPRU 4.3.2 R RP

'Annual income' is the annual income given in the firm's most recent annual financial statement from the relevant regulated activity or activities.

MIPRU 4.3.3 R RP

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.

1
MIPRU 4.3.4 G RP
  1. (1)

    The purpose of the rule on annual income that applies to insurance intermediaries and mortgage intermediaries is to ensure that the capital resources requirement is calculated on the basis only of brokerage and other amounts earned by a firm which are its own income.

  2. (2)

    Annual income includes commissions and other amounts the firm may have agreed to pay to other persons involved in a transaction, such as sub-agents or other intermediaries.

  3. (3)

    A firm'sannual income does not, however, include any amounts due to another person (for example, the product provider) which the firm has collected on behalf of that other person.

MIPRU 4.3.5 R RP

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.

MIPRU 4.3.6 G RP

If a firm is a network, it should include the relevant income due to all of its appointed representatives in its annual income.

Annual income for home finance administration11

MIPRU 4.3.7 R RP

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
  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.

Annual income: periods of less than 12 months

MIPRU 4.3.8 R RP

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.

Annual income: no financial statements

MIPRU 4.3.9 R RP

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 appropriate regulator.

MIPRU 4.4 Calculation of capital resources

The calculation of a firm's capital resources

MIPRU 4.4.1 R RP
  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 Investment Firms and the EU CRR, the General Prudential sourcebook6, 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 and regulations6.

MIPRU 4.4.2 R RP

Table: Items which are eligible to contribute to the capital resources of a firm

Item

Additional explanation

1.

Share capital

This must be fully paid and may include:

(1)

ordinary share capital; or

(2)

preference share capital (excluding preference shares redeemable by shareholders within two years).

2.

Capital other than share capital (for example, the capital of a sole trader, partnership or limited liability partnership)

The capital of a sole trader is the net balance on the firm's capital account and current account. The capital of a partnership is the capital made up of the partners':

(1)

capital account, that is the account:

(a)

into which capital contributed by the partners is paid; and

(b)

from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if:

(i) he ceases to be a partner and an equal amount is transferred to another such account by his former partners or any person replacing him as their partner; or

(ii) the partnership is otherwise dissolved or wound up; and

(2)

current accounts according to the most recent financial statement.

For the purpose of the calculation of capital resources, in respect of a defined benefit occupational pension scheme:

(1)

a firm must derecognise any defined benefit asset;

(2)

a firm may substitute for a defined benefit liability the firm'sdeficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

3.

Reserves (Note 1)

These are, subject to Note 1, the audited accumulated profits retained by the firm (after deduction of tax, dividends and proprietors' or partners' drawings) and other reserves created by appropriations of share premiums and similar realised appropriations. Reserves also include gifts of capital, for example, from a parent undertaking.

For the purposes of calculating capital resources, a firm must make the following adjustments to its reserves, where appropriate:

(1)

a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on debt instruments held, or formerly held,3 in the available-for-sale financial assets category;

(2)

a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on cash flow hedges of financial instruments measured at cost or amortised cost;

(3)

in respect of a defined benefit occupational pension scheme:

(a)

a firm must derecognise any defined benefit asset;

(b)

a firm may substitute for a defined benefit liability the firm'sdeficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

4.

Interim net profits (Note 1)

If a firm seeks to include interim net profits in the calculation of its capital resources, the profits have, subject to Note 1, to be verified by the firm's external auditor, net of tax, anticipated dividends or proprietors' drawings and other appropriations.

5.

Revaluation reserves

6.

General/ collective provisions (Note 1)

These are provisions that a firm carrying on home financing1or home finance administration1holds against potential losses that have not yet been identified but which experience indicates are present in the firm's portfolio of assets. Such provisions must be freely available to meet these unidentified losses wherever they arise. Subject to Note 1, general/collective provisions must be verified by external auditors and disclosed in the firm's annual report and accounts.

1 1 1 1

7.

Subordinated loans

Subordinated loans must be included in capital on the basis of the provisions in this chapter that apply to subordinated loans.

Note:

1

Reserves must be audited and interim net profits, general and collective provisions must be verified by the firm's external auditor unless the firm is exempt from the provisions of Part VII of the Companies Act 1985 (section 249A (Exemptions from audit)) or, where applicable, Part 16 of the Companies Act 2006 (section 477 (Small companies: Conditions for exemption from audit))2 relating to the audit of accounts. 2

MIPRU 4.4.3 G RP

A firm should keep a record of and be ready to explain to its supervisory contacts in the appropriate regulator the reasons for any difference between the deficit reduction amount and any commitment the firm has made in any public document to provide funding in respect of a defined benefit occupational pension scheme.

MIPRU 4.4.4 R RP

Table: Items which must be deducted from capital resources

1

Investments in own shares

2

Intangible assets (Note 1)

3

Interim net losses (Note 2)

4

Excess of drawings over profits for a sole trader or a partnership (Note 2)

Notes

Notes 1. Intangible assets are the full balance sheet value of goodwill (but not until 14 January 2008 - see transitional provision 1), capitalised development costs, brand names, trademarks and similar rights and licences.

2. The interim net losses in row 3, and the excess of drawings in row 4, are in relation to the period following the date as at which the capital resources are being computed.

Personal assets

MIPRU 4.4.5 R RP

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 appropriate regulator; or

  2. (2)

    the firm holds client money or other client assets.

MIPRU 4.4.6 G RP

A sole trader or a partner may use any personal assets, including property, to meet the capital requirements of this chapter, but only to the extent necessary to make up a shortfall.

Subordinated loans

MIPRU 4.4.7 R RP

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.

MIPRU 4.4.8 R RP
  1. (1)

    This rule applies to a firm which:

    1. (a)

      carries on:

      1. (i)

        insurance mediation activity; or

      2. (ii)

        home finance mediation activity1(or both); and

        1

    in relation to those activities, holds client money or other client assets; or5

    1. (b)

      carries on home financing or home finance administration connected to regulated mortgage contracts (or both) unless as at 26 April 2014 its Part IV permission was and continues to remain subject to a restriction preventing it from undertaking new home financing or home finance administration connected to regulated mortgage contracts.5

      5
1 1 1 1 5
  1. (2)

    In calculating its capital resources, the firm must exclude any amount by which the aggregate amount of its subordinated loans and its redeemable preference shares exceeds the amount calculated as follows:

  2. four times (a - b - c);

    where:

    a

    =

    items 1 to 5 in the Table of items which are eligible to contribute to a firm's capital resources (see MIPRU 4.4.2 R)

    b

    =

    the firm's redeemable preference shares; and

    c

    =

    the amount of its intangible assets (but not goodwill until 14 January 2008 - see transitional provision 1).

MIPRU 4.4.9 G RP

If a firm wishes to see an example of a subordinated loan agreement which would meet the required conditions, it should refer to the Forms page.

1Reversion providers: additional requirement for instalment reversions

MIPRU 4.4.10 R RP
  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.

MIPRU 4.4.11 G RP

The additional requirement for reversion providers aims to protect the reversion occupier against the insolvency of the reversion provider where the reversion occupier has agreed to receive the price for the part of the qualifying interest in land sold in instalments rather than in a lump sum. The requirement does not arise, for example, in relation to reversions linked to annuities as the reversion occupier has no credit risk on the reversion provider. Also, the requirement does not arise in relation to 'mini-reversions' (or 'staged reversions') as under these plans the reversion occupier continues to own the qualifying interest in land.

Regulated sale and rent back agreements: additional requirement

MIPRU 4.4.12 R RP

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.

MIPRU 4.4.13 G RP

4An example of where this additional requirement would apply would be a term of a regulated sale and rent back agreement under which the SRB agreement seller was to receive from the SRB agreement provider a refund of an agreed percentage of the discount on the sale price of the property to which the agreement relates after an agreed qualifying period.