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

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 4A permission is limited to regulated activities which are designated investment business.

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.

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

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.

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 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)

      £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: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

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 :

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

      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 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

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)

   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.

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)

   £100,000; 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.

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

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.

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.

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

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.

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.

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.

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.

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

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.

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.

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.

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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 appropriate regulator.

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.

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.

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.