SIFA 8.1 Summary

Until the Integrated Prudential sourcebook is introduced, the detailed financial resources standards that we apply to investment firms are set out in the Interim Prudential sourcebook for investment businesses (IPRU (INV)). The rules and guidance in this sourcebook help us meet our statutory objectives of protecting consumers and maintaining market confidence. By setting minimum capital standards, this sourcebook seeks to reduce the risk that investment firms will be unable to meet their liabilities and commitments to consumers and counterparties.

Chapters 1 and 13 of IPRU (INV) relate to personal investment firms and are largely a continuation of the prudential requirements that applied under the PIA. The rules of Chapter 13 apply differently to firms depending on what category of firm they are.

This section of the Overview only discusses those parts that relate to a low resource firm i.e. a firm that is:

1. (1)

   a Category B3 firm (see Appendix 13(1) of IPRU(INV) - Defined terms for Chapter 13);

2. (2)

   not a network;

3. (3)

   has fewer than 26 advisers or representatives; and

4. (4)

   is not permitted to carry on discretionary portfolio management.

The relevant sections of Chapter 13 for such firms are IPRU (INV) section 13.1 and sections 13.9 to 13.10. The rules and guidance set out in these sections relate to four key areas: financial resources, professional indemnity insurance, record keeping and notification requirements.

Your firm must have and maintain at all times financial resources of the kinds and amounts specified by the rules of IPRU (INV) chapter 13. Your firm must also be able to meet its liabilities as they fall due.

In particular, your firm must have financial resources of at least £10,000 at all times (IPRU(INV) 13.10.1 R). The method of calculating your firm's financial resources is set out in the following sections of IPRU (INV): 13.10.2 R, 13.10.2A R, 13.10.3 R and Table 13.10 (2).

Our policy is under development. Currently your firm must have PII cover for all business activities that it undertakes in line with IPRU (INV) 13.1.3 R to 13.1.5 E.

In July 2003 we published Consultation Paper 193: Professional Indemnity Insurance for personal investment firms (CP193) which proposes new policy and rules in this area.

Your firm must take reasonable steps to ensure that it keeps records that are sufficient to show at any time that it has complied with the requirements of IPRU (INV) Chapter 13. It must also set up procedures and controls to ensure that those records are made promptly and accurately and, where appropriate brought up-to-date at regular and frequent intervals (IPRU (INV) 13.1.10 R).

Records may be held in any form, but they must be in English and up-to-date, and your firm must be able to produce them in paper form at its business premises at our request. You may store records electronically but you must be able to print them out at our request.

The record keeping requirements are in IPRU (INV) 13.1.10 to 13.1.17.

The Supervision manual sets out provisions on the periodic reporting and notification of financial information to us. Small personal investment firms (most of which will be low resource firms) must comply with SUP 16.7.48 to SUP 16.7.53 . There is further information in Chapter 12 of this Overview.

Your firm must tell us as soon as it finds out that its professional indemnity insurance is being cancelled or that it cannot obtain new cover (IPRU (INV) 13.1.9 R). This rule is in addition to the notification requirements in the Supervision manual SUP 15 SUP 15).