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. Where firms do a mixture of activities that includes mortgage and general insurance business, they also need to consider the interaction with the rules in PRU 9.

The rules of Chapter 13 apply differently to firms depending on what category of firm they are. This section of the Guide only discusses those parts that relate to a low resource firm i.e. a firm that:

• is a Category B3 firm (see Appendix 13(1) of IPRU(INV) - Defined terms for Chapter 13);
• is not a network;
• has fewer than 26 advisers or representatives; and
• 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 in Chapter 13 of IPRU(INV). 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) 13.10.1R). The method of calculating your firm's financial resources is set out in the following sections of IPRU(INV): 13.10.2R, 13.10.2AR, 13.10.3R and Table 13.10(2). We have included some worked examples of own funds calculations in Appendix B of the Guide.

Where personal investment firms also do mortgage or general insurance business, under PRU 9.3.24 R they should work out which is the higher financial resource requirement under the relevant parts or PRU and IPRU(INV). In the case of a low resource firm with a £10,000 financial resources requirement, the requirement is the higher of £10,000 and 2.5% of annual income from mortgage and general insurance activities (PRU 9.3.30R (1)). This means that a £10,000 requirement will apply unless a firm earns more than £400,000 in annual income from mortgage and general insurance activities. Annual income includes all brokerages, fees and commission earned by the firm for mortgage and general insurance business.

Where a low resource firm holds client money for general insurance mediation purposes with the money in a statutory trust account the resources requirement is 5% of annual income from its mortgage and general insurance activities (PRU 9.3.30R (2)). Firms that hold client money in a non-statutory trust account must maintain minimum capital of £50,000 or 5% of annual income which ever is the greater (CASS 5.4.4 R (4)).

Your firm must hold PII. The requirements are outlined in IPRU(INV) 13.1.3(1)G to 13.1.4(4)G. These are minimum requirements and we expect senior management to take responsibility for ensuring that the cover they have in place is appropriate to the needs of their firm. The PII requirements also apply to networks and firms with 26 or more advisers but this is not discussed further in the Guide.

The terms that your policy must contain are in IPRU(INV) 13.1.4(2)R and include the limits of indemnity that apply. Further core requirements are outlined in IPRU(INV) 13.1.4(5)E to 13.1.4(7)G.

Your firm has the option of using its own financial resources in conjunction with its PII cover. Under IPRU(INV) 13.1.4(8)R to 13.1.4(14)G the policy must not be subject to conditions or exclusions which unreasonably limit the cover provided. However, under IPRU(INV) 13.1.4(10)E a firm is allowed a higher level of excess on a policy where it can show that it has additional own funds which are held in a readily realisable form.

For firms that do a mixture of activities IPRU(INV) 13 applies rather than the requirements in PRU provided the mixture of activities includes personal investment business.

IPRU(INV) 13.1.4(15)R allows firms, whether connected or not, to benefit from a PII policy that provides cover to more than one firm. So your firm may benefit from reduced administration costs from this type of arrangement but you must consider how you will deal with notifications to both your insurer and the FSA.

There is further information about buying PII on the 'Doing business with the FSA' part of our website under 'Information for small firms'.

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) 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) 13.1.10R).

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. In other words, you can store records electronically but you must be able to print them out efficiently at our request.

For the record-keeping requirements in IPRU(INV) Chapter 13 see sections 13.1.10R to 13.1.17R.

The Supervision manual sets out provisions on the periodic reporting and notification of financial information to us. Personal investment firms must comply with SUP 16.7.76 R to SUP 16.7.81 G. There is further information in Chapter 12 of the Guide.

Retail Mediation Activities Return (RMAR) reporting started on 1 April 2005. The return requires financial information and also includes a PII section that must be completed and which replaces the self-certification form. There is more information in Chapter 12.1 of the Guide.