MIPRU 4.2 Capital resources requirements

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 and to which IPRU(INV) does not apply, 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 resources requirement which is applied by the Prudential sourcebook for MiFID Investment Firms (MIFIDPRU).

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; or

2. (2)

   home finance administration (or both);

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 distribution activity or home finance mediation activity (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. (a)

      £5,000; and

   2. (b)

      2.5% of the annual income from its insurance distribution activity or home finance mediation activity (or both).

2. (2)

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

      £10,000; and

   2. (b)

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

1. (1)

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

   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 plan; less:

      2. (ii)

         excluded loans or amounts plus intangible assets (see Note 1 in the table in MIPRU 4.4.4 R).

2. (2)

   Undrawn commitments and unreleased amounts means the total of those amounts which a customer has the right to draw down or to receive from the firm but which have not yet been drawn down or received, excluding those under an agreement:

   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.

When calculating total assets, the firm may exclude a loan or plan which 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 has 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 provider:

   1. (a)

      retains no material economic interest in the loan or the plan; and

   2. (b)

      has no material exposure to losses arising from it.

The capital resources requirement for a firm carrying on home finance administration only, which has all or part of the home finance transactions that it administers on its balance sheet, is:

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; or

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.

The capital resources requirement for a firm carrying on home finance administration only, which has all the home finance transactions 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 distribution activity and home financing or home finance administration is the sum of:

1. (1)

   the capital resources requirement for a firm carrying on insurance distribution activity or home finance mediation activity (and no other regulated activity) (see MIPRU 4.2.11 R); and

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. (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; or

   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.

1. (1)

   If a firm carrying on home finance mediation activity and home financing or home finance administration does not hold client money or other client assets in relation to itshome finance mediation activity, the capital resources requirement is:

   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. (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

   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 R

2. (2)

   If the firm holds client money or other client assets in relation to its home finance mediation activity, the capital resources requirement is:

   1. (a)

      the amount calculated under (1); plus

   2. (b)

      the amount which is applied to a firm carrying on insurance distribution activity or home finance mediation activity (and no other regulated activity) that holds client money or other client assets in relation to these activities (see MIPRU 4.2.11R (2)).

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:

1. (1)

   if 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)

   in 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.

The capital resources requirement for 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 fund positions subject to MIPRU 4.2A.4 R.