The 101 on Capital Resource Requirements
Our Risk and Compliance Management team look at the key things you need to know about Capital Resource Requirements.
The FCA requires firms to hold a minimum amount of capital so that they have sufficient resources to absorb routine losses and redress claims against them. Having a minimum amount of capital also enables firms to make appropriate arrangements in the event of market exit. The exact requirement for a firm is based on the size and nature of its business with smaller firms subject to a minimum requirement.
Capital has an important role to play in protecting consumers and complements the roles played by Professional Indemnity Insurance (PII) and client money protection. 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.
Additional Capital Resource Requirements may be required if a firm has a high PII excess as per the table in MIPRU 3.2.14.
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.
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 clearly distinguish between firms holding client assets and those that do not.
What are the financial resources requirements?
- You must be able to meet your liabilities as they fall due – MIPRU 4.2.1
- You must at all times maintain financial resources equal to, or in excess of, your relevant financial resources requirement – MIPRU 4.2.2
The Capital Resource Requirement is a “continual requirement” and not one that just needs to be fulfilled during regulatory reporting periods. Failure to maintain adequate capital resource will result in your firm being in breach of regulatory requirements. This reportable breach is notifiable to the FCA and can have a serious impact on your firm.
What are the minimum amounts of financial resources?
|Minimum financial requirement||Rule reference(s)|
|General insurance intermediaries that do not hold client money||£5,000 or 2.5% of annual income (whichever is the greater)||MIPRU 4.2.11R|
|General insurance intermediaries that hold client money in relation to their business in a statutory trust bank account||£10,000 or 5% of annual income (whichever is the greater)||MIPRU 4.2.11R|
|General insurance intermediaries that hold client money in relation to their business in a non-statutory trust bank account for consumers||£50,000 or 5% of annual income (whichever is the greater)||MIPRU 4.2.11R and CASS 5.4.4R|
We’ve also compiled the information into handy, downloadable fact sheet for you to refer back to. Click here to download the fact sheet.