RMA E: Professional indemnity insurance (PII) self certification
Q: Why are my limits quoted in euros?
A: If you are covered by the European Union’s (EU) Insurance Distribution Directive (IDD) and carry out General Insurance or Investment business, the limits of your indemnity insurance will be set out in euros. If you are a mortgage broker, this will not apply.
We know that having the limits of indemnity for single and aggregate claims quoted in euros can be confusing.
We understand that your policy is quoted in sterling, so we ask that you show your indemnity limits in either sterling or euros. However, if you choose the sterling option, conversion into euros has to be calculated using the going sterling/euro rate on the day the PII policy is agreed with your insurer or the start date of the policy.
The current limits for firms are €1,250,000 for single claims and €1,850,000 in aggregate.
Q: What is PII?
A: PII is designed to cover businesses should they be required to compensate a party that claims to have suffered a loss as a consequence of negligent conduct or omission on the part of the business. An example of such a claim is where a customer has alleged that a firm has given incorrect or misleading advice and the customer has suffered financially as a result.
A high policy excess can reduce the annual premiums a firm has to pay and can, therefore, be an option for a firm looking for ways to reduce its overheads. However, this will involve the firm taking on an increased level of risk and, therefore, we may require the firm to hold additional capital resources to protect against this risk.
Standard PII policies can also be tailored to allow for specific exclusions or extensions. Again, however, this may result in the firm being required to hold additional resources to satisfy FCA requirements.
Q: Where is PII covered in the Handbook?
A: Mortgage and general insurance firms should refer to Chapter 3 of MIPRU (Prudential sourcebook for mortgage and insurance intermediaries) for rules and guidance in relation to PII.
Personal investment firms should refer to Chapter 13.1 of IPRU(Inv) (Interim prudential sourcebook for investment businesses) for rules and guidance in relation to PII.
Q: Why is the question 'does your firm hold a comparable guarantee or equivalent cover in lieu of PII, or is it otherwise exempt from holding PII in respect of any regulated activities' greyed out on my return?
A: This question is greyed out unless a firm has notified us of its exemption from holding PII and this has received FCA approval. A firm can be exempt from PII if it has a comparable from another FCA authorised firm or it has net tangible assets greater than a specified amount or it is a solo-consolidated subsidiary of a bank or building society. The relevant rules are set out in Chapter 3 of the MIPRU sourcebook.
Q: Is my firm exempt from the PII requirements regarding of any regulated activities?
A: This question asks whether a firm is required to hold PII. In our experience, the vast majority of firms required to complete data item RMA-E must hold PII cover.
If you state that you are exempt, you will be contacted to give details of why you are exempt. This is because the rules require that a firm declaring it is exempt must have an enforceable written agreement in place with an 'appropriate person'. This should guarantee the person will meet the firm's valid investor claims to the same limit as the limit of indemnity required under the rules for that type of firm. This is called a 'comparable guarantee'. Please see below for details of comparable guarantees.
Q: What are comparable guarantees and how would they affect my firm?
A: For a personal finance firm, a comparable guarantee must be provided by a bank, building society, insurer or a friendly society. Where the firm is in the same group in which there is a bank, building society, insurer or friendly society, then the comparable guarantee must be provided by that institution.
For a general insurance intermediary, a comparable guarantee can be provided by an authorised firm that has net tangible assets of more than £10m. Where the insurance intermediary is in the same group as the authorised firm that has net tangible assets of £10m, the comparable guarantee must be provided by that authorised firm.
For mortgage intermediaries, a comparable guarantee can be provided by an authorised firm that has net tangible assets of £1m. Where the mortgage intermediary is in the same group as an authorised firm with net tangible assets of £1m, the comparable guarantee must be provided by that authorised firm.
The full requirements of the exemptions are covered in the Handbook at:
rule 13.1.5 of the Interim Prudential Sourcebook for Investment Businesses in respect of personal investment firms; and
rule 3.1.1 of the Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries.
Before declaring an exemption from a requirement to hold PII, firms are advised to refer to the appropriate rules.
If further clarification of the rules is required, firms are advised to contact the Customer Contact Centre on 0300 500 0597.
Q: What is a retroactive start date?
A: A ‘retroactive start date’ is not the same thing as the start date of a current PII policy. Most PII policies do not have a retroactive start date. A retroactive start date is a date before which an insurer is unwilling to provide cover.
PII policies work on a ‘claim made’ basis, which means the current PII insurer is the one responsible for meeting any claims made on a policy, even when claims pre-date that policy. We require authorised firms to hold PII that covers all business conducted from the point of their authorisation.
However, where firms change their insurer, the new insurer may impose a retroactive start date post-dating their authorisation. If your firm has a ‘retroactive start date’, as indicated by your PII schedule, that is later than the date the firm obtained FCA authorisation, this date must be reported in RMA-E.
Q: What are readily realisable own funds?
A: Personal investment firms that are subject to an increased capital requirement for a ‘high policy excess’ must hold this additional capital in a readily realisable form. Own funds are only ‘readily realisable’ if they can be turned into cash within 90 days.
Q: What is the amount of additional capital required for increased excess(es) (where applicable, total amount for all policies)?
A: In calculating the amount of additional capital required, firms conducting investment business should consult the table in IPRU(INV) 13.1.4(12). For mortgage and general insurance business, firms should consult the tables in MIPRU 3.2.14.
Q: How do I remove an unwanted policy from the list?
A: Press the 'delete' button next to column M.
Q: What do we mean by 'renewed'?
A: Question 3 In Section RMA-E: PII Self-certification asks a firm: 'Has your firm renewed its PII cover since the last reporting date?'
As well as the standard meaning, 'renewed' can also mean keeping an existing arrangement in force for an additional period of time, ie an extension of cover.
We must also be notified of any other material changes to a policy as soon as a firm becomes aware of these changes using the standard FCA notification form.
An example of such changes is a policy endorsement, ie an amendment to the policy allowing for alteration of coverage, which can mean an increase in the policy excess or the exclusion of any business lines that are carried out or that were previously carried out by a firm.
A notification is particularly important as additional own funds may be required to offset an increased excess.
Firms must also incorporate these changes into their Gabriel returns when they are due to report to us on PII.