Question 1

Is Professional Indemnity Insurance mandatory for mortgage brokers?

Accepted Answer

Directly authorised mortgage intermediaries are generally required to maintain Professional Indemnity Insurance that meets the FCA's MIPRU requirements, unless a permitted exemption or comparable guarantee applies.

An Appointed Representative carries on its appointed regulated activities under the responsibility of its authorised principal or network. Where the FCA rules require Professional Indemnity Insurance, the principal must maintain compliant cover for the activities of its current and former Appointed Representatives while acting within the scope of their appointment.

The appointment agreement may nevertheless require the Appointed Representative to arrange separate insurance, particularly for activities or liabilities falling outside the principal's policy. The precise arrangements should therefore be confirmed in writing with the principal or network.

Question 2

Am I covered under my network's PI policy?

Accepted Answer

For regulated activities undertaken within the scope of an Appointed Representative's appointment, responsibility rests with the authorised principal or network.

Where the FCA rules require Professional Indemnity Insurance, the principal's compliant policy must cover the conduct of its current and former Appointed Representatives while acting within the scope of their appointment.

This does not necessarily mean that every activity or liability of the Appointed Representative is automatically insured. Written confirmation should be obtained regarding:

• the legal entities and individual advisers covered;
• the precise activities included;
• work undertaken before joining the network;
• activities falling outside the appointment;
• territorial limits and exclusions; and
• the arrangements applying after the appointment ends.

The appointment agreement may also contractually require the Appointed Representative to maintain separate insurance.

Question 3

Does PI insurance cover buy-to-let and commercial mortgage activity?

Accepted Answer

Only where the activity has been fully disclosed to and accepted by the insurer.

Residential mortgages, consumer buy-to-let, business buy-to-let, commercial mortgages, bridging finance and development finance can fall into different regulatory and underwriting categories. Insurers may apply different terms, restrictions, exclusions or referral requirements depending upon the work undertaken.

The firm should therefore check that the relevant activities appear within the insured business description and that any applicable policy endorsements or exclusions have been considered.

Cover should not be assumed merely because the firm holds FCA permissions or because the activity forms part of its general mortgage-broking business. Where there is any uncertainty, written confirmation should be obtained from the insurer.

Question 4

What level of PI cover does the FCA require?

Accepted Answer

There is no single FCA minimum limit that applies to every mortgage intermediary. The applicable requirement depends upon the firm's precise FCA permissions and regulated activities.

Where a firm is an MCD mortgage adviser or MCD mortgage arranger, the FCA minimum professional indemnity requirement is:

• €460,000 for each individual claim; and
• €750,000 in aggregate per calendar year for all claims.

MCD means the Mortgage Credit Directive. In broad terms, the MCD requirements apply to firms advising on or arranging mortgage credit agreements that fall within that regulatory regime.

A home-finance intermediary that is not subject to the MCD requirement is generally required to hold the higher of:

• 10% of its annual income, subject to a maximum of £1 million; and
• £100,000 for each individual claim and £500,000 in aggregate.

Where a mortgage intermediary also undertakes insurance distribution, such as arranging mortgage-protection insurance, the higher of the applicable home-finance and insurance-distribution requirements may apply.

A network, principal, lender or other contractual party may also require a higher limit than the FCA regulatory minimum. The firm's FCA permissions and activities should therefore be checked before the appropriate limit of indemnity is selected.

Question 5

I only make introductions — do I need PI?

Accepted Answer

An Introducer Appointed Representative is restricted to effecting introductions and distributing non-real-time financial promotions within the scope of its appointment.

The authorised principal accepts regulatory responsibility for those appointed activities. Where the FCA rules require Professional Indemnity Insurance, the principal must maintain compliant cover for the activities of its current and former Introducer Appointed Representatives.

However, this does not automatically mean that the introducer requires no separate insurance. The position will depend upon:

• the principal's Professional Indemnity policy;
• the written appointment agreement;
• the precise activities undertaken;
• any services provided outside the appointment; and
• any contractual requirement to maintain separate cover.

Separate insurance should not be assumed to be unnecessary without obtaining written confirmation from the principal or network.

Professional Indemnity Insurance for Mortgage Brokers

Why Mortgage Intermediaries Need Professional Indemnity Insurance

Typical Mortgage and Related Activities

Typical Claims Scenarios

Interest-Only Repayment Strategy

Early Repayment Charge

Unsuitable Recommendation

Limited-Panel Disclosure

Specialist PI Broking for Mortgage Intermediaries

Sector Understanding

Market Access

Personal Service

Mortgage Brokers — Common Questions

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