Professional Indemnity Insurance for FCA Firms: Who Needs It and How Much Cover

Which FCA firms must hold professional indemnity insurance

PII is not a universal requirement across all regulated firms. It applies to specific activity types where a firm advises on or arranges transactions for clients and could be liable for poor advice or a mishandled arrangement. The FCA sets out the requirement in four main places, depending on what a firm does.

Insurance distribution firms and home finance intermediaries fall under MIPRU 3, the professional indemnity insurance chapter of the Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries. MIPRU 3.2.1R states that a firm must take out and maintain professional indemnity insurance that is at least equal to the requirements of that section. This captures general insurance brokers, mortgage brokers and home finance intermediaries.

Personal investment firms fall under IPRU-INV 13, chapter 13 of the Interim Prudential sourcebook for Investment Businesses. This applies to firms giving retail investment advice, such as advisers and wealth managers. Payment initiation service providers and account information service providers, the open banking firms authorised or registered under the Payment Services Regulations 2017, must hold PII or a comparable guarantee. The FCA confirms that both AISPs and PISPs have to hold professional indemnity insurance.

Minimum cover for insurance and mortgage intermediaries under MIPRU 3

For firms carrying on insurance distribution activity, MIPRU 3.2.7R sets a minimum limit of indemnity of EUR 1,300,380 for a single claim in any one year. The aggregate limit is the higher of EUR 1,924,560 or 10% of annual income, with that income element capped at GBP 30 million. The rule is set in euros because it derives from the Insurance Distribution Directive framework, which indexes the amounts periodically.

For home finance mediation activity that is not Mortgage Credit Directive credit intermediation, MIPRU 3.2.9R sets the minimum limit of indemnity as the higher of 10% of annual income up to GBP 1 million, or GBP 100,000 for a single claim and GBP 500,000 in aggregate. Where a firm's permission covers both insurance distribution and home finance mediation, it must meet the higher of the limits for those activities rather than adding them together.

MIPRU 3 also caps the excess a policy can carry. For a firm that does not hold client money or client assets, the excess must not be more than the higher of GBP 2,500 or 1.5% of annual income. For a firm that does hold client money or assets, the cap is the higher of GBP 5,000 or 3% of annual income. If a policy carries a larger excess, the firm has to hold additional capital resources to make up the difference. If a policy denominated in euros needs converting, the firm must take reasonable steps to ensure the sterling limits remain at least equivalent when the policy is taken out and at each renewal.

Minimum cover for personal investment firms under IPRU-INV 13

Personal investment firms are governed by IPRU-INV 13.1. Where a firm carries on insurance distribution activity, the euro limits mirror the MIPRU figures: EUR 1,300,380 for a single claim and EUR 1,924,560 in aggregate, under IPRU-INV 13.1.10R. This alignment reflects the same Insurance Distribution Directive origin.

For firms whose business is not caught by the insurance distribution limits, IPRU-INV 13.1.13R sets sterling minimums that scale with income. A firm with relevant income up to GBP 3,000,000 must hold at least GBP 500,000 per claim and in aggregate. A firm with relevant income above GBP 3,000,000 must hold at least GBP 650,000 per claim and GBP 1,000,000 in aggregate. Larger firms with income above GBP 10,000,000 face further tiered aggregate limits that rise with income.

The excess is capped in the same way as for intermediaries. The policy must not require the firm to pay an excess on any claim of more than GBP 5,000, unless the firm holds additional capital resources to cover the higher excess. Where a policy excludes certain types of business or liability, the firm must hold additional capital resources to reflect those exclusions. As with MIPRU, check the precise figures in IPRU-INV 13.1 at each renewal because the amounts move over time.

PII and comparable guarantees for payment and open banking firms

Firms providing payment initiation services or account information services must hold professional indemnity insurance or a comparable guarantee. The two are mutually exclusive: a firm holds one or the other, not both. The requirement flows from the Payment Services Regulations 2017, and the FCA points firms to the European Banking Authority guidelines, EBA/GL/2017/08, for calculating the minimum amount.

Unlike MIPRU or IPRU-INV, there is no fixed minimum figure. The minimum monetary amount is calculated by a formula that adds together three amounts: one reflective of the firm's risk profile, one reflective of the type of activity, and one reflective of the size of activity. The risk profile amount draws on the value of refund requests received and the number of transactions initiated or accounts accessed, while the size of activity amount is built from transaction values or client numbers. Several indicators carry a floor of EUR 50,000 where a firm has no track record or provides no forecast.

The cover has to match the specific liabilities of each service. For payment initiation services, the PII or guarantee must cover the liabilities in Articles 73, 89, 90 and 92 of PSD2, which relate to unauthorised transactions and non-execution or defective or late execution. For account information services, it must cover liabilities to the account servicing payment service provider or the user resulting from non-authorised or fraudulent access to, or use of, payment account information. The cover must be valid in every territory where the firm offers services, and must not carry an excess or threshold that could prejudice refunds.

What a compliant policy must cover

Meeting the minimum limit is only part of the test. The policy itself has to include specific cover, and a policy that omits it will not satisfy the FCA even if the headline limit looks adequate. Under MIPRU 3.2.4R, the contract must cover claims for which the firm may be liable as a result of the conduct of itself, its employees and its appointed representatives. It must provide appropriate cover for legal defence costs, continuous cover for claims arising from work carried out from the date the firm was given its Part 4A permission, and cover for Ombudsman awards made against the firm.

The same principles run through IPRU-INV 13.1 for personal investment firms. Cover must extend to claims arising from the acts or omissions of the firm, its employees, its appointed representatives and its agents, and must include full retroactive cover and cover for Ombudsman awards. The FCA also expects a policy not to contain conditions or exclusions which unreasonably limit its cover. Where genuine exclusions apply, the firm must hold additional capital resources to fill the gap.

Two points trip firms up in practice. First, PII is almost always written on a claims-made basis, so run-off cover matters when a firm stops trading or changes activities, since a claim can arrive years after the advice. Second, appointed representatives must be covered by the principal's policy, which is easy to overlook as a network grows. Read the policy wording against the Handbook rule, not just the schedule.

How to arrange compliant PII for authorisation

Arranging PII should start early in an authorisation project, not at the last minute. Insurers ask detailed questions about the activities, client base, projected income and controls of a firm, and a new applicant with no trading history will usually need to provide forecasts. Underwriters also want to see that the FCA-mandated cover, such as Ombudsman awards and appointed representative liability, is included, so it pays to brief a broker on the exact Handbook requirements early. Our FCA authorisation support walks applicants through the prudential requirements alongside the rest of the pack.

Work out your minimum limit against the correct rule for your permissions, obtain quotes that meet or exceed it, and check the excess and any exclusions against the caps in MIPRU 3 or IPRU-INV 13. Where an excess or exclusion pushes past the permitted level, budget for the additional capital resources you will need to hold. Keep the evidence, because the FCA will expect the policy or a binding quote with the application and will test whether cover stays adequate.

Conclusion

Professional indemnity insurance is a substantive prudential requirement, not box-ticking. For insurance and mortgage intermediaries, personal investment firms and open banking payment firms, the FCA prescribes minimum limits, caps the excess and dictates what a policy must cover. The limits differ sharply between regimes, from the euro-denominated figures in MIPRU 3 and IPRU-INV 13 to the bespoke formula that sizes cover for payment firms under PSD2.

The practical message is to match your cover to the exact rule that applies to your permissions, confirm the mandated inclusions such as Ombudsman awards and appointed representative liability, and keep the figures under review at each renewal because they move over time. Firms that treat PII as an integral part of their prudential position, rather than an afterthought, avoid the delays that catch out those who leave it too late. If you would like a walkthrough of how PII fits your application, book a demo.

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