Amps members are divided over the trade body’s decision to launch a judicial review into the FCA’s handling over raising capital adequacy requirements for Sipp providers.
A major provider told Money Marketing it did not agree with Amps’s course of action and is considering refusing to contribute to the cost of the review.
A survey of members, seen by Money Marketing, shows more than 70 per cent think the regulator has not listened to responses to its consultation on increasing capital adequacy requirements on Sipp providers. More than 70 per cent of members also backed Amps taking action against the regulator. However, there were only around 30 respondents to the survey, while around 70 Amps members are Sipp providers.
The trade body announced this week it would be challenging the FCA’s “unlawful” decision. In a statement, Amps says: “Amps has consistently supported an increase in the capital requirement for Sipp operators.
“Our challenge to the FCA is in regard to its apparent disregard for fairness of procedure and adequacy of consultation, which leaves Sipp operators facing an illogical basis of capital requirement which proper consultation might well have seen rejected.”
The FCA first indicated it would be ramping up capital requirements in November 2012, but watered down its proposals in August of this year after concerns were raised over the impact on small providers.
But Sipp experts say the capital rules as they stand will lead to less competition as providers exit the market.
Moretosipps principal John Moret says: “The FCA’s decision will accelerate the demise of a number of smaller providers in particular.
“For the first time in 25 years, the number of bespoke Sipps has fallen. You can’t help but conclude the motivation behind the capital requirement is to reduce the amount of Sipp operators.”
Liberty Sipp director John Fox says both small and large providers are at risk and that the FCA’s requirements will lead to less competition, going against the regulator’s purpose.
He says: “Small Sipp providers might look to sell the business or merge with another company. Some of the larger Sipp providers are also worried about how they’re going to raise capital – they’re talking about having to increase fees or take more of the interest earned on client bank accounts. It is the consumers who are going to be affected by rising fees.
“If it does lead to consolidation, it will lead to less competition in the marketplace – and encouraging competition in the marketplace is one of the basic tenets of the FCA’s charter.”
But Investment Sense marketing and relationship manager Philip Bray is surprised at Amps’s action.
He says: “The FCA delayed and delayed the final outcome. I’m surprised on two levels – first, everyone seemed quite pleased with it. Second, the FCA seemed to listen and changed things based on the consultation. And there’s a pretty long run in for when providers need to meet these standards”.
The increased capital adequacy requirements come into effect in September 2016.
Amps argues the FCA’s decision was unlawful because the regulator did not make “sufficient enquiries” in making its decisions, made incorrect considerations and “otherwise acted in breach of its statutory duties under the Financial Services and Markets Act 2000”.
Fox says the industry is behind Amps, particularly around the use of assets under administration as the basis for capital requirements.
Moret says: “Everyone accepts the capital requirements had to increase and they should be greater if you’re holding higher risk assets but the way the FCA has chosen to meet those requirements is just baffling.”
The FCA confirmed that it has received a letter from Amps’s legal representatives but would not comment further.
The legal advice given to Amps
“The advice received was that the FCA’s decision is unlawful and ought to be quashed on the following grounds:
1) It has been taken pursuant to an unfair procedure and inadequate process of consultation. The FCA has failed to provide any adequate or intelligible reasons for its proposals and has adopted the decision without providing affected persons with a fair opportunity of dissuading it from doing so.
2) The decision is unlawful because the FCA has (1) breached its duty to make sufficient enquiries to enable it to reach a rational and lawful decision; (2) acted unreasonably and failed to have regard to relevant considerations and relied on irrelevant considerations; (3) otherwise acted in breach of its statutory duties under the Financial Services and Markets Act 2000.”