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FCA explains Sipp cap ad rethink

Mikael Down

Since we took over regulation of the Sipp market in 2007 we have had some concerns about the capital adequacy of those operating in the market.

We have seen a number of firms go out of business, which has put consumers’ pension savings at risk. The results of our thematic work have also given us cause for concern. For example, we found that some Sipp operators are failing to apply the correct prudential rules to their business.

One of our objectives is to secure an appropriate degree of protection for consumers which, in this sector, means ensuring their savings are as safe as possible.

This is why we decided that new capital requirements were needed. We need to be sure that Sipp operators can be wound-down in an orderly way. 

Our starting point was trying to prevent, as much as possible, firms exiting the market in a disorderly way; this will most likely leave consumers without a pension administrator or facing having to fund the transfer of their assets to another administrator directly, through no fault of their own. This was the challenge facing us. The new rules will help to avoid this and ensure that firms can afford to exit the market should they need to.

Getting industry to provide feedback on our proposals is vital – it ensures our final proposals are balanced and deliverable while helping us achieve our objectives. 

The feedback on this consultation paper was varied and there were some strong opinions and genuine concerns about implementation. When this happens, it’s right that we should reconsider our proposals. We have listened to the concerns of the Sipp community and found a balance that is proportionate to Sipp operators, consistent with our competition duty, but better protects consumers.

For example we have chosen to smooth the impact on smaller firms, as many of them would struggle to meet the requirements consulted on. This could cause an adverse impact on competition within the Sipp market which is not in the interest of consumers.

We had also previously suggested that UK commercial property should be treated as a non-standard asset class. But both feedback to the consultation and our thematic work helped us understand that UK commercial property can normally be transferred relatively easily provided there is a purchasing party prepared to accept the asset. We have also agreed to add a number of other assets types including gold bullion and bank account deposits to the standard asset list.

However, where an operator administers UK commercial property which is not capable of being transferred to another provider within 30 days, it should treat the asset as non-standard. We feel that this is an important distinction.

We understand that the new regime means some big changes will need to be made, but it is one that will ultimately help protect savers and create a more robust Sipp market. Sipp operators now have a two-year window to implement these changes to allow those who need to raise the additional capital the time they need.

We will, of course, monitor the market as the framework becomes embedded and consider how it improves the standards in the market.

These changes, along with the other work we are undertaking in the pension sector are aimed raising standards and improving outcomes – both for the consumer and the firm.

Mikael Down is head of department in the FCA’s policy, risk and research division

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Can Mr Down please explain why the FCA has totally ignored most of the SIPP industry’s representations and stuck with using Assets Under Administration as a proxy to the cost of winding up a SIPP? This is self-evidently a flawed approach – if the value of a SIPP operator’s assets increases because of market movements then, under the FCA’s proposals, the operator’s capital requirements will increase whereas the cost of winding up the SIPP hasn’t changed. This is a fundamentally flawed approach and the FCA knows it.

    Why won’t they address the issue properly and use a proper approach to assessing the cost of winding up a SIPP?

  2. Perhaps the FCA will name those firms it intends to drive out of business using this flawed approach. The FCA say ‘We have seen a number of firms go out of business, which has put consumers’ pension savings at risk’. Err, right!
    So by driving more firms out of business you are what: ‘One of our objectives is to secure an appropriate degree of protection for consumers which, in this sector, means ensuring their savings are as safe as possible’. Err, right. Go figure!
    Yep putting pension providers out of business on a completely flawed prospectus is pretty cool.
    Yet again another reason why this bloated, unaccountable and unfit for purpose ‘regulator’ should be disbanded. You really could not make this nonsense up.
    Who knows maybe it culminates in mis-briefing Ministers of State, MP’s and the Police. In case you are thinking how this can possibly be the case, ask a Connaught investor. Even as recently as the first All Party Parliamentary Connaught Group the FCA were there mis-briefing away from a slide which was a work of complete fiction. This time trying to blame IFA’s again. Forget that Capita allowed the money to be misappropriated and continued the fund raise on a false prospectus.
    Extraordinary. FSA / FCA (whatever) – Time for a complete change. The law needs to be changed

  3. Perhaps the FCA will name those firms it intends to drive out of business using this flawed approach. The FCA say ‘We have seen a number of firms go out of business, which has put consumers’ pension savings at risk’. Err, right!
    So by driving more firms out of business you are what: ‘One of our objectives is to secure an appropriate degree of protection for consumers which, in this sector, means ensuring their savings are as safe as possible’. Err, right. Go figure!
    Yep putting pension providers out of business on a completely flawed prospectus is pretty cool.
    Yet again another reason why this bloated, unaccountable and unfit for purpose ‘regulator’ should be disbanded. You really could not make this nonsense up.
    Who knows maybe it culminates in mis-briefing Ministers of State, MP’s and the Police. In case you are thinking how this can possibly be the case, ask a Connaught investor. Even as recently as the first All Party Parliamentary Connaught Group the FCA were there mis-briefing away from a slide which was a work of complete fiction. This time trying to blame IFA’s again. Forget that Capita allowed the money to be misappropriated and continued the fund raise on a false prospectus.
    Extraordinary. FSA / FCA (whatever) – Time for a complete change. The law needs to be changed

  4. Perhaps the FCA will name those firms it intends to drive out of business using this flawed approach. The FCA say ‘We have seen a number of firms go out of business, which has put consumers’ pension savings at risk’. Err, right!
    So by driving more firms out of business you are what: ‘One of our objectives is to secure an appropriate degree of protection for consumers which, in this sector, means ensuring their savings are as safe as possible’. Err, right. Go figure!
    Yep putting pension providers out of business on a completely flawed prospectus is pretty cool.
    Yet again another reason why this bloated, unaccountable and unfit for purpose ‘regulator’ should be disbanded. You really could not make this nonsense up.
    Who knows maybe it culminates in mis-briefing Ministers of State, MP’s and the Police. In case you are thinking how this can possibly be the case, ask a Connaught investor. Even as recently as the first All Party Parliamentary Connaught Group the FCA were there mis-briefing away from a slide which was a work of complete fiction. This time trying to blame IFA’s again. Forget that Capita allowed the money to be misappropriated and continued the fund raise on a false prospectus.
    Extraordinary. FSA / FCA (whatever) – Time for a complete change. The law needs to be changed

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