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FCA issues Dear CEO letter in response to Sipp failures

If a Sipp firm cannot meet its financial commitments it may be in the interest to customers for all or part of its business to be sold to another firm, the FCA has said today in a Dear CEO letter to Sipp operators.

The regulator claims that operators must communicate “in an open and cooperative way” in its response to the ongoing High Court claims against Sipp providers Berkeley Burke and Carey Pensions.

“Pending the outcome of any appeal of today’s judgment and these other cases, we expect you to consider the potential implications of them for your firm and its customers. We will be contacting Sipp operators to discuss what these may be.

“If the outcome of any of these cases calls into question your firm’s ability both now and in the future to meet its financial commitments as they fall due, you must notify the FCA immediately. Where relevant, firms should also notify claims to their professional indemnity insurers in accordance with their policies.”

The letter adds: “We recognise that if a firm may not be able to meet its financial commitments, it may be in the interests of some of its customers for part or all of its business to be sold to another firm. If your firm does so, we remind you that our Principles for Businesses require your firm to pay due regard to its customers’ interests and treat them fairly. In particular, in pursuing any sale, your firm should pay due regard to its implications for customers who may have compensation claims.”

“We expect all Directors, as well as complying with the relevant provisions of the FCA Handbook, to comply with their statutory and non-statutory duties. These include, where a firm is at risk of insolvency, their duties to creditors, such as customers to whom compensation is or may be due.”

Responding to the letter, an Association of Member-directed Pension Schemes spokesperson said: “It is clearly positive that there is no implication that Sipp providers need to give advice to their members or that they should be checking that the investment is suitable for the particular member. Knowing the client and what is suitable for them clearly falls to the adviser, if there is one. However, the ruling does make it clear that it is for the Sipp provider to ensure that the investment itself is suitable for the pension scheme.

“The majority of Sipp providers take the due diligence of investments incredibly seriously but care needs to be taken because as we can see from this ruling it is difficult to establish if what has been done is going to be sufficient. Each case will need to be assessed on its merits but we don’t feel that this ruling is a game changer for the majority of our members.

“With regards to the Dear CEO letter, Sipp providers should be well capitalised due to the changes in the capital adequacy requirements brought in during September 2016 and should have measures in place to remain compliant.”

Elsewhere, Dentons director of technical services Martin Tilley told Money Marketing: “The FCA’s letters to provider CEOs suggests it expects the ruling may have wider implications for the whole Sipp market as well. Sipp providers should now be assessing how this outcome may impact their own book and their customers.”

Berkeley Burke lost its judicial review in a landmark High Court ruling published today.

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  1. Hmmm. Whilst there may be no explicit implication that SIPP providers need to give advice to their members or that they should be checking that a particular investment is suitable for the particular member, that’s not quite what the FCA has said. I quote:-

    UCIS are complex, opaque, illiquid and risky, and tend to invest in high risk ventures such as
    films, green energy initiatives and overseas property funds. They may not be covered by FOS or
    FSCS protections.

    We have stated previously that UCIS are high risk, speculative investments which are unlikely to
    be suitable for the vast majority of retail customers.

    We have created a UCIS landing page which set out our views on these risks, and includes a
    number of communications we have issued to the industry and consumers.

    I clicked on the link http://www.fca.org.uk/firms/financial-services-products/investments/ucis but all it does is open a page that’s been moved or removed. That said, the key words are that UCIS are “unlikely to
    be suitable for the vast majority of retail customers”. This, to my mind, strongly implies that the starting point for any Due Diligence on the part of SIPP providers should be that investments into any UCIS should not be accepted other than on the recommendation of a regulated adviser and that to do so is asking for trouble.

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