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FCA opposes ban of unregulated investments in Sipps

A ban on unregulated investments in self-invested personal pensions would lack proportion, the FCA has told MPs.

In May, work and pensions select committee chairman and MP Frank Field wrote to FCA supervision director Megan Butler about the role of Sipps in relation to defined benefit transfers.

Field asked the FCA if it is considering a ban of unregulated or non-standard investments altogether from Sipps.

In her response published today, Butler says suitable advice and effective due diligence checks by Sipp operators are a more proportionate way of protecting consumers than an outright ban.

She adds not all unregulated or non-standard investments are high risk like commercial property and fixed term deposit accounts.

The committee also asked what value and proportion of funds transferred from DB pension schemes into Sipps in the past two years are held in non-standard or unregulated investments.

Butler says the FCA collected data from all Sipp operators in 2015 and 2017, which shows nearly £6bn non-standard investments were held in Sipps at September 2017.

This accounts for 2 per cent of the total £300bn assets under management in the largest contract-based Sipp operators as at March 2017.

During 2017 the total amount withdrawn from DB funds was £22.4bn and the total sum of non-standard assets held in Sipps is significantly lower than the money taken out of DB schemes, she adds.

The committee also asked what powers the FCA has to punish Sipp providers for due diligence failings, and how these powers have been used.

Butler says where people place their pension into a Sipp there is usually a financial adviser involved, and often an unregulated introducer, who has given the advice.

She says the FCA has 33 open investigations into advisers it suspects of giving poor advice and is considering what action it might take in each case.

The FCA has already prohibited four financial advisers and banned another one from holding a senior position.

Butler references the FCA’s intervention in a recent civil court case to explain what due diligence it expects from Sipp providers in the context of accepting non-standard investments.

The FCA provided evidence in the Carey Pensions case where lorry driver Russell Adams alleges Carey Pensions missold him a Sipp in February 2012, when he put money into rental scheme Store First.

The verdict is expected this summer and could have wide repercussions for the Sipp industry if Carey Pensions loses.

The FCA has also submitted evidence to a judicial review into a Financial Ombudsman Service determination against Berkeley Burke Sipp Administration set for October in London.


Justin Cash, Editor of Money Marketing

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There are 12 comments at the moment, we would love to hear your opinion too.

  1. David Leuchars 4th July 2018 at 3:50 pm

    “We believe suitable advice from financial advisers accompanied with effective due diligence checks by SIPP operators is a more proportionate way or preventing harm to consumers rather than imposing a ban.”

    Honestly the FCA is beyond parody sometimes. If only there wasn’t thousands and thousands of policies where this wasn’t the case, and the FSCS faces throwing millions of pounds in payouts all over the place. Just put the onus on the already battered financial advisers. How about some proper regulation instead, or is that just not “proportionate”?

  2. The numbers may seem insignificant in terms of the size of the market, but the compensation claims are devastating for the advisers who pick up the bill, £6 billion of unregulated investments could equal £6 billion of claims if we take the worst case scenario.

    If the FCA cannot control the problem, it must be stopped at source, so what is to stop all SIPP providers refusing to accept certain types of business which they deem to be too high risk? Greed for a share of the market is probably the answer, but the problem does start with the distribution channels.

  3. Julian Stevens 4th July 2018 at 5:28 pm

    Here’s an idea, FCA. How about stipulating that advising on/selling UCIS and such like shall be subject to special permissions and proof of relevant PII cover? Or is that too pragmatic for you?

  4. Game Keeper Turned Poacher 4th July 2018 at 5:29 pm

    In the interests of balance I’m surprised Megan didn’t point out it’s down to HMRC what investments can or can’t be held in a tax wrapper, not the call of the FCA.

    • Julian Stevens 5th July 2018 at 10:19 am

      That’s true, but the FCA would not be overriding statute by imposing a special permissions regime for those who wish to advise on/sell non-standard investments, just as it does for those who wish to advise on DPB transfers. That would constitute proportionate and targeted regulation, of which, despite Ms. Butler’s trendy use of the word “proportionate”, the FCA, in reality, appears to be constitutionally incapable.

      The trouble is, though, that that would force 99% of the regulated adviser community to change their status to restricted, which is why the whole WoM vs. Independent thing is such a dog’s breakfast. As I understand it, ANY (admitted) exclusions from the lexicon of potentially suitable products on which a firm offers advice means it’s restricted.

  5. So we’re still on the ‘stable door/horse bolted’ method of controlling poor advice with SIPPs’ then!!

    Well I’ll just see if I can find some more spare cash for the inevitable FSCS payouts.

    It’s a poor job when even the advice sector are being flatly ignored with their suggestion that unregulated ‘investments’ should not be promoted by regulated advisers.

    Before anyone says that the public would be better being advised than DIY’ing it, in order to avoid a bad outcome, I would suggest that it depends on who is doing the advising, so let’s remove any potential for bad advice in this area at the front end ether than trusting people to play fair.

  6. An independent financial adviser has to be able to advise on all product types, regulated and unregulated.

  7. PI insurers generally exclude any claim that may arise from non standard products held in a SIPP

  8. I have to agree with Megan on this a total ban on unregulated investments would not be proportionate.

    But on the flip side of this due diligence and suitable advice is a after the event check ….sometimes months or years before anything comes to light !

    Again this rests with the FCA they collect huge amounts of data, most of which (it seems) just gets ignored, they set permissions of advisers and firms, there doesn’t seem to be any kind of traffic light system (if you will) of flagging up problems or risk areas early, time and time again huge amounts of money is invested in a single products, commissions have been taken, the funds themselves have been squandered or stripped, the culprits disappeared long before the FCA left scratching their heads thinking, “well whats gone on here then” ?

    If, what Megan suggests all providers should become compliance case handlers, conducting Due Diligence, checking suitability reports, and/or, indeed checking the adviser at the very least rather dismissive !
    The FCA and its staff get paid and command huge amounts in salary and budget, its about time it took ownership, starting doing its job, instead of palming of work and laying blame for things it should be doing itself.

    The FCA blames an industry for its own bad parenting (bureaucracy at its best)whilst setting there own budgets setting their own pay, flaunting their un-accountability and immunity in everyone’s faces, like any good dictator.

    This article (if accurate) could be viewed in one of two ways, either the the FCA (Megan) has dismissed the TSC out of hand or (as I suspect) Mr Field is not asking the right questions

  9. The FSA allowed traded policies funds then aftet we had invested called them toxic and ponzi like, that helped no end and secured a very heavy loss for many investors.

  10. Meghan Butler says:

    “not all unregulated or non-standard investments are high risk”

    Taken from the FCA website, consumer information on unregulated investments:

    “unregulated collective investment schemes by their nature are risky products”

    Perhaps it’s just semantics but how is a consumer (or adviser for that matter)supposed to reconcile this apparent mixed message?

    Perhaps this will resolve itself shortly anyway. There are court cases going through that may end up making SIPP providers nervous enough to impose their own restrictions going forward.

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