A ban on unregulated investments in self-invested personal pensions would lack proportion, the FCA has told MPs.
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During 2017 the total amount withdrawn from DB funds was £22.4bn and the total sum of non-standard assets held in Sipps is significantly lower than the money taken out of DB schemes, she adds.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.