The FCA has ramped up regulatory scrutiny of Sipp providers as it prepares to announce details of a substantial hike in capital adequacy requirements.
Last week, the regulator threatened regulatory action against Sipp firms after it announced plans to conduct a third thematic review into the sector.
In an email to Sipp operators, seen by Money Marketing, the FCA said: “We now expect all Sipp operators to demonstrate that they are meeting our requirements.
“Where Sipp operators are unable to demonstrate their compliance with regulatory responsibilities and fail to show they have the best interests of consumers at heart, those firms will be subject to further regulatory action.”
An FCA source says: “In 2012 we were not particularly impressed with the industry and there is a growing frustration that we are having to do this again. This is the third thematic review we have done into Sipp operators.
“We expect Sipp operators to demonstrate they are meeting our requirements. If they are unable to show they are operating in the best interests of consumers we will be taking regulatory action.”
Suffolk Life head of marketing and proposition Greg Kingston says: “This review has the potential to be quite significant.
“Every firm should now know what standards they are expected to attain and they should by now know where they are falling short. This review will, I believe, be very much a test to see what progress is being made to fill any shortfalls.
“The FCA is moving towards a position good enough where it will feel that it can confidently takes matters into its own hands if consolidation does not yield a sufficiently swift clean-up of the industry.”
The regulator is also expected to confirm how it plans to radically overhaul the capital adequacy regime for Sipp operators later this year.
The initial FCA cap-ad consultation, published in November last year, proposed increasing the fixed minimum capital requirement for Sipp firms from £5,000 to £20,000.
In addition, the regulator wants to base the total capital requirement on assets under administration, with an extra capital levy based on the percentage of underlying schemes that contain non-standard assets.
The FCA says the relationship between assets under administration and capital adequacy should not be linear to reflect the economies of scale benefits enjoyed by large firms.
MoretoSipps principal John Moret says the capital adequacy reforms proposed by the FCA are potentially anti-competitive.
He says: “I believe the approach proposed by the FCA is flawed. I also consider it to be a disproportionate response to the issues raised and potentially anti-competitive.
“Most of all I believe it constrains the marketing of Sipps in a way which was never envisaged when the freedom of investment opportunity was first created in 1989.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “Given Sipp sales now exceed 1 million and the market was unregulated until as recently as 2007, it is understandable the FCA is very keen to ensure investors’ interests are well protected.
“We do not see this as an attack directed specifically at small Sipp operators, however there does appear to be a regulatory push right across the pensions sector towards larger, well-run financial providers.”