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FCA under pressure to re-think Sipp cap-ad plans


The Financial Conduct Authority is under growing pressure to re-think plans to link Sipp capital requirements to a firm’s assets under administration after a Freedom of Information request revealed “minimal” industry support for the proposal.

The regulator is currently consulting on proposals to change the basis of the capital adequacy calculation from expenditure to assets under administration.

In addition, the regulator wants to raise the minimum amount of capital a Sipp administrator needs to hold from £5,000 to £20,000.

Amps has obtained 55 of the 57 industry responses to the consultation through a FoI request. It says while there was “strong backing” for extra consumer protection, there was “minimal support” for the formula the regulator has proposed.

Amps chairman Andrew Roberts says, as an interim measure, the FCA should raise the minimum capital level to £50,000. He says the regulator should then carry out more detailed analysis of the appropriateness of basing Sipp capital requirements on assets rather than expenditure.

Roberts says: “The rules do not need to be over-engineered and simplicity has its advantages. The final outcome should present prudential requirements that do not needlessly force out well-run Sipp firms.

“The FCA has an unenviable task in settling on a system that will be fit for purpose in years to come but will be under pressure to increase current requirements. 

“I suggest that every Sipp provider is mandated to move to 13 weeks’ expenditure as an interim measure, with a minimum of £50,000. This would provide higher consumer protection than is already in force.

“The FCA can then explore whether there is any need to increase the capital requirement above this level, or move from expenditure to turnover. 

“If evidence shows that consumers are not sufficiently protected at the new level, they should investigate a formula having regard to the number of in force Sipps and the nature of the underlying investments.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. The FCA must stick to their guns on this one.

    If a SIPP provider goes bust it could take many months to transfer say a commercial property.

    UCIS will probably take much much longer if indeed a new provider can be found who is mug enough to accept low value, single asset, poor liquidity SIPPs investing in off plan overseas resorts, french hotel rooms, oil and bamboo plantations, argentinian farm land , land bank scams etc.

    13 weeks capital will simply not be enough.

    Any formula MUST relate to how long it would take to transfer an asset to a solvent provider.

    The FCA cap ad proposals are a common sense response to what could be a very serious problem for investors.

  2. patrick vaughan 21st May 2013 at 3:55 pm

    So how does the value of assets relate to the content of the post at 2.35? Isn’t a reasonable assumption as to the maximum time a pool of assets would take to transfer better than something that looks how much those assets are worth – I believe a very significant increase in capital requirements should be introduced – probably a minimum of 6 months expenses but the relationship to asset value is immaterial

  3. solution to the wrong problem as usual 21st May 2013 at 4:45 pm

    The FCA proposal will have the same unintended consequences as cap ad for IFAs. The AIM of the measure is presumably to prevent these SIPP providers ceasing to trade and hence causing a problem in the first place, and yet the higher threshold means more will cease trading because the thresyhold is that much higher than normal solvency.
    Surely, give that the SIPP asset isnt actually “owned” by the entity that will be ceasing to trade (ie it cant be claimed by creditors), it ought not to be a problem to then transfer the asset to a new custodian and time spent doing it might be the only issue. Perhaps a simpler overall system would be that all assets (of a certain type?) held in SIPPS are just noted on a central register/system, with decent technology and a few employees only, which can then take over the admin/transfer in the event of a default of one of the SIPP member firms? Funded by SIpp providers annually and would probably be a lot cheaper than the cap ad proposals.

  4. SWPU doesn’t perhaps understand SIPP business models too well.

    There are a number of firms out there who combine operator and trustee within one legal entity, meaning that the asset IS owned by the firm (albeit with a different hat on).

    But the big issue is the way HMRC penalties accrue to a scheme manager. Finding someone to take on those risks from a failed operator with loads of non-standard, Harlequin-esque assets within its scheme would be at best difficult.

  5. RegulatorSaurusRex 22nd May 2013 at 9:55 am

    Many a sipp betwixt cup and lip.

    By the time my mates have twigged the muck will have it the fan.

  6. To Anon 2.35pm

    “Any formula MUST relate to how long it would take to transfer an asset to a solvent provider”

    How exactly does that relate to asset value?! It takes exactly the same amount of time to re-register a £200,000 property as it does a £2m property, and the same works for equities, UCIS etc.

    Most in the industry agree there should be higher CapAd for providers holding non-standard assets, but linking it to value is totally arbitrary and makes no sense whatsoever.

  7. To Anonymous | 22 May 2013 12:25 pm

    And exactly how long does it take to transfer a property, UCIS etc?

    Pretty hard to quantify if you ask me as these can vary in complexity.

    Shouldnt any cap ad ruling be based on % assets in illiquid asset classes?

  8. As RDR showed – since when do they actually take notice of the feedback given?

  9. Of course capital adequacy has no relation to the value of an asset.

    What I meant was;

    Since 2006 there has been an explosion in UCIS investments into SIPPs

    Many SIPP providers have accepted large quantities of low fund value SIPPs and often allowed close to 100% of the SIPP to be invested in a single illiquid UCIS asset.

    If a provider with a book including a high percentage of these SIPPs goes bust it will be vitually impossible to find another provider who will take over and hence these providers must be made by the FCA to hold much more capital.

    I may be wrong but if a SIPP provider goes into administration do not all of their SIPPs automatically become de-authorised?

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