The FCA has softened its proposed approach to increasing capital adequacy requirements for Sipp operators after concerns were raised about the impact its original formula would have on small firms.
The new cap ad regime, which will come into force in September 2016, will mean the amount of capital a Sipp provider is required to hold in reserve will be based on assets under administration, with an additional capital surcharge based on the proportion of ‘non-standard assets’ each company has on its books.
The FCA has adjusted the formula for calculating the initial capital requirement to reduce the burden on firms with less than £200m in assets under management (see table at bottom of article).
In addition, the ‘constant’ in the capital surcharge calculation will be halved from 5 to 2.5, meaning firms which administer riskier assets will not have to hold as much in reserve as they would have under the FCA’s original proposals.
The regulator has also added UK commercial property to its list of ‘standard’ assets, meaning firms will not have to pay a capital surcharge if they hold this asset.
However, the regulator says a firm should treat commercial property as a non-standard asset where it would take more than 30 days to complete a transfer. It will be up to individual firms to decide whether this is the case.
Finally, the minimum amount of capital a Sipp operator will be required to hold in reserve will be increased from £5,000 to £20,000.
The less onerous nature of the revised cap ad proposals means the proportion of Sipp operators the FCA expects to exit the market has dropped from between 14 per cent and 18 per cent to “less than 10 per cent”.
FCA director of long-term savings and pensions Nick Poyntz-Wright says: “Under the current capital requirements we have a real concern that when a Sipp operator exits the market people’s pension savings could be put at risk.
“The new rules we have put in place will help to ensure that firms carry sufficient capital to fund an orderly closure without having a knock-on impact on consumers’ pension pots.
“We have listened to the industry since our initial consultation and made a number of changes to proposed rules to ensure that they will work for better for firms helping to ensure that consumers get the best protection for their pension savings.”
How the FCA will calculate Sipp cap ad (changes to the original formula higlighted in red):