The FSA is considering forcing Sipp providers with riskier investments to hold more capital than those with less risky assets under proposals to be outlined later this year.
In June last year, Money Marketing revealed the FSA was planning to increase capital adequacy requirements for Sipp providers.
Currently, providers are required to hold capital reserves equal to at least six weeks of annual audited expenditure.
Speaking at the Association of Member-directed Pension Schemes annual conference in London today, FSA pensions and investment policy manager Milton Cartwright said Sipp providers who hold more risky esoteric investments are more difficult to wind-down than those with less risky assets.
He said: “It seems to us that the problems in orderly wind-down that we have encountered in the last couple of years have largely been as a result of the types of asset that the Sipp operator in question has held within a Sipp.
“There is a very strong correlation between the more esoteric types of asset that are held and the ability of a firm to wind-down in an orderly manner. Six weeks has certainly proved inadequate.
“One of the things we are looking very carefully at is the amount of assets held within the Sipp that are esoteric.”
Cartwright said while the regulator would not ban any particular asset from Sipps, providers should consider the risk of reputational damage if investments fail.
He said: “Frankly, Sipp operators are holding more Ucis investments than any other type of provider.
“There is a reputational issue for the Sipp industry here. These investments are quite often high risk, carry opaque risks and have low governance requirements.
“But we are not in the space of stopping people investing in what they want to.”