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FSA to increase Sipp cap-ad minimum to £20,000

FSA Skywards Tower 480

The FSA has proposed increasing the minimum amount of capital a Sipp operator must hold from £5,000 to £20,000, with a surcharge for providers holding “non-standard” asset types.

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 six weeks of annual audited expenditure or £5,000, whichever figure is higher. Sipp operators which hold client money must hold 13 weeks of expenditure in reserve.

The regulator has today proposed raising the minimum capital requirement to £20,000. In addition, capital requirements will be linked to a Sipp firm’s assets under administration and the amount of non-standard assets the company holds.

The FSA says the relationship between AUA and capital requirements should be “non-linear” because firms responsible for more assets benefit from economies of scale and the ability to undertake bulk transfers of similar schemes.

The surcharge for non-standard assets will reflect the additional costs of transferring these assets. The FSA says this is necessary because it takes longer to transfer a scheme containing non-standard asset types.

Non-standard assets will be defined by reference to a list of standard assets (see below). Sipp operators holding assets that do not appear on this list will need to hold extra capital.

FSA head of investment policy David Geale says: “While the Sipp market has grown substantially over time, the capital regime has not changed and needs bringing up to date.

“These proposals reflect the volume, range and complexity of assets now being put into Sipps and, ultimately, will protect investors better in the unfortunate event an operator is wound down.

“Put simply, the more assets you have under administration, the more capital you will need; and if some of those assets happen to be more risky you will need even more.

“We believe these proposals are pragmatic and proportionate, but this is a consultation so we want to hear from the industry and consumer groups to ensure they are also balanced.”

The FSA says if it decides to push through with the proposals, Sipp operators will be given a year to transition to the new regime from the date the policy statement is published.

Standard Assets Table 480

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  1. “Put simply, the more assets you have under administration, the more capital you will need; and if some of those assets happen to be more risky you will need even more”.

    Sorry but there is no logic in this flawed – I thought the whole point about Capital Adequacy is to ensure that there are sufficient funds available to keep a provider going for a seamless transition from one SIPP provider to another should something untowards happen (although if this happend it is likely that the capital reserves would have been used up anyway!) so the types of and number of assets held within the SIPPs has no bearing on this.

    The truth is that this a back door way of preventing UCIS investments being made in a SIPP without actually banning them.

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