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How an FCA investigation pushed a Sipp firm over the edge

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Administrators have said the cost of a regulatory investigation into the security of client money ultimately resulted in Sipp provider European Pensions Management going bust.

EPM was bought by Suffolk Life last week for an undisclosed sum.

In their report, administrators Smith & Williamson said EPM’s cash flow was hit by its decision to stop taking on new business in March.

At the same time it faced “substantial” professional fees, as a result of these ongoing regulatory investigations into the “systems and control” of client assets.  

The administrator’s report confirms professional fees from these regulatory investigations are still unpaid. As a result, EPM was deemed insolvent and filed for a special administration order in 20 June this year.

The administrators report reveals these regulatory investigations first began in June 2014.

They were undertaken to “ascertain the precise treatment of certain monies which were held in pooled accounts.”

It also says the decision to stop taking on new customers followed “queries about the systems and controls operated by EPM in respect of regulated client assets.”

However, the administrators made clear that despite concerns about the systems and control of client assets, customer’s money was ultimately not put at risk. Money invested since the company went into administration have been held in segregated accounts.

EPM’s portfolio of 5,000 Sipp accounts – which have a value of around £630m – will now be operated by Suffolk Life.

Customers can apply to transfer their accounts elsewhere. The administrator said such individual pension transfers may take longer than usual.

Suffolk Life managing director Will Self says: “This acquisition, coming shortly after Suffolk Life joined the Curtis Banks group, delivers a statement of the group’s commitment to grow our position in the independent Sipp market, and demonstrates our capability to support advisers and investors in sections of the market that many other Sipp operators have retreated from.”

He adds: “It is a good quality book of Sipps, and Suffolk Life remains comfortably capitalised following the acquisition.

Suffolk Life itself was acquired by Curtis Banks in January this year. Previously it was owned by Legal & General.

Further consolidation in the Sipp market is expected ahead of new capital adequacy rules which come into effect in September this year. These significantly increase the capital that Sipp providers have to hold.

Last week Money Marketing revealed that Hornbuckle – owned by Embark – was about to take over rival Sipp firm Rowanmoor.

Embark also recently acquired the failed platform Avalon.

Rowanmoor confirmed it had met these capital requirement towards the end of last month. It has two products, the Pensions Sipp which has £555m of assets and the Pensions Family Pension Trust with £455m.

In total, the Rowanmoor group has assets of nearly £4bn, the majority of which sit in its SSAS book. Hornbuckle has around £4bn of assets and roughly 13,500 Sipp and SSAS clients.

Finalytiq founder Abraham Okusanya says: “Some of the issues around financial stability has been known for quite some time.

“Advisers with clients in both businesses should expect that this will impact on service. Hornbuckle will have the huge responsibility of integrating a new business in addition to Avalon.”

Both firms were given “C” in Finalytiq’s recent report on the financial strength of Sipp firms.

Adviser view

Dobson & Hodge director Paul Stocks says:

Advisers will look at both the size and experience of a firm when placing ‘full’ Sipp business. But it’s equally important for us to look at its customer service and administration capability. We want a firm that can be nimble in the face of regulatory change. You would think that sticking with larger well known brands provides some safety net but this isn’t always the case

Big numbers

5,000

Number of Sipps held by European Pensions Management at the time of its collapse

£8bn

Combined assets of Rowanmoor and Hornbuckle

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. The FCA have concept of money; full stop !

    They have a bottomless pit of resource (us) so by default make the assumption that we do too !

    It is finding common place now that regulation, sorry the FCA, is the problem not the solution !

    Its all to easy for them (FCA) to demand, without suffering and consequence.

  2. Darren Mosstin 21st July 2016 at 2:56 pm

    DH,
    If however the firms poor CASS arrangements had resulted in a client (or even a close relative) loosing part/all of their retirement savings, would wyou also be criticing them (FCA) for doing nothing, or not enough? Seems to me they can be a bit damned if they do, damned if they dont.

    The balance of power is with the firms, not the consumers, therefore they need someone to ask these questions of them occasionally, if this pushes an unprepared and (possibly) poorly run business to the wall, is this such a bad thing?

    We are far to quick to criticise sometimes.

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