Sipp rules could block clients from fixed-term deposits

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Sipp customers could be blocked from holding cash in fixed-term deposits as an unintended consequence of new banking and capital adequacy rules, providers warn.

The cap ad rules come into effect in September and will require Sipp firms to hold reserves based on the proportion of standard and non-standard assets they hold.

Fixed-term deposits are normally considered standard assets but, because banks have been removing break clauses from contracts as a result of prudential regulation, there is uncertainty over their status.

Rowanmoor head of pensions technical services Robert Graves says: “Banks were tested to see how they would cope if there was a run, and a high proportion invoked their clauses.

Most deposit takers didn’t do well under that test so banks chose to remove the clauses.
“That creates an issue because the FCA’s definition of a standard asset is one that can be readily realisable within 30 days.”

He adds: “It would be a travesty if Sipp firms have to tell their clients they cannot have a 60-day fixed-term deposit, which might be very sensible given current markets.”

AJ Bell technical resources man­ager Gareth James says: “We will  assess the terms on each account and decide whether we deem them breakable or unbreakable. “It’s important to note these are not the type of assets the FCA is most concerned about for cap ad; it is those assets that it can be hard to find a home for.”

An FCA spokeswoman says: “It’s up to firms to make the judgement as to whether fixed-term deposits could be realisable.”