The FSA’s publication of their latest thematic review of Sipp operators is damning and pulls no punches. There is clearly huge frustration at the FSA over the actions – or inactions – of some Sipp operators and one senses that many really are at the last chance saloon.
All this at a time a when the Sipp market is pushing close to the very significant milestone of one million Sipps with little sign of a significant slowdown in growth in this market. This may in part explain some of the language used in the documents issued as part of this review.
The difficulty I have with the review findings is getting a sense of scale. The review covered 72 operators via a questionnaire with follow up interviews of 14 of these operators. But the Sipp market covers well over 100 operators –and over 80 per cent of the market is concentrated around just 10 of the largest operators.
I suspect most if not all of these large players will have been outside this review – and yet the FSA appear to be extrapolating their findings to the whole of the market. Whilst clearly naming and shaming would be inappropriate at this stage, surely the FSA could release the names of the 72 firms who completed the questionnaire – or at least release some data to quantify the extent of the market covered by these firms?
The other very important point is that all of these firms will have had their application to be a Sipp operator approved by the FSA at some point – either in the run up to 2007 when Sipp regulation was introduced or in a few cases after that date. That begs the question of why did the FSA approve these organisations if it is now clear that many were inadequate to run Sipps to the standards that the FSA are now belatedly explaining? The reality is that the FSA were ill-prepared for Sipps in 2007 and have been playing catch up ever since.
The consequences of the FSA releasing these findings at this time could be profound. Advisers and operators are likely to be contacted by many clients concerned about the risks to their Sipp and the underlying investments. The additional workloads and other requirements are likely to drive prices up making Sipps less attractive.
Many smaller operators – including some running businesses to high standards of compliance – may well conclude that the costs and risks of continuing to operate in this market are too high and will look to sell or wind up their businesses, although both options could prove problematic.
And of course there is still more to come with the FSA planning to announce further proposed changes to the regulatory regime later this year on capital requirements, disclosure and projections – potentially adding yet more cost.
One by product of this review is a possible resurgence of interest in Small Self Administered Schemes – the operation of which is not regulated by the FSA – a point made by the FSA in their review. That once again highlights the nonsensical regulatory regime that currently exists for individual pension arrangements.
Surely it is time for a full review of this regulatory framework – which in the context of Sipps would revisit the pre-2007 regime which limited the types of organisations that could qualify as Sipp providers and had a list of permitted investments outside of which providers accepted at their peril.
I doubt that this latest FSA announcement is the end for Sipps but it will certainly be a big dampener on future growth. Maybe that is an outcome which will not upset the regulators.
John Moret is principal at More2Sipps