MPs have asked the FCA to explain what repercussions a Sipp provider faces if it fails to meet the regulator’s due diligence expectations.
A letter from work and pensions select committee chairman and MP Frank Field to the FCA’s supervision director Megan Butler raises concerns about the role of Sipps in relation to defined benefit transfers.
It says it has become clear that Sipps are the primary vehicle used by unscrupulous advisers to channel individuals’ pension savings into unsuitable investments.
Furthermore the role of Sipps in intermediating this sort of investment is a longstanding concern for the regulator.
The letter goes on to say the FCA’s thematic review of Sipp operators in 2013/14 found “widespread” failings in due diligence and consumer protection.
The review also found “most Sipp operators failed to undertake adequate due diligence on high risk, speculative and non-standard investments”.
The surge in transfers heightens concerns about the destination of transferred pension funds while the Financial Services Compensation Scheme expects Sipp related compensation claims to continue rising.
In light of these concerns the committee asks the FCA to explain what value and proportion of funds transferred from DB pension schemes into Sipps in the last two years are held in the form of non-standard or unregulated investments.
The committee also asks what powers the FCA has to punish Sipp providers for failure in due diligence, and how have these powers been used.
Finally, the committee wants to know if the FCA is considering a ban of unregulated or non-standard investments altogether from inclusion in Sipps.
The subject of Sipps and non-standard investments is an area where the FCA is increasingly active.