A decision by the self-invested pensions trade body to launch a judicial review into new rules its legal advice has suggested could be “unlawful” has split the market, with one member in particular saying the organisation’s own research shows it does not have broad backing.
The Association of Member-Directed Pension Schemes sent a letter to its 200 members on Monday stating it was beginning judicial review proceedings over new capital adequacy rules for Sipps, handed down in August after an extended two-year process.
Amps said that it started the process after legal advice suggested the Financial Conduct Authority’s rules and consultation process were “unlawful and ought to be quashed” and also in response to feedback from members.
A freedom of information request response in 2013 on draft proposals published the previous year found 55 of 57 firms which replied to the consultation were against the calculation being based on a percentage of assets under management.
Despite this, the policy statement confirmed assets under administration as the basis for the calculation.
However a survey carried out by Amps following publication of the final rules, findings from which were circulated to all members earlier this month, found a majority of respondents believed the new rules are “flawed but acceptable”.
On the question, ‘Do you believe Amps should consider some form of challenge to the FCA’s implementation of these final rules, given the apparent disregard for industry representations as made in regard to the consultation?’, 70 per cent said ‘yes’ and 30 per cent replied ‘no’.
But when asked, ‘Which statement best summarises the model detailed in policy statement PS14/12?’, 59 per cent chose the response ‘flawed but acceptable’, while just 32 per cent opted for ‘unacceptable in all regards’.
The survey featured the views of just over 10 per cent of Amps members.
One member firm, which declined to be named, told FTAdviser it was surprising such action was being taken on behalf of the collective membership after a relatively low turnout and in spite of a significant numbers of respondents who found the outcome as ‘acceptable’.
The firm also said it felt launching a legal proceeding was not the best way to engage with the regulator.
Martin Tilley, director of technical service at Dentons Pensions Management, told FTAdviser he was rather taken aback by the Amps move, though he acknowledged many firms feel they were “largely ignored” during the consultation process.
“Amps, being the industry body have made a decision to challenge this and we along with other members await the outcome of the move. In the meantime, we continue to work towards meeting the new reporting and valuation requirements.”
John Moret, a sector expert whose consultancy More to Sipps is an Amps member, said the trade body was “right” to launch a challenge but that there was a “worry” over how it would fund the fight.
He said: “Out of 57 responses [to the FCA’s consultation paper], 55 said to base capital requirements on assets under management was wrong and the FCA ignored this. They must have very good reasons to ignore the majority.
“I think the process is flawed; the formula they have come up with is perverse. Amps is right to challenge the FCA, but this must be based on a point of law. The worry is how much this will cost and how it will be funded.”
Jeff Steedman, head of Sipp and Ssas business development from Xafinity, said the FCA’s continued use of assets under administration for capital adequacy calculations in the proposals is a concern and he could understand why Amps has made a challenge.
He added the firm agreed with the FCA’s overall aim of increasing capital requirements for the industry and accepted that the expenditure-based requirement could be manipulated and was therefore potentially inappropriate.
Several smaller Sipp operators had already hit out at new capital rules, stating they favour larger firms.
Hyman Wolanski, managing director of Sippchoice, previously said that the FCA is at war with the Sipp market and using capital requirements as a “weapon”, adding that the rules put smaller firms at risk, and that many could be forced to raise fees.
peter.walker@ft.com, donia.o’loughlin@ft.com
