The Association of Member-Directed Pension Schemes has been unsuccessful in obtaining permission for a judicial review over new capital adequacy rules for self-invested personal pensions, leaving the industry body’s chairman “disappointed”.
Speaking to FTAdviser, Neil MacGillivray said that members were told earlier this month that permission to proceed was refused from the courts, but that the Financial Conduct Authority had provided additional information at the last minute.
“Though the Amps committee is disappointed with the determination we still believe that the use of assets under administration as a basis for calculating capital adequacy is flawed.
“That said we have been engaging with the FCA to resolve the administrative problems created by using assets under administration and we hope that speedy progress can be made in this regard.”
He added that the organisation is reviewing the court’s determination with legal advisers and will provide further details at the May conference.
At the end of October Amps stated that it was beginning judicial review proceedings over the capital adequacy framework, which legal advice received has suggested is “unlawful and ought to be quashed”.
Amps complained that their responses to last year’s consultation on the issue were not properly taken into account and that the regulator failed to provide any adequate reasons for its proposals.
The decision was based on the views of members, but in the days following the decision, many in the industry doubted that it was the best way forward.
The survey of member views asked whether Amps should consider some form of challenge to the FCA’s implementation of these final rules, with 70 per cent saying ‘yes’, but when asked which statement best summarised the capital adequacy model taken forward by the FCA, 59 per cent chose the response ‘flawed but acceptable’, while just 32 per cent opted for ‘unacceptable in all regards’.
At that stage 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.
After almost a two-year delay, the FCA published its final long-awaited capital adequacy rules which confirmed Sipps providers will need to hold a minimum of £20,000 in reserve, with the exact figure based on a calculation of assets under management with a surplus added for ‘non-standard’ assets.
Having said its original proposals could force as many as one in five firms exit the sector, its revised proposals reduces - and in some cases halves - the £20,000 minimum for smaller firms with less than £200m in assets, and reclassified UK commercial property as a ‘standard’ asset.
The new rules come into force on 1 September 2016.
However, there have been concerns over the formula the FCA is using to calculate capital adequacy, with many in the industry warning that the assets under management calculation failed to address risks with esoteric assets.
In particular, Amps and others said the FCA should have considered applying a calculation based on the number of assets held rather than value.
The comments echo concerns raised by providers including Suffolk Life and rival Dentons last year, after a smaller Sipp firm wrote down the value of Harlequin property assets from tens of thousands to just £1 after its sister firm entered administration.
Martin Tilley, director of technical services at Sipp provider Dentons, highlighted that in such cases - or others where values are low - capital reserves may be low or even negligible, while the cost of actually having to administer a wind-up and transfer of investments could be high.
Mr MacGillivray said that Amps was still of the view that the assets under management approach was not the best way forward, but that the organisation was now looking at just getting the best guidance for members on how to proceed with valuations.
He also sought to quash rumours of a fractious relationship with the regulator, stating that FCA representatives were present at sessions of Amps’ most recent committee meeting.
Mr Tilley: “I believe that they were unsuccessful with permission to take the FCA to judicial review and that as far as I know they are still taking advice on their next action.”
peter.walker@ft.com
