While the Financial Conduct Authority has provided more clarity around the 30-day rule, there are fears that some self-invested pension providers will brand commercial property as a ‘standard’ asset so they do not have to put aside additional funds, industry experts said.
Earlier today, FTAdviser reported that the regulator has proposed changing the way that firms report quarterly valuations of assets under administration, admitting that obtaining “accurate quarterly valuations” in a “timely” manner can be “difficult due to reliance on third parties”.
Therefore, the FCA has proposed that firms can rely on the valuations provided to members to calculate AUA.
The FCA also widened the list of ‘standard’ assets that providers to not have to hold additional capital for, with the FCA stating that “broadly” the proposals will result in “reduced costs for firms”.
It also said it was set to consult on the 30-day rule for commercial property.
The quarterly consultation paper said: “For a UK commercial property, the asset should be considered to have been realised at the point that the land registry is formally notified. In addition to this, we clarify that responsibilities and expectations around valuations and due diligence is in line with previous FCA guidance.”
In August 2014, the FCA clarified that commercial property should be labeled as a ‘standard’ asset, despite lobbying on both sides of the camp.
Since then, some firms have labelled it as ‘standard’ and others non-standard, meaning some are having to pass on fees due to the higher cost of capital.
Greg Kingston, head of marketing at Suffolk Life, said: “Providers have sought clarity over some points and CP15/19, to some extent, delivers it.
“Providers will be relieved to see clarity on the frequency and method of valuations used to calculate AUA for capital purposes, and the relaxation on securities quoted on “regulated venues” to be classed as standard assets is welcome.
“However, the FCA has also acknowledged that grey areas still exist. An outstanding question on whether UK commercial property was a standard or a non-standard asset seemed to hinge on whether it could be transacted within 30 days.”
While the FCA has provided clarity around the 30-day rule, Mr Kingston flagged that the likely outcome is that Sipp operators will make their own judgement on whether the individual assets can be transacted within 30 days.
Mr Kingston said: “There’s an inherent conflict that is unlikely to survive the governance structures of the Sipp operators in which the FCA has shown such little faith leading to the risk that Sipp operators will choose to wrongly classify risky assets as standard in order to satisfy their own capital requirements.
“If the regulator can navigate that tricky issue and ensure that consumers are protected from Sipp operators putting their balance sheets before consumer outcomes, then there should be a clear path ahead for implementation of new rules that should provide a stronger, more sustainable Sipp market in the longer term.”
Claire Trott, head of pensions technical at Talbot and Muir added: “Any clarification from the FCA on the capital adequacy rules for Sipp providers is welcomed, particularly regarding commercial property and the 30 day rule.
“Further guidance with a more detailed and less subjective standard asset list would still be welcomed even at this stage in the process.
“There will be many providers interpreting the rules in different ways and therefore holding more or less cash in the bank. If the FCA wants the consumer to be equally protected wherever they choose to place their pensions, then they really should create rules rather than guidance.”
The new capital adequacy rules come into force on 1 September 2016.
donia.o’loughlin@ft.com
