Embark Group’s chief executive has called on the Financial Conduct Authority to go beyond planned rules and demand self-invested personal pension increase the amount of capital they hold even further.
In January this year, the regulator revealed it was ready to wind up Sipp providers who fail to meet its expectations once the new rules come into force in September.
Phil Smith, boss of the group that oversees Sipp providers Hornbuckle, Rowanmoor and Avalon, told FTAdviser he believes the regulator should go a step further.
“I wholly advocate what the FCA is doing, I was one of the standard bearers to say this is absolutely right for the sector, but I think it might need to go another level personally.”
He argued there is a difference between simply having the required regulatory capital and having available cash so smaller players can avoid business failure.
“Regulatory capital is a calculation based on things on a balance sheet, so I might have £100bn regulatory capital because I own a building or technology or other things, but none of those things help me if my business is falling over and I need cash to pay bills.”
He suggested the regulator focus on the Sipp providers’ cash reserves next, after clamping down on firms full of illiquid assets.
David Fox, director of sales and marketing at Sipp provider Dentons, said with consolidation in the industry continuiong apace, the current rules are doing their job.
Last month, Embark Group bought fellow Sipp pension provider Rowanmoor Group.
Later the same month, Talbot & Muir bought the Sipp and Ssas administration business of Attivo Group for an undisclosed amount.
Mr Fox said if the market is achieving its aim at the moment then there should be no need to alter the capital adequacy rules. “If Sipp providers can still carry on accepting poor quality assets and remain profitable, then regulation would need to look at it again.
“I’m confident that based on current rules in the medium term only well-run, compliant and profitable companies will be left in the market.”
Alan Chan, director at London-based IFS Wealth & Pensions said from an adviser’s perspective, it is important that any Self-invested personal pension provider recommended to clients is financially stable and viable in the long term.
“It’s not so much the case of big versus small players in the market, but rather it’s the riskier ones that have a large proportion of non-standard assets who will be required to have higher capital adequacy requirement because of the additional risks that they pose.
“This may mean that the number of Sipp providers may shrink as a result of some going into administration or be forced to sell their business to another provider. The challenge will be for the FCA to strike the right balance so that the market is still competitive.
“If the regulator does move into the cash arena then this will provide greater transparency on the Sipp provider’s liquidity, which is probably a good thing in today’s market.”
ruth.gillbe@ft.com
