FCA in talks with Sipp firms over buyouts amid failure fears

A number of self-invested pension firms have been in talks with the regulator over their appetite for acquisitions of rivals ahead of an overhaul of capital adequacy rules for the sector that it has previously admitted could see one in five providers leave the market.

FTAdviser understands Sipp firms that have been contacted by the Financial Conduct Authority in recent months. Providers have been involved in meetings with the regulator to gauge the likelihood that they will buy up client books of rivals that choose or are forced to close.

However, Mattioli Woods, one of the firms that has been contacted, told FTAdviser that the FCA must change its approach to firms that fall foul of regulatory thresholds if it is to catalyse consolidation.

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Mark Smith, operations director at the firm, said currently when the regulator has concerns about a Sipp, it withdraws the permissions to operate the Sipp meaning it is closed from an operational perspective.

Mr Smith said some deals can take up to a year to complete - as was the case when Mattioli was appointed to look after the troubled HD Sipp scheme by the Insolvency Service - and clients are often left in limbo. He added for this reason many firms are “reluctant” to take on books as they cannot look at them in detail.

To ease the problem, he said self-invested plans should have an administrator put in place when permissions are revoked in this way, similar to the process when a company is placed in administration.

“It’s almost like a business has been put into administration but there is no administrator. The issues include tax liabilities that flow through so these tax liabilities flow through to the new administration.

“Lots of clients will have illiquid assets [and] a small number of members have sensible assets but because operators closed down they are put in limbo as they can’t deal with investments and they can’t withdraw income.

“In this case [HD Sipp], it was closed for over a year. The regulator needs to work out a way how to deal with that on an ongoing basis. The regulator must do something about that and must have someone working with them to decide what to do in that situation.

“HD Sipp was small but if it bigger it would have been a huge issue if business is closed down with no plan in place.”

In November, the FCA said almost one in five Sipp operators affected by the proposed increase to capital requirements could leave the market if the proposals are implemented. This could mean more than 20 firms closing.

Originally scheduled to be published last November, the final rules have been consecutively delayed consecutively and are now expected at some point in the first quarter of this year.

Mr Smith said: “I think the FCA is expecting that to happen [for firms to fail when cap ad rules come in]. Our view is providers are still a bit undecided what to do as the paper has been delayed again so the difficulty is for firms to decide which way to go. If implemented in their current form some will struggle to meet requirements.