‘Shocking’ findings in Sipps thematic review

The outcome of the regulator’s third thematic review into self invested personal pensions is concerning and will have consequences in the market, Sipp providers say.

Today, (21 July), the Financial Conduct Authority wrote to bosses of Sipp firms warning that Sipp operators are still failing to manage risks and ensure customers are protected appropriately.

In October, the FCA launched a third thematic review of Sipp operators, focusing on the due diligence procedures Sipp operators used to assess non-standard investments, and how well firms were adhering to the relevant prudential rules.

During the review, the FCA found that a “significant number” of Sipp operators were still failing to manage these risks and ensure consumers are protected appropriately, despite recent guidance.

The failings identified put UK consumers’ pension savings at “considerable risk”, particularly from scams and pension fraud, the FCA said.

Market commentators have called the findings shocking and concerning.

Neil MacGillivray, chairman of the Association of Member-Directed Pension Schemes, said: “The outcomes from the FCA’s third thematic review are of concern.

“The key issues are the level of due diligence on non-standard investments and how well firms are adhering to the prudential rules. Amps will be working closely with the FCA in pursuit of better guidance for our members.”

Claire Trott, head of technical support at Talbot and Muir said: “It is shocking that the FCA has been forced to write to Sipp chief executives to once again highlight the failings that have been found as part of the thematic review.

“As a Sipp provider who takes its responsibility to its advisers and clients very seriously, we have increased and continue to increase our management information so we can monitor and manage our business, including the Sipp investments, ever more effectively.

“We operate a strict permitted investment list to ensure that the investments made within our Sipp are suitable pension investments.”

Martin Tilley, director of technical services at Dentons, said: “The letter includes few surprises and outlines concerns that had already been aired about some Sipp operators failings of due diligence.

“One surprise that was included was the statement that the ‘thematic review found that most Sipp operators failed to undertake adequate due diligence on high risk, speculative and non standard investments’.

“Our view had been that most of the bespoke Sipp operators were doing a prudent good job and that it had a been ‘a few ruining it for the many’.

“The letter emphasises particular areas that the Sipp operator should be mindful of which revolve around understanding the investment, ensuring good title, valuation needs and ability to dispose of, but does not mention suitability, which appears to confirm that the suitability issue remains in the domain of the adviser or client themselves.”

He added that the thematic review requirements will have consequences to the market in that those firms who have and can continue to demonstrate expertise in the non-standard investment area and who as a result might not have been the cheapest will continue to operate in this market and those that have not or cannot will exit it.