FCA dismissed ‘strong’ response against Sipps assets test

New rules that have confirmed self-invested pension firms’ capital reserve requirement will be based the value of their assets under management were pushed through despite “strong” opposition from within the industry, according to the trade body for the sector.

Final rules published yesterday (4 August) included several changes to the draft proposals issued for consultation in November 2012, not least reversing the decision to classify commercial property as a ‘non-standard’ asset.

However, the Financial Conduct Authority has retained the key aspect that the final capital adequacy figure for each firm would be calculated based on the value of assets under management, with a ‘surcharge’ for non-standard investments.

The Association of Member-Directed Pension Schemes, the self-invested pension trade body, said it has “serious issues” with the use of assets under administration as the basis for calculating capital adequacy, citing potential issues with illiquid or esoteric holdings.

A statement from Amps argued that if the value of assets falls but the number of Sipps remains unchanged, then the capital adequacy requirements reduces but the costs in the event of a problem remain the same.

“In terms of the non standard assets these are hard to transfer and may have a low or even negligible value at that time, leaving insufficient capital to meet on going costs.

“Finally a demand for a cash injection at short notice such as a 10 per cent increase in value of AUA can result in a 5 per cent increase in capital adequacy. Such an increase for additional capital could force perfectly good Sipp firms to fail.”

The concerns echo comments from Suffolk Life’s Greg Kingston, who warned that persevering with an assets calculation failed to address risks with esoteric assets.

Amps said that the FCA had persevered with the rules despite the fact that 55 out of the 57 responses to the consultation it saw showed “little support” for the use of assets, and in fact showing a “strong preference for an alternative”.

It said: “There were a number of alternative solutions suggested which would have more fairly reflected the true cost and less likely to be open to arbitrage. The strong preference within the industry was for the calculation to be based on the number of Sipps administered by a firm.”

In the policy statement, the FCA said that while it had considered the many possible ways to calculate the capital requirement suggested, in the end did not feel that a more credible option emerged from the feedback.