Pensions  

Trade body to seek judicial review of ‘unlawful’ FCA rules

The Association of Member-Directed Pension Schemes has revealed it is to begin judicial review proceedings over the Financial Conduct Authority’s capital adequacy framework for self-invested pension operators, which legal advice received has suggested is “unlawful”.

In a statement sent to members, Amps states that based on feedback the committee took legal advice on how the FCA dealt with the consultation process and whether this led to “seriously flawed” outcomes.

After almost a two-year delay, the FCA published its final long-awaited capital adequacy rules in August which confirmed Sipps providers will need to hold a minimum of £20,000 in reserve, with the exact figure based on a calculation of assets under management with a surplus added for ‘non-standard’ assets.

Having said its original proposals could force as many as one in five firms exit the sector, its revised proposals reduces - and in some cases halves - the £20,000 minimum for smaller firms with less than £200m in assets, and reclassified UK commercial property as a ‘standard’ asset.

The new rules come into force on 1 September 2016.

However, there have been concerns over the formula the FCA is using to calculate capital adequacy, with many in the industry warning that the assets under management calculation failed to address risks with esoteric assets.

In particular, Amps and others said the FCA should have considered applying a calculation based on the number of assets held rather than value.

Legal advice received was that the FCA’s decision is “unlawful and ought to be quashed”. The letter to Amps members, seen by FTAdviser, adds the decision has been taken pursuant to an “unfair procedure and inadequate process of consultation”.

The FCA has failed to provide any adequate of intelligible reasons for its proposals and had adopted the decision without providing fair opportunity of dissuading it from doing so, the letter continues.

This follows a Freedom of Information Act request last year whereby Amps obtained 55 out of the 57 responses to CP12/33 and noted strong backing for enhancing consumer protection but minimal support for the regulator’s formula.

The letter also described the decision as “unlawful” because “the FCA has breached its duty to make sufficient enquiries to enable it to reach a rational and lawful decision”.

Amps notes legal advice it took said the FCA had “acted unreasonably and failed” to have regard to relevant considerations and relied on “irrelevant considerations”, and that it acted in breach of its statutory duties under the Financial Services and Markets Act 2000.

Amps says it has consistently supported an increase in capital adequacy requirements, but that it wished to challenge the regulator in regard “to its apparent disregard for fairness of procedure and adequacy of consultation, which leaves Sipp operators facing an illogical basis of capital requirement which proper consultation might well have rejected”.

The FCA confirmed to FTAdviser that it has received a letter from Amps’ legal representative but that it was unable to comment further.