PensionsJun 8 2015

FCA amends Sipp rules to cut provider costs

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FCA amends Sipp rules to cut provider costs

The Financial Conduct Authority has published “minor” changes that should help self-invested personal pension operators deal with new capital adequacy requirements set to come in from September 2016.

In its quarterly consultation paper, the regulator has proposed changing the way that firms report quarterly valuations of assets under administration, admitting that obtaining “accurate quarterly valuations” in a “timely” manner can be “difficult, largely due to systems and reliance on third parties”.

Therefore, the FCA has proposed that firms can rely on the valuations provided to members to calculate AUA.

This would be calculated as the sum of the most recent annual valuations of the personal pension plans administered by the firm over the preceding 12 months, adjusted to include any revaluation of assets that may occur between the date of the most recent annual valuation and the date when the firm must calculate its AUA.

The paper said: “So, on 1 September 2016 when the rules come into force, a firm would calculate the sum of the most recent annual valuations provided to members, subject to any revaluations. This would be recalculated quarterly, looking at the preceding 12 months of valuations.”

The regulator has also proposed that when the firm’s AUA increases and the result is that a higher constant is required to be used to calculate the firm’s initial capital requirement, the firm has six months before it must apply the new constant.

The FCA paper stated: “This will allow the firm time, for example, to raise any additional capital, if required.”

The FCA has also widened the list of ‘standard’ assets that providers do not have to hold additional capital for.

Under the current policy rules, the FCA only allows shares traded on the Alternative Investment Market, London Stock Exchange or a recognised overseas investment exchange to be categorised as a ‘standard’ asset.

The regulator has proposed to expand this to all securities admitted to trading on a regulated venue and this is not restricted to the EEA.

The regulator has also proposed to remove ‘corporate bonds’ from the standard asset list, and to replace it with ‘quoted corporate bonds’. It reminded firms that the ‘standard’ asset list rules will still apply and firms need to ensure it can be offloaded within 30 days.

The FCA has also proposed to change ‘bank deposits’ to ‘deposits’, as defined in the FCA Handbook, which makes “clear” that building society or credit union deposits are eligible to be standard assets you don’t have to hold extra cash for.

The regulator adds that “broadly” the proposals will result in “reduced costs for firms”. For example, the obligation to obtain quarterly valuations of AUA under the previous methodology may have been “costly” for some firms, due to systems restraints and renegotiations of contracts with third parties.

Under these proposals, such costs would be reduced, as firms would simply need to calculate the sum of the most recent valuations provided to members, subject to any revaluations, on a quarterly basis.

Responses are due by 5 August 2015.

donia.o’loughlin@ft.com