In Handbook Notice 28, the regulator ran through the details of its most recent quarterly consultation, particularly looking at responses to the new capital requirements for Sipp operators, which will come into force in September 2016.
Under the new framework, the amount of regulatory capital required will generally be determined by the firm’s total value of assets under administration. The feedback has prompted the FCA to make further technical changes to agreed handbook provisions.
These proposals related to the frequency of asset valuations for assets under administration calculation purposes; technical changes to the standard asset list, and guidance on the requirement for standard assets to be realisable within 30 days.
In terms of the treatment of commercial property, the FCA has removed the provision that defined the date of land registry notification as the end date for realising a commercial property transaction, after industry feedback questioned whether this date met the intended purpose.
When determining whether an asset is capable of being readily realised within 30 days, a firm should consider whether the transaction can be concluded within that time limit in the ordinary course of business.
The count starts and ends on the dates when the transaction is initiated and concluded, respectively, something which the regulator decided not to clarify further in the handbook.
“Moreover, assets can still be considered standard if the realisation time period goes beyond the permitted 30 days due to delays in receiving information from third parties,” read the update.
The feedback also suggested that not only outstanding information but also third-party permissions can be the major causes for such delays.
It went on to explain that ‘realisability’ should not be considered separately from ‘capable’, stating that it is the question of whether the asset is ‘capable of being realised’ that should be assessed, independent of the various external factors that can extend the permitted 30 day criterion for commercial property.
As for standard assets, respondents asked for clarification as to whether discretionary fund management portfolios are standard assets.
Handbook provisions suggest that an asset can be considered standard if it is on the list and is capable of being accurately and fairly valued on an ongoing basis and readily realised within 30 days.
Provided the second condition is met, a DFM portfolio can be standard when the Sipp operator has arrangements in place to ensure that the portfolio comprises standard assets only.
The most commonly cited arrangement by the industry was the reliance on contractual agreements with the investment manager around the classes of assets that make up the portfolio. “We think these arrangements can achieve the regulatory purpose, given that Sipp operators can themselves rely on and prove the effectiveness of such arrangements,” the paper noted.
The FCA also received industry proposals to include crowdfunding and peer-to-peer assets in the standard asset list.
“Although outside the consultation scope, we explored this possibility for future reference, but did not obtain convincing evidence that these markets will generally have the necessary characteristics that standard assets should have for this specific policy purpose.”
However, as these markets came under the FCA’s regulatory scope last year, it expects to conduct a full market review of the industry in 2016.
Claire Trott, head of pensions technical at Talbot and Muir, said the update strengthens their view that commercial property is, in most cases, a standard asset.
“In addition DFM portfolios where there are clear agreements in place to define and limit the portfolio to standard assets, are accepted as a standard asset themselves, making it easier for providers to manage these portfolios and how they work with DFMs.
“Peer to peer lending had been raised in at least one submission with the request that it should be a standard asset, but the FCA doesn’t believe the market shows the right qualities to make it standard,” she continued, adding that “to my mind it makes sense that this shouldn’t be a standard asset”.
Greg Kingston, head of communications at Suffolk Life, added: “If the reason that the original capital requirements have been so watered down because the regulator has gained an improved view and understanding of the Sipp market then that’s a good thing.
“My sense is that there’s little energy to challenge or question further, and Sipp firms should now implement as required and prepare for a post implementation review by the regulator in the next 24 months.”