The Financial Conduct Authority has revealed it is ready to wind up self-invested personal pension providers who will fail to meet capital requirements.
The watchdog confirmed that there are no more formal papers planned on Sipp capital adequacy between now and the 1 September introduction of its new requirements.
A spokesperson for the regulator explained that consequences for those not meeting the more stringent rules by that date would depend on the situation at individual firms, adding it would work with them to repair their capital position if needs be.
However, as Sipp providers have had more than three years to prepare, the FCA spokesman stated the watchdog was also ready to wind up those businesses that fell a long way short.
First announced by then Financial Services Authority in November 2012, Sipp operators will be required to increase the amount of capital they hold in reserve. The new formula resulted in a significant increase in capital requirements for Sipp operators whose assets contained the greatest proportions of non-standard assets.
As explained in FTAdviser’s special report last October, the regulator defines non-standard assets as those which cannot be realised or transacted in less than 30 days.
The classifications have in part been behind a sharp increase in Sipp-related complaints that contributed to costly hikes in advisers’ share of the Financial Services Compensation Scheme levy.
In June last year, the FCA provided further clarification on the rules, followed by a Handbook update in December stating that when an asset – in this case commercial property – 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.
Jeff Steedman, head of Sipp and Ssas business development at Xafinity, said without fully-finalised rules, compliance officers are still struggling and those firms which are still short of capital may seek to re-define assets before the autumn.
“I reckon the FCA will go ‘softly softly’, as they won’t want to cause negative consumer outcomes by putting firms to the wall.
“The thing is, advisers are losing out by having to second guess what is going to happen; I think the regulator should be more proactive with providers to see how they are getting on.”
He explained that the challenge for advisers is around earlier recommendations of Sipp providers coming back to haunt them when sales occur and they have to justify client fees to make a transfer to another firm.
Last month, Mr Steedman predicted the changes could lead to some businesses being swallowed by others. “This change is hugely significant and will definitely give some owners of Sipp businesses a very large headache by way of the complexity of calculation and the capital holding required, which for some could be upwards of millions,” he stated.
Neil MacGillivray, head of technical support at James Hay Partnership and chairman of the Association of Member-Directed Pension Schemes, said there is still room for further consolidation, but questioned which providers would be willing to take on the increasingly risky-looking books of business still for sale in the market.
“Providers are between a rock and a hard place, would you take on a book if you didn’t know the end liability, especially given the potential for comeback from the ombudsman?”
Rowanmoor’s head of pensions technical Robert Graves has argued post-September, the industry may move back to an earlier state, where mass-market personal pensions are offered by bigger providers - with consumers self-selecting from standard options - while more sophisticated investors are catered for by smaller bespoke operators, offering more niche investments with “lighter touch” regulation.
peter.walker@ft.com
