Concerns about some firms’ ability to not only meet the requirements, but also continue to grow, were such that a number of experts and commentators believed further consolidation would be imminent. So far, in the aftermath of Embark Group’s deal for Rowanmoor last July, acquisition activity has actually died down rather than increasing.
Many have continued to grapple with their capital positions long after the September deadline. Earlier this year, the FCA acknowledged three providers were still falling short of its requirements, although the regulator has recently confirmed that, as of the middle of September, this had reduced to one firm.
Martin Tilley, director of technical services at Dentons, is not alone in predicting that although consolidation in the industry has slowed, it will restart in the near future. Mr Tilley also explains that the new CP14/12 requirement has already forced a number of firms to take drastic, corrective action.
He said: “For some providers, the need to gear up and invest in the resources to meet the new requirements was simply too great. Some exited the market by sale, others amended their propositions, so as to reduce or cease their acceptance of certain categories of business. Some did this voluntarily, while others apparently agreed to do so, with the suggestion of the regulator.”
Furthermore, other commentators feel the capital adequacy requirements remain the greatest industry concern.
“They have been detrimental to the Sipp market. It has resulted in substantial consolidation of Sipp providers and severely restricted the investment choice available to Sipp members,” says Guy Young, director at Nigel Sloam.
Despite Mr Young’s concerns, Table 1shows that all those that have disclosed figures are at or above the 100 per cent threshold, and the majority are able to provide this from Tier 1 capital (cash or reserves).
This is typically seen as the most stable way of providing capital, with the alternative being so-called Tier 2 capital such as debt or preference shares. Only one firm has opted in favour of this approach: Michael J Field, which is currently meeting 75 per cent of its capital requirements via Tier 2 instruments.
Rupert Curtis, chief executive officer at Curtis Banks, suggests that advisers can make their own decisions as to whether a Sipp operator using debt as capital would pass their due diligence.
One issue closely related to capital requirements is how firms opt to classify commercial property holdings.
As the proportion of non-standard assets held by Sipp providers affects their capital requirements, choosing whether or not to group commercial property under this banner has repercussions. Yet there is a distinct lack of clarity or consistency on this issue across the industry as a whole. This disparity is due to a number of regulatory grey areas, according to Mr Curtis, meaning that firms have been able to set their own policy.