SIPPAug 24 2022

Industry veteran Moret calls for rewrite of Sipp regulation

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Industry veteran Moret calls for rewrite of Sipp regulation

John Moret has called on the Treasury to instigate a review and rewrite of self-invested personal pension regulation.

Moret said that following a number of Sipp provider failures, many of which he said have been triggered by adverse determinations by the Financial Ombudsman Service, the framework is a “mess and not fit for purpose”. 

“It was created in haste in 2007 and has never been properly understood or enforced. In addition new pension propositions are being created and labelled Sipps which is a misnomer and confusing for customers,” he said.

Moret, who is also known as Mr Sipp, said it is worrying that Fos appear to be “making up the rules” as they go along relying heavily on historic guidance from the Financial Conduct Authority and Financial Services Authority, which they are interpreting as good practice at the time.

“They are also applying a court decision on a Sipp scam to a range of other situations and concluding that this is 'fair and reasonable'.”

He explained the implications for providers of all types of Sipp, particularly those operating on an execution-only basis, are significant.

He said the inconsistencies in determinations reached by the Fos are of real concern, giving the example of a claim against an execution-only Sipp provider, which was not upheld.

Operational matters are for the FCA, which the government rightly does not intervene in. HMT spokesperson

“Fos confirmed that as the claimant had signed documents acknowledging that the provider could not be held responsible for the suitability of any investments, then the provider could not be held responsible if the investments underperformed or failed,” he said. 

“Contrast that with another recent Fos determination upheld against a Sipp provider which involved an execution-only client investing in bonds listed on a Danish stock market and which the provider deemed to be a standard investment.”

In this case, the investment promoter was regulated, as was the stockbroker that executed the transaction. The provider warned the investor that he was undertaking a high risk investment to which the investor signed a declaration acknowledging this.

“Most surprisingly, Fos said that the provider should have refused to accept this investment unless the investor took 'professional advice from a suitably qualified and authorised adviser'. 

“Whilst that may indeed have been a sensible action for the investor, to my knowledge there is no obligation on a provider to insist on this.”

Moret argued that it is these and other inconsistencies regarding due diligence requirements that are causing him to call for “total clarity around a provider’s responsibilities” in accepting investments – particularly on an execution-only basis.

 Under the new consumer duty, we will have a further basis on which to intervene where we see poor practices. FCA spokesperson

A Fos spokesperson said: “When investigating a case, the Fos will take into account relevant law, regulatory rules, guidance and standards and good industry practice at the relevant time. 

“This will be set out in an initial view, at which point both the consumer and the business have the opportunity to submit further evidence and have the case re-assessed by an ombudsman for a final decision.

“We have published a number of decisions relating to Sipp cases which set these considerations out in detail, and explain why they are relevant to deciding what is fair and reasonable in the circumstances of the case.”

The guidance

Four years ago, Moret said he circulated a policy paper to the Treasury, FCA, Fos and others suggesting that it was time to clarify the role and responsibilities of a Sipp operator. 

“I repeat that call particularly in the light of the new consumer duty requirements which will impact all non-workplace pension providers along with all advisers large and small,” he said. 

The guidance Moret proposed would cover:

  • What is an “acceptable” or “appropriate” investment?
  • Clarify precisely what is required of a Sipp operator with regard to due diligence of investments – both standard and non-standard – and of introducers.
  • Confirm the extent to which the requirements apply where the Sipp was accepted on an execution-only basis and what other requirements, if any, exist in these circumstances.

However, an FCA spokesperson said: “We have set out our expectations of Sipp operators through several FCA publications, including final guidance in 2013. 

“Under the new consumer duty, we will have a further basis on which to intervene where we see poor practices. We will hold firms, including senior managers and boards, to account against this higher, clearer set of expectations.”

Sipp operators are subject to the FCA handbook like all authorised firms and the regulator expects them to meet regulatory standards, which includes conducting due diligence over the introducers they accept business from and the assets they allow into their pension schemes.  

In 2013, the FCA published guidance for Sipp operators relating to its due diligence expectations particularly in relation to non-standard investments.

Since then, it has published Dear CEO letters in 2014 and 2018 which reiterated this, as well as a letter in 2020 which referenced the guidance and built on the wider expectations for Sipp operators. 

FTAdviser understands that since 2015, the FCA carried out regular data collection exercises to understand the assets being accepted by Sipp operators and, where necessary, intervened to prevent future harm building up.

In 2016, it introduced prudential rules to further strengthen requirements on Sipp providers, which require them to hold extra capital if they have Sipps that invest in non-standard assets. 

“Whilst this guidance might not help resolve historic claims it would be a useful indicator of what is 'fair and reasonable,” Moret said. 

“It would also provide much needed comfort for providers and advisers against the potential for future claims and would limit the scope for claims management companies to create unjustified consumer expectations and, as a result, increased overhead and administration costs for providers and more regulatory costs for advisers.” 

Moret added that in recent months, the FCA have come in for “considerable criticism for dilatory action” on a range of failed investments and scams. 

He said now is the time for action on Sipps and non-workplace pensions – the market for which continues to grow. 

“Having been involved with Sipps since their launch in 1990, I hope the Treasury and regulator understand that these suggestions are made with the best interests of all parties involved in mind.”

A Treasury spokesperson said: “HMT engages closely with the FCA on a wide-range of areas, including the regulation of the Sipp sector. However, operational matters are for the FCA, which the government rightly does not intervene in.”

sonia.rach@ft.com

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