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FCA hits Sipps with restrictions on risky investments

by Michelle Abrego, William Robins on Feb 28, 2014 at 11:20

FCA hits Sipps with restrictions on risky investments

The Financial Conduct Authority (FCA) is poised to force certain Sipp providers to limit the range of investments they accept.

It is also understood that the regulator is considering altering its capital adequacy plans so that providers would not have to hold as much additional capital as previously expected in relation to commercial property.

The regulator would not confirm or deny 'speculation' on the subject of Sipp capital adequacy ahead of publishing its paper later this year.

As part of its thematic review into the Sipp market the FCA is set to stop certain operators accepting unregulated collective investment schemes (Ucis), unlisted shares and commercial property syndicates.

A source familiar with the situation said: ‘You’ll see Sipp providers having to announce that they can no longer do certain types of investments, things classed as non-standard assets in the FSA’s CP12/33 paper on capital adequacy.

‘Things like Ucis, unlisted shares, unconnected loans, non-stock exchange-listed bonds, as well as property syndicates that use things like fractional ownership, possibly some overseas investments as well [will be included].’

In October 2013, the regulator launched its third thematic review into Sipp providers looking into financial resources, quality of business and operation procedures and controls, all of which were highlighted as areas of concerns in its report into the Sipp market in 2012.

An FCA spokesman said the regulator hoped to complete its visits to firms in March, and that individual feedback would be given to firms.

‘Where firms are not meeting our standards, in particular on due diligence, we are requesting firms to take what we would consider to be appropriate action. This could either be improving their procedures or ceasing an activity until they can meet the required standard,’ he said.

‘We have seen a number of firms which are not meeting our standards and this is disappointing given we have issued guidance on this area.’

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18 comments so far. Why not have your say?

Knowledgable insider

Feb 28, 2014 at 11:54

Having enjoyed a long period of non interference from our able friends at the FCA the SIPP industry has been allowed to thrive ..... now the busy bodies are involved let us see how SIPPs will now become more expensive and non competitive as smaller providers are forced out of the market. Another feather in the FCA's cap ...you really couldnt make it up!!

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Julian Stevens

Feb 28, 2014 at 11:55

As with mandating the OM as the default option for pension funds approaching their vesting date, the FSA/FCA (same thing) is only 15 years late on this one. Well done chaps! Speedy action and excellent value as usual.

If it wasn't such a calamitous farce, you'd have to laugh.

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Stephen Girling

Feb 28, 2014 at 12:16

and yet, how many SIPP providers accepted any investment that their clients were 'sold' only for them to blow up and fall on the FSCS. Harlequin and various other off plan property schemes have all tapped the SIPP money of unwary or greedy clients and it has been seen as the 'compliance light' way to invest.

With all the past debacles, it always had to change, with the SIPP providers needing to be more responsible 'gate keepers'.

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Feb 28, 2014 at 13:18

Can someone define a Risky Investment?

Isn't this just another way for the FCA to finance their ever growing Budget (£650m at the last count), with more fines.

Vetting is hard enough fro SIPP providers without additional ambiguous rules on 'Reasonable' dilligence that open the door to more fines. They'll need another new building to house the tomes of rules soon.

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Anthony Smith

Feb 28, 2014 at 13:22

It's a pension plan not a casino. Its sole purpose is meant to be to provide death and retirement benefits only. If people want to risk their money in speculative ventures then be clear about it and don't put it in your SIPP. Providers and advisers should know better but it is a bit like shutting the door after the horse has bolted and a shame it took so long to act. Trustees also have a responsibility in this and schemes everywhere should review their asset take on governance and stick with what pensions should be all about.

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Gordon Sinclair

Feb 28, 2014 at 13:23

A good move by the FCA but way too late.

There are some SIPP providers who attracted clients by using the mantra "we will allow anything". I can think of at least one who "specialised" in unlisted investments and UCIS.

That may come back to haunt them!

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Andy Kirk

Feb 28, 2014 at 13:34

A great step forwards to stop UCIS being used where the adviser sells some 'magic' investment (for magic read extremely risky) that pays them a marketing allowance (meaning commission) of 10% or thereabouts. Interferance on the one hand but welcome on the other.

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Man in Black

Feb 28, 2014 at 14:59

I can imagine I will be receiving more instructions from firms in assisting them to establish SSASs.

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Adam Smith

Feb 28, 2014 at 16:42

Indeed Mr Black - although any advice to transfer out of a personal pension into a SSAS is still regulated.

Transfer from existing occupational pension into SSAS is an interesting proposition, though there's a Principle 7 question about making clear to clients that such a move would be unregulated business.

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Man in Black

Feb 28, 2014 at 16:55


You're not wrong, but you are, if that makes sense.

You simply do not do SSAS business via authorised persons. You set up the SSAS and the member/trustee then ostensibly makes his own decision. Nothing ever gets 'said' about the merits of the PP such that no advice as such ever gets given.

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Mar 02, 2014 at 09:47

So let's all stay in equities & bonds , despite the fact that the FTSE100 is still below 1998 levels and those who invested 5 years ago approx are just about back to break even ,meanwhile the fund managers and establishment operating regulated funds have continued to charge an AMC, but that's OK ! Then to cap it all most policyholders are then forced into a product where they have to live about 20 years to get their money out, then it's taxed !! Even if you have the benefit of a large enough pot to go into drawdown anthree beneficiary takes a lump sum, then hey-presto a whopping 55% tax charge . No wonder people pile into buy to let investments instead!!

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Ian Lees

Mar 02, 2014 at 10:29

It might seem somewhat old fashioned - but could not any regulator or the DWP or those who create - or attempt to control a product like a SIpp ( or SSAS ) create a list of " regulated investments ", rather than chasing their pony after the donkey has bolted ? Some may refer to this as being, Pro Active - rather than the repetitive reactionary - and ridiculous situations surrounding - FCA visits ? I understand they may not get as much use out of their, bus passes . . .or expenses . . .unlike the uncontrolled MP's . . .but it may give some level of leadership . . .for which the HMRC could take some responsibility. For example if someone wishes to make an investment in a Sipp outside the " Permitted Investments ", then they would need to make a request to the HMRC - and demonstrate how such an investment could benefit the pension beneficiary - to provide the income - the pension product is designed to deliver. Should product providers wish to deliver a different product - designed to for tax avoidance they could spend their time - better employed elsewhere - leaving pensions to deliver what they say on the Trust.

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Dandy lion

Mar 02, 2014 at 10:50

I don't see why some clients can't invest in unlisted securities. I recently sold 10% of my business to the accountants I work with and it's been a great success as we are all in it together, as it were. As our model is a service proposition with low setting up fees they feel part of the business and share in dividends (which are paid to their SIPPs) and when we sell they should get a good return. Ucis are not a SIPP problem per se, ifas shouldn't be allowed to flog them, period.

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Gordon Sinclair

Mar 02, 2014 at 13:06

@ nugget

"meanwhile the fund managers and establishment operating regulated funds have continued to charge an AMC"

So when the markets are low fund managers and their colleagues shouldnt get paid??

@ Dandy Lion

The trouble with unlisted securities is that far too many SIPP clients have taken the proverbial and simply spent their SIPP funds or syphoned it off to other parts of their business.

Its a case where the minority have spoiled it for the majority!

@ Ian Lees

I actually agree with you!!

What you are saying is pretty much a throwback to pre A-day when things were a whole lot clearer.

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Mar 03, 2014 at 08:04

@Man In Black

You simply do not do SSAS business via authorised persons. You set up the SSAS and the member/trustee then ostensibly makes his own decision. Nothing ever gets 'said' about the merits of the PP such that no advice as such ever gets given.

Oh dear!!!!

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Man in Black

Mar 03, 2014 at 08:46


"Oh dear!!!"


The FCA's approach to alternative investments is one of forcing them out of mainstream provision without addressing why they are in demand. Likewise, the FCA's approach to SIPPs, and specifically the 'SI' in 'SIPP', is simply resulting in a false market for SSASs outside of the regulated channels. It is difficult to believe that such a scenario can be good for anyone.

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Man in Black

Mar 03, 2014 at 09:08

@Dandy Lion @Gordon Sinclair

I love the way we're getting obsessed with legal form rather than substance e.g. unlisted shares are fine, but UCIS aren't...The problem of unregulated collectives could on this logic be solved merely by FCA agreeing to regulate all forms of collectives, whatever their investment mix.

In truth unlisted shares in private trading companies suffer much the same risk-factors or limitations of illiquidity, poor governance and catastrophic failure as many UICIS and provide much the same spectrum of rewards...Likewise the typical UCIS investment can be packaged as unlisted shares or debt securities, and often are, and not incidentally via an SPV. Its these reasons - not the old 'self-investment' issue - that FCA are trying to limit exposure to unlisted shares. [Witness the role of Jason Pope - FCA's technical specialist on UCIS - in drafting the revised COBS 4.7 limiting promotion of unlisted securities to retail clients].

The reality of 'alternative investments' is that there is a legitimate demand for them for their investment merits. A sensible approach would be to understand the different risk-return profiles pertaining to different types and proceed from there...A sensible regulatory framework would make such investments widely available, whilst ensuring retail clients do not invest what they cannot afford to tie up, concentration levels are limited, valuations are sufficiently objective and the parties behind them are legitimate business people whose power over the scheme is kept in check.

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Ian Lees

Mar 03, 2014 at 09:55

@JakGreen . . under Scottish widows personal and Occupational IE SWRBS Final Salary Scheme - the Trustees are the " Management " i.e those appointed as being " competent " actuaries run by sales directors and the sales men in management where the numbers required ( Target driven sales ) as opposed to quality advice for each benenficiary. Complain . . .and you will see the tardy treatment of the Trustees - who have FULL CONTROL OVER THE PENSION FUND . . .and beneficiaries ( including spouses ) . . . . benefit . . . if any remains after charges, abuse and manipulation and fiddling ! SUxh is the meddling of Scottish widows. . . . . in employees pensions and life savings . . .not recommended to any one . . . . Get Out Now !

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