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FSA hikes Sipp capital adequacy requirements

by William Robins on Nov 22, 2012 at 10:14

FSA hikes Sipp capital adequacy requirements

The Financial Services Authority (FSA) has proposed a hike to capital adequacy requirements for Sipp providers.

Under plans published today the absolute minimum capital a Sipp operator would have to hold will increase from £5,000 to £20,000.

The FSA proposed there would also be an additional requirement for providers that hold ‘non-standard’ asset types such as unregulated collective investment schemes (Ucis). This is because they will take longer to transfer in a wind-down situation.

The FSA said it will produce a list of standard assets for this purpose.

The number of assets under administration (AUA) will also be taken into account.

In a consultation paper on Sipp capital adequacy published today the FSA said: ‘Broadly speaking, the more assets an operator holds the more capital it will need - but this will only apply up to a point.

While the FSA said it recognised that higher AUA also means greater potential risk for investors, it said it also offered an economy of scale in that Sipp operators can transfer some schemes (with the same assets) in bulk.

The FSA is also proposing that core capital must be held in a form that is realisable within a year, while capital held against the non-standard asset surcharge must be realisable within 30 days.

David Geale, the FSA’s head of investment policy, said: ‘While the Sipp market has grown substantially over time, the capital regime has not changed and needs bringing up to date. These proposals reflect the volume, range and complexity of assets now being put into Sipps and, ultimately, will protect investors better in the unfortunate event an operator is wound down.

‘Put simply: the more assets you have under administration – the more capital you will need; and if some of those assets happen to be more risky you will need even more.’

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10 comments so far. Why not have your say?

David Cathcart

Nov 22, 2012 at 10:35

It seems sensible to bring it in line with what most DA IFA's have to put aside for their Cap Ad, why should SIPP providers be any different.

The FSA should also ensure this is not a feeble excuse for them to increase their charges, given that they should be well capitalised in any event

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Paul Barnard

Nov 22, 2012 at 10:37

So, as a 2 man band IFA we have to hold £10,000 at the moment, but a SIPP provider only £5,000? Really?

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PensionMan

Nov 22, 2012 at 10:46

@ Paul Barnard

Possibly because advisers advise the clients to do the investments and most SIPP providers dont - they simply provide a wrapper?

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David Cathcart

Nov 22, 2012 at 11:07

@pensionman

So Sipp providers smply provide a wrapper do they, so their duties as custodian of the clients assetts and their role as trustees do not incurr any liabilty.

If it is that risk free why are the FSA so concerned. Just a thought

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PensionMan

Nov 22, 2012 at 11:14

@ David Cathcart

Of course SIPP Trustees and Operators have certain duties that do carry a liability but I thought that a lot of these changes stem from the number of failing investments and esoteric assets being investied via a SIPP.

It comes down to who has responsibility for the advice again - the adviser for recommending a product or the SIPP operator for allowing it to be invested via their SIPP.

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Paul Barnard

Nov 22, 2012 at 11:19

Hence my disbelief

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Steve Clark

Nov 22, 2012 at 11:42

Must say I get fed up with the way NMA reports these kind of stories. Their headline is" FSA hikes SIPP capital adequacy requirements". The slightly less sensational FT Adviser's headline is "FSA increases Sipps capital minimum to £20k". For a magazine and website that is supposed to be aimed at the fee based, chartered and generally new model army some of the stuff is a bit sensationalised!

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David Cathcart

Nov 22, 2012 at 11:51

Pensionman, I detect from your comments bating the responsibilty back to the adviser, that you are a SIPP Provider. That aside, the SIPP Provider takes fees for the service they provide and being the custionian of the clients assets, this is what the FSA want additional capital security, this has nothing to do with the advice, this has everything to do with security of clients assets.

If SIPP providers are now taking the same stance as some DFM's and you know who you are Mr ... and accepting no liabilty for anything, then thats fine IFA's then know where we stand and make our recommendations accordingly.

Does it follow that if a SIPP provider misappropiates a clints fund, then you blame the IFA for not carring out enough due diligence. I know you would like to but unfortunatly the onerous responsibilty of being a trustees will not allow this.

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John Frink

Nov 22, 2012 at 13:14

£20,000, oh the burden!

If a SIPP provider doesn't have access to 10 times that they shouldn't be in business. Are they operating out of caravans?!

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Nick White

Nov 22, 2012 at 14:28

As commented on the other thread, the £20k figure is a distraction. That's not going to be a problem for any proper SIPP operator. The key is the formula for the new total capital requirement, which is on p.11 of the consultation paper here:

http://www.fsa.gov.uk/static/pubs/cp/cp12-33.pdf

A SIPP operator with £100m in funds, 20% of which are "non-standard", will have to hold £400k total free capital.

The free capital required doubles if the funds held quadruple.

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