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FSA warns Sipp providers over esoteric assets
by William Robins on Nov 09, 2011 at 10:00
Sipp providers offering more esoteric assets could face higher capital adequacy requirements and tougher due diligence requirements according to Financial Services Authority (FSA).
FSA head of investment policy Peter Smith suggested capital adequacy could be linked to whether providers were offering a full Sipp proposition. He added providers may have to align levels of due diligence and client charges to the kind of assets it wished to hold and the type of client using its Sipps.
'Sipp providers need to ask what service they are going to offer. If I have to wind myself down as a Sipp and I have been operating purely in the esoteric end of the market then what does that mean for the people whose pensions I am holding?’ he said.
‘I think the Sipp operator has choices to make about the assets they will administer within the Sipps they are running. Their choice should be based upon some assessment of what is sensible for the customer base they are dealing with and I think they need to think through what that implies for them in terms of due diligence.’
Smith’s comments follow the announcement last week that the FSA wants to raise capital adequacy requirements for Sipp providers. The FSA said the current requirement of six week’s capital reserve was too little for the time it takes to unravel esoteric or unregulated collective investment schemes.
Smith (pictured) confirmed the FSA wanted to provide clearer guidance on how much due diligence on investments Sipp providers were expected to undertake.
‘It’s not obvious to me that starting from the position of “any asset is OK so long as you want to buy it”, is a sensible position to be in from a Sipp operator’s perspective.
‘You would expect the adviser to do a suitability assessment,’ he said. ‘But the Sipp provider should have thought through what kind of assets they want to administer. It is a very odd business model to operate otherwise.’
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