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FCA hits Sipps with restrictions on risky investments

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.’

Peter Smith, head of distribution engagement at the Tisa, said: ‘It’s all about systems and controls and whether some Sipp providers can demonstrate what happens to the regulator, what their safe guards are, and whether they’ve stopped things from happening while others haven’t. That’s what the regulator is looking at.’

New Model Adviser® also understands the FCA is likely not to consider commercial property to be a non-standard asset in its final capital adequacy rules.

The proposed rules, first put forward in 2012, are set to impose larger capital requirements for providers with ‘non-standard assets’ in their Sipp books, with commercial property falling into this category.

The FCA said it expected its review to help inform its work on Sipp operators’ capital requirements, but could not confirm or deny any reports on the nature of it proposals until the publication of the capital rules before the summer.

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