The Financial Services Authority (FSA) has defended plans to place higher capital adequacy requirements on Sipp providers holding commercial property in their books, pointing to the illiquidity of the asset.
Under the FSA’s plans for reform of Sipp capital adequacy requirements, it will require providers including ‘non-standard’ assets, such as unregulated collective investment schemes, on their books, to hold more capital in reserve.
The FSA has drawn up a list of standard assets, with any assets not on that list triggering the higher requirements. Commercial property has not been included on the non-standard assets list, despite being widely held by Sipps.
David Geale, FSA head of investment policy, said the classification was fair because it was based on liquidity rather than risk. Since commercial property investments can take months to wind-up or transfer it has been deemed non-standard, he said.
‘Including commercial property does not unduly affect Sipp providers. We are not saying it’s a risky investment but it’s about the ability to wind down,’ he added.
He said that the 12-month lead-in to the introduction of the rules meant Sipp providers have a year to decide whether to hold more capital or consolidate.
He added the Sipp industry must ‘move forward’ with the proposed capital adequacy regime even though the reforms could lead in some cases to members being left without a provider.
‘We will look closely at how they are making these changes, but they have a year until the rules come in,’ he said.
‘We have to start somewhere. Some firms may decide to leave the market but the whole point of the proposals s to protect consumers. Therefore it will get to be difficult for some but we have to move forward.’