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FSA hikes Sipp capital adequacy requirements

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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.’

There will be a transitional period of one year between the publication of final rules and implementation.

The consultation closes on 22 February 2013.

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