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FSA uncovers widespread failings among Sipp operators

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FSA uncovers widespread failings among Sipp operators

The Financial Services Authority (FSA) has published a damning thematic review into Sipp providers.

The review of 72 Sipp providers revealed that several firms may have been a 'conduit for financial crime' and that many could not identify investments that could carry a tax charge from HM Revenue & Customs.

The FSA’s findings included:

  • A poor understanding among firms’ senior management of regulatory requirements and their individual responsibilities
  • A lack of senior management oversight of the conduct of their firm
  • Poor corporate governance, which in some firms may have resulted in the firm being targeted by for the purposes of facilitating financial crime. 
  • Inadequate risk identification processes and risk mitigation planning, underpinned by poor quality management information
  • An increase in the number of ‘non-standard’ investments held by some Sipp operators, which were then poorly monitored
  • Firms holding insufficient capital to absorb unexpected liabilities, risking the ongoing viability of the firm.
  • A lack of adequate due diligence of introducers and investments
  • Evidence of conflicts of interest existing within some Sipp operators, with firms acting as the administrator, trustee and adviser without sufficient controls in place to manage potential conflicts
  • Poor management of operational risk in some firms.

It said 70% held ‘non-standard’ investments including unregulated collective investment schemes (Ucis) of which there had been a ‘significant increase’.

It said it would work with HMRC, The Pensions Regulator (TPR) and the Serious Fraud Office (SFO) to repair the sector.

The FSA has called on all Sipp operators to review their businesses in light of the findings before attending a mandatory programme of workshops for Sipp operators, to be held before the end of 2012.

In April 2011 the FSA contacted 72 Sipp operators asking them to complete and return a questionnaire.

In September New Model Adviser® revealed that seven firms had been selected for onsite visits that focused on general compliance. A further seven firms were selected for onsite visits that focused on compliance with client money and asset rules (Cass).

The FSA said: ‘The findings of this review confirmed our concerns. Poor firm compliance with regulatory requirements, particularly in the area of  risk planning and mitigation, has significantly increased the risk posed by Sipp operators. In addition to generally poor systems and controls, the majority of Sipp operators we visited were unable to articulate  accurately the application of Cass to their business structure. This led in some cases to a failure to protect clients’ assets adequately, putting clients at risk of loss if a non-compliant Sipp operator were to fail.

‘We also found inadequate controls over the investments held within some Sipps. Together these findings make it clear that Sipp operators have the potential to lead to significant consumer detriment through a failure to adequately control their businesses.’

The FSA announced it would publish a series of consultation papers and a policy statement by the end of the year, setting out changes to capital adequacy requirements, disclosure rules and projections.

It confirmed there would be more supervisory work following up on the report’s findings and threatened regulatory action against firms which did not make the necessary improvements.

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