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Sipp providers' capital shortfalls a major concern, says Mattioli Woods

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Sipp providers' capital shortfalls a major concern, says Mattioli Woods

AIM-listed advice firm Mattioli Woods has voiced concerns about the Financial Conduct Authority's ability to enforce capital adequacy rules on Sipp providers. 

New Model Adviser® revealed in March that four Sipp firms had failed the regulator's new capital adequacy requirements.

Speaking to New Model Adviser®, Mark Smith (pictured), chief operating officer for Mattioli Woods, said the combination of tougher requirements and legacy liabilities would become a serious danger for firms. 

In particular Smith said there were problems with the FCA's small firms centre, a contact centre for firms which do not have a direct named contact within the FCA.

He said: 'We have a good relationship with the FCA, but interestingly one of the problems in the Sipp market is that the majority of firms don't have direct contact into the FCA, so most firms go through the small firms centre.

'We do as well, even though we are a listed £50 million turnover business with a market cap of £250 million, were are in this small firms division without a named contact, and it's a call centre. They have some real resource issues.'

Smith revealed only two Sipp providers have a direct relationship with the regulator, of which Mattioli is one, and said that with around 70 firms still operating, many smaller firms are flying under the radar.

Mattioli Woods previously took over the administration of £100 million in Sipp schemes from provider Stadia Trustees, whose clients had been invested heavily into non-standard assets. 

Smith explained: 'We stepped in to help out because Stadia had been trading for about 18 months without the necessary capital. In this case, the FCA was aware and was working with the firm to find a resolution, but it is really difficult. There are now four firms out there who don't hold the capital they should, and the members of those pension schemes don't know that, because it has not been disclosed anywhere.'

This also creates problems for advisers, Smith suggested, in identifying suitable Sipp providers when there are firms which are failing capital adequacy requirements but continuing to trade.

He also highlighted the dangers for firms juggling more stringent capital requirements with legacy liabilities. 

'We were talking to a business recently who are meeting the capital requirement but every time they take on a new client, because of the way the calculations work, they have to put more capital into the business, because it's based on your asset values,' he explained.

'So they get to the point where they have to assess whether they can afford to take on new business, because very new client has a new value, you have to put more in again, and it becomes difficult to manage for small firms.'

Mattioli Woods has stepped into four arrangements with firms who have fallen into trouble, and Smith said the regulator has been involved in facilitating this.

But he foresees the problem growing in the coming years for firms which have taken on non-standard assets, and pointed to the market exposure to the potential winding up of storage unit investment StoreFirst.

'If that collapses the impact on all the Sipp providers with exposure to that, particularly if they did business through unregulated introducers as opposed to IFAs, brings a huge potential liability.'

Petitions to wind up Store First Limited and related companies have been lodged by the Secretary of State for Business, Energy and Industrial Strategy and are currently the subject of ongoing proceedings before the High Court in Manchester. Store First is contesting the winding up petitions. 

Smith predicted that over the next 18 months a number of liabilities related to Sipp investments, some also involving tax charges for Sipp members, will start to 'crystalise' and 'cause issues' for Sipp firms.

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