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Sipp providers divided over FSA cap ad proposals

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by Brian Cantwell on Feb 22, 2013 at 15:00

The deadline for responses to the Financial Services Authority’s consultation on the Sipp capital adequacy regime passed yesterday. Here's what Sipp providers think of the proposals.

The deadline for responses to the Financial Services Authority’s (FSA) consultation on the Sipp capital adequacy regime passed on the 22 February.

The regulator has proposed a hike to capital adequacy requirements for Sipp providers.

Under plans 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 number of assets under administration (AUA) will also be taken into account.

Click through to find out what Sipp providers think of the proposals….

John Fox

Managing director

Liberty Sipp

‘What the FSA has proposed seems to be a response to some of the poor practice that it has found in the market, yet it is the whole of the market who will suffer.

'Rather than looking at changing legislation, I would like to see the FSA introducing a common sense list of permitted investments (which would make life easier for both the Sipp companies and the regulatos).

'I would also like to see specific COBS rules for Sipps or even RDR-style qualifications for Sipp directors and key personnel

'Instead it is going down the road of increasing capital adequacy and trying to rush things through within a year. Hopefully the consultation with the FSA will be a proper consultation, as there are Sipp companies who want to communicate with the regulator.'

Mike Morrison

Head of platform marketing

AJ Bell

‘We accept the capital adequacy regime and we haven’t got too many issues with the suggestions but we’d like a few clarifications.

‘We’d like a list of permitted investments for Sipps so you know what you can and can’t invest in, and commercial property to be classified as a standard investment.

‘If a permitted investment becomes hard to invest in because of market change then it should still stay in the list of permitted investments. Consumer outcomes are important. Good Sipp providers will have good plans to administer the business and still be around in five or ten years’ time, which is vital for confidence in the business.'

Andrew Roberts

Chairman

The Association of Member-Directed Pension Schemes

‘We’re not convinced that a move away from expenditure [as a means of calculating capital adequacy] is justified.

'We haven’t seen evidence for it. We’ve suggested a model that removes regulatory arbitrage, which seems to be of concern to the FSA. If the FSA are convinced about the expenditure of a Sipp operator is not related to the costs of wind down, then we propose an alternative to their initial capital requirement which is based on the number of Sipps.

'It’s not perfect but we think it’s better than the FSA initial capital requirement. We think they’ve underestimated the impact of the capital surcharge, its increasing the amount of capital for Sipp firms, because the percentage of non-standard assets is much higher than the FSA expects, because of UK based commercial property.'

Mattioli Woods

‘We broadly support the FSA view the increasing the capital for security and to protect consumers within Sipps is a good move.

‘From our point of view, we’ve been involved with a few of the problematic schemes, [taking on the administration of] Freedom Sipp and Pilgrim Sipp, which were both arrangements that went wrong, so we’ve had first-hand experience of what it’s like when it goes wrong.

‘It can be hard to pick up the pieces when it goes wrong from a client perspective. I think it’s one of the points that is getting missed: we’ve had Sipp provider failings, and that’s the fundamental point of the legislation.'

Nathan Bridgeman

Director of sales and marketing

Talbot and Muir

‘Smaller companies with less than 1,000 Sipps are in trouble, they’re not going to be able to meet the capital adequacy requirements because their turnover isn’t high enough.

'Those of us who are financially strong and have robust procedures in place are being penalised for the actions of Sipp providers who have taken business at any cost.

‘There will be good Sipp providers that disappear as a result of changes to cap ad. With the loss of smaller Sipp providers we’re going to lose a lot of the innovation and bespoke elements that made Sipps special in the first place, with vanilla providers giving blanket solutions that won’t be good for everyone. Some clients want a solution rather than product.'

Andy Leggett

Head of business development for Sipps

Barnet Waddingham

‘We want to see a change in the basis for calculating Sipp providers’ capital adequacy, with the number of Sipps being the defining feature, rather than assets under administration.

‘There are numerous scenarios – financial crisis, fraud, suspended assets valued at £nil – under which assets under administration fall, which results in capital adequacy moving the wrong way and could cause consumer detriment.’

Robert Graves

Head of pensions technical services

Rowanmoor

‘I think the challenge is ensuring capital adequacy works across the industry. There’s a lot of concern about using assets under administration.

‘Ultimately I hope that the FSA actually do consider the responses and don’t just pay them lip service. Every year there are always issues, but this one is so important because it will put a number of Sipp firms out of business.

Martin Tilley

Dentons

‘We are in the speculation stage where lots of possible outcomes have been predicted but until we see either a second consultation document or the FSA's final directives we are unlikely to see any definitive moves in the industry.

‘We’re not too affected by a change in capital adequacy requirements but it does discriminate against those with high value account holders like ourselves.’

Mary Stewart

Sales and marketing director

Hornbuckle Mitchell

‘We think the new proposals are quite fair and sensible. I think they’ll affect smaller Sipp providers, who’ll find it very hard, but we’re in a good position on capital, today we stand at 120% of the new regime.

‘If this improves consumer confidence in the Sipp industry then we’d fully welcome it. There’s been a lot of talk about commercial property and whether it should be categorised as an esoteric investment, but what the FSA is trying to do is protect consumers from failure.

'Esoteric investments and commercial properties would take longer to fix. Robust capitalisation will undoubtedly force consolidation but I think that’s in the interest of consumers.'

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