Wealth Manager - the site for professional investment managers

Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

FCA writes to Sipps firm chiefs over 'unacceptable' due diligence failings

FCA writes to Sipps firm chiefs over 'unacceptable' due diligence failings

The Financial Conduct Authority (FCA) has written to chief executives of Sipp firms after it found 'unacceptable' and 'significant' failings in firms' due diligence.

The review, the regulator's third thematic review of Sipps, looked into financial resources, quality of business and operation procedures and controls, all of which were highlighted as areas of concerns in its report into the Sipp market in 2012.

As part of its thematic review into the Sipp market the FCA has stopped certain operators accepting unregulated collective investment schemes (Ucis), unlisted shares and commercial property syndicates. However the FCA said it found Sipp firms still performed inadequate due diligence on high-risk, speculative and non-standard investments.

A letter to Sipp firms from Clive Adamson, director of supervision, at the FCA (pictured) said: ‘During our review, we found that a significant number of Sipp operators are still failing to manage these risks and ensure consumers are protected appropriately, despite our recent guidance. In our view, the failings we identified put UK consumers’ pension savings at considerable risk, particularly from scams and pension fraud.

'We have already discussed this with the firms concerned, explaining that these failings are unacceptable and need to be addressed.'

The FCA said it would continue to review firms but overall has found that ‘most’ operators failed to undertake adequate due diligence on ‘high-risk, speculative and non-standard investments despite of being aware of the Financial Services Authority guidance originally published in 2012’.

The regulator said these failings ‘continue to occur’ despite its guidance issued in October 2013 following its last thematic review.

It said that it also found that most firms do not have the expertise or resources to assess this type of business, but were still allowing transactions to go ahead.

The FCA said that since its last review of Sipp operators, it had noticed an increase in a number of number of opaque investment structures, such as special purpose vehicles and limited companies, created to pool investment monies and finance other businesses.

It said that firms were having difficulty establishing where money was being sent, and whether underlying investment propositions were genuine.

The letter said: ‘This increases the risk that a pension scheme may become a vehicle for high risk and speculative investments that are not secure assets, many of which could be scams. It is not acceptable for firms to put consumers at risk this way.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Your Business: Cover Star Club

Profile: how this boutique beat the big guns of wealth

Profile: how this boutique beat the big guns of wealth

This small west country offshoot of a local IFA scooped a 2018 Citywire award from beneath the noses of the national challengers

Wealth Manager on Twitter