The pressure on Sipp operators has increased further as the Financial Services Compensation Scheme (FSCS) declared four independent financial advisers (IFAs) in default, all of whose businesses were based on giving advice relating to Sipp investment. The FSCS predicts more IFAs will default given the volume of enquiries it has received from Sipp investors who have lost money. It clearly remains the FCA’s view that Sipp operators should undertake some due diligence on the investments clients seek to introduce to their pensions. This is particularly the case where those investments are Ucis and, if different, non-standard.
The FCA’s views will continue to be quoted in claims brought against operators. Those claims are set to increase if more IFAs are declared in default and investors have no other target for a claim but the operator. However – and notwithstanding the surprising decision from the FOS recently – the FCA’s concern appears to be that operators assist with detecting pension fraud rather than ensuring a Sipp investment is suitable per se. In theory, an operator can still accept non-standard assets “with adequate procedures in place to assess those investments”.
John Enoch is a partner and Caroline Hall is a senior associate at law firm CMS
The FCA View: Sipps and non-standard assets
In its policy statement on a new capital framework for Sipp operators, the FCA states:
“At the current level of capital requirement, there is a real risk that when a Sipp operator exits the market it cannot afford to continue to administer its pension schemes, find another administrator for the pension book, or fund the closure, even when fee income is still coming in. This is particularly so where the firm administers non-standard assets, which add significant complexity from the perspective of a firm that considers acquiring the pension book. This can lead to pension schemes being left without a functioning administrator, creating uncertainty and possibly a significant tax charge for the consumer.”
Sipps and the FCA: Standard Sipp assets identified by the FCA
•Bank account deposits
•Cash
•Cash funds
•Corporate bonds
•Exchange traded commodities
•Government and local authority bonds and other fixed interest stocks
•Physical gold bullion
•Investment notes (structured products)
•Shares in investment trusts
•Managed pension funds
•National Savings and Investment products
•Permanent interest bearing shares
•Real estate investment trusts
•Shares listed on:
The Alternative Investment Market;
The London Stock Exchange; or
A recognised overseas investment exchange.
•UK commercial property
•Units in regulated collective investment schemes
Key Dates
2007 – Sipp operators came into the scope of regulation overseen by the FCA’s predecessor, the Financial Services Authority, as part of the government’s approach to promoting pension saving.
