The FCA (Financial Conduct Authority) has asked SIPP (Self-Invested Personal Pension) providers a series of further questions as it finalises the new capital adequacy rules.
According to reports in FTAdviser, the new regulator, who has recently taken over from the FSA (Financial Services Authority), has requested further information from SIPP providers, including details of the types of assets the SIPP provider will allow, the amount held in each type of investment, as well as details of the level of interest retained from the member’s SIPP bank account.
The FCA has also asked SIPP providers about any merger or takeover activity, which they have been involved in.
SIPP experts believe the FCA is gathering further information before finalising the new capital adequacy rules, which are likely to force SIPP providers to hold significantly larger sums of capital, with the exact amount linked to the amount of assets and type of assets under management.
SIPP bank accounts
Following new disclosure rules, which came into force last month, the practice of SIPP providers keeping some, or even all, of the interest due on the SIPP current account , has hit the headlines.
The SIPP bank account is used to pay fees, make investments, receive maturities and hold cash whilst members make decisions; in common with personal current accounts it is not designed to hold cash for long periods of time. Most SIPP providers choose who the SIPP bank account is opened with and many retain a percentage of the interest, which would normally be paid to the member.
Whilst the practice of retaining some of the interest due on the SIPP bank account has not been banned, SIPP providers must now disclose to the member the percentage retained.
Speaking to Investment Sense last week, John Fox, Managing Director, Liberty SIPP, “The new disclosure rules are a victory for the consumer. Whatever you think about the FSA, introducing them was a positive step forward for the SIPP industry.”
Fox continued: “SIPP investors have the right to know whether or not their provider is taking a cut, or all, of the interest paid on their current account. Transparency is key.”
Like a handful of other SIPP providers, we took the decision to pass on all the interest paid on our clients’ current accounts. We never felt comfortable taking money just because we could and from day one believed that it was not in the interest of the investor.”
“Taking commission without telling the person you are taking it from is not treating customers fairly.”
It now seems that the FCA is looking into this practice in more detail and it will be interesting to see if they propose a change to the current rules.
Some experts fear a ban on the practice would see SIPP providers, especially those who are heavily reliant on interest as a source of income, push up fees.
Final capital adequacy rules
Following a period of consultation with the SIPP industry, the eagerly awaited capital adequacy rules are expected to be published shortly, although they could now be delayed, pending replies from SIPP providers to the latest series of questions.
When the final rules are eventually published, SIPP providers will get much needed clarity over the levels of additional capital they will need to hold to satisfy the new regulations. Once this happens, they will be able to make any changes necessary to their business model, which for some, could involve a sale or merger; whilst there is also concern some providers may be forced to increase their fees.
