The FSA (Financial Services Authority) has published their findings following a thematic review into SIPP (Self Invested Personal Pension) providers.
The long awaited report will make uncomfortable reading for some of the 72 firms who took part in the review and 14 who were visited by the FSA. The report was damming in parts and went as far as saying that some SIPP providers may have been a “conduit for financial crime.”
Other findings included: Read the full report
- That senior management in some SIPP providers had a poor understanding of their regulatory and individual responsibilities
- Poor corporate governance, which may have led to certain providers being the “conduit for financial crime”
- Inadequate risk identification and mitigation
- Poor management information
- An increase in the number of alternative investments held by some SIPP providers
- Poor monitoring of the alternative investments held within SIPPs
- A lack of due diligence, on both investments and introducers
- Conflicts of interest, especially where the SIPP provider acted as the SIPP administrator, trustee and also took on the role of adviser
The FSA said: “The findings of this review confirmed our concerns. Poor firm compliance with regulatory requirements, particularly in the area of risk planning and mitigation, has significantly increased the risk posed by SIPP operators. In addition to generally poor systems and controls, the majority of SIPP operators we visited were unable to articulate accurately the application of Cass to their business structure. This led in some cases to a failure to protect clients’ assets adequately, putting clients at risk of loss if a non-compliant SIPP operator were to fail.”
The FSA continued: “We also found inadequate controls over the investments held within some SIPPs. Together these findings make it clear that SIPP operators have the potential to lead to significant consumer detriment through a failure to adequately control their businesses.”
Some industry experts, whilst accepting the FSAs findings, were quick to leap to the defence of SIPP providers, saying that only a minority of SIPP providers were at fault and that the majority worked within the rules and took their regulatory responsibilities seriously.
Unregulated and ‘non-standard’ investments
Concern has been mounting for some time about the increase in the number of unregulated, or non-standard, investments held by SIPP investors.
The FSA share these concerns and recently announced a crackdown on how unregulated investments are marketed to mainstream investor. However, it is clear that many SIPP providers have allowed such investments to be held within their SIPP; indeed 70% of the SIPP providers reviewed by the FSA had such investments within their SIPPs.
There is particular concern over potential conflicts of interest where SIPP providers also act as investment advisers.
Action to be taken
In light of the report the FSA has said it will work with other groups, including HMRC, the Pensions Regulator and the Serious Fraud Office to clean up the sector.
The FSA will also publish a policy statement and consultation papers by the end of the year, which will unveil their plans for increasing the capital SIPP providers need to hold, as well as looking at other areas including the disclosure of charges.