SIPPs: Providers split over final capital adequacy proposals


SIPP logoNearly two years after the original capital adequacy proposals the Financial Conduct Authority has now released their final rules.

Most people agree the new rules are a ‘watered-down’ version of those first proposed:


  • Many SIPP providers, although not all will have to reserve far less capital than they originally thought
  • UK commercial property, as well as other assets such as UK bank accounts, will now be treated as ‘standard assets’
  • The surcharge for taking in ‘non-standard’ assets will now be based on the number of SIPPs managed rather than the value of assets

So what do SIPP providers think? Are the new rules a positive step forward or should the FCA have stuck to their guns?

Reaction has certainly been mixed!

Andrew RobertsAndrew Roberts, Partner at Barnett Waddingham who also co-ordinated the AMPS industry response to the original proposals back in February 2013

“We’ll have to accept FCA’s word that a formula using AUA (Assets Under Advice) is the best proxy available for the cost of running down a SIPP business however odd it sounds and whatever quirks it brings with it.“

“There’s a glaring difference between what the regulator was asking SIPP providers to stump up under the original proposals, and what they actually want under the final rules. A simple example shows that a small SIPP operator may now only have to hold a quarter of what they were originally expected to hold.”

“Take a SIPP firm with £90m invested, of which 35% of clients have readily transferrable property and another 5% have less liquid assets. Under the original formula, the capital requirement was £570k. Under the final rules the requirement is £147k; 25% of what the regulator originally thought the costs would be. That’s a huge difference, and helps explain why smaller providers were so aghast at the original proposals. I would hope that any future proposals are more carefully considered before being published and that the market isn’t left for over a year contemplating what might happen.”

Mark SmithMark Smith, Mattioli Woods

“We believe that small providers will struggle to transfer commercial property to s SIPP within the 30 day limit set by the FCA, with many having to turn away business due to the capital surcharge.”
“We have concerns that SIPP providers will exit the market and leave people’s pension savings at risk. With our experience of dealing with complicated schemes, we are able to provide a high-quality, robust and compliant service that leads to client satisfaction and peace of mind.”

Greg KingstonGreg Kingston, Suffolk Life

“If they have any doubt about the quality of their SIPP provider, consumers may be disappointed that the FCA’s Policy Statement announced that commercial property will be added to the standard assets list.”

“The FCA’s PS14/12 acknowledges the fact that there needs to be two parties involved to transfer commercial property. A SIPP provider must therefore be certain that any property can be ‘transferred with relative ease’ to another provider in order to class that property as a standard asset. However, in order to do so they’d need to have a purchasing party in agreement to accept it. This simply cannot be achieved with any certainty, making the argument for all UK commercial property to be defined as non-standard.”

“The one possible exception to this would be part-ownership, where there are clear succession planning agreements. However, it is down to the provider to determine whether or not this is the case, and it may suit the balance sheets of many providers to categorise their property as a standard asset. PS14/12 confirms that the FCA does not yet have sufficient confidence in SIPP operators to do this, stating ‘We do not see additional systems and control requirements as an appropriate substitute for ensuring that SIPP operators have sufficient capital invested in their business’. The door remains open for sub-standard controls to determine an inappropriate amount of capital reserves when it comes to UK commercial property.”

Gareth James AJ BellGareth James, AJ Bell

“It is right that the FCA has taken onboard feedback from the SIPP industry regarding its original classification of commercial property as non-standard. For most SIPPs, commercial property is a standard asset and its presence is not generally going to prevent a SIPP book being moved from one provider to another – which is the FCA’s underlying concern.”

“The policy statement confirms that UK commercial property can now be classed as a standard asset, but on the proviso that it is readily realisable, or can be transferred, within 30 days whenever required. This requirement is open to interpretation, and it will be interesting to see how closely this is scrutinised by the FCA. I suspect they will be looking for providers to take a common sense approach rather than obsess over the exact meaning of the 30 day window.”

“It seems clear that the FCA has moved away from using the capital adequacy rules as the primary control on SIPP providers allowing more esoteric investments. Instead the investment due diligence requirements are at the forefront, and we have seen these requirements being enhanced steadily over the period since the capital adequacy consultation was first launched nearly two years ago. If feels that the capital adequacy requirements are now the backstop in the event of due diligence failures.”

“The softening of the requirements should lessen the chance of disorderly exits from the SIPP market. It is the smaller firms with the highest proportion of toxic investments who the proposed rules would have forced out first and it is good news that the chances of that happening have diminished.”

“As the FCA has now defined standard investments – and therefore given us a definition of what it does not see as potentially problematic assets – I wonder if we are a step closer to the SIPP industry being given a permitted investment list?”

Matthew Rankine 150pxMatthew Rankine, Liberty SIPP

“The last-minute watering down of the requirements will allow many of the industry’s smaller players to breathe a sigh of relief.”

“Not only will the capital adequacy burden on them be less than the eye-watering levels predicted, but firms will have substantially longer to get their balance sheets into shape.”

“This more moderate approach to capital adequacy is sure to be a result of the FCA’s pragmatic assessment that the market wouldn’t be able to support the rush of mergers or selling of client books by small firms that would result if they were squeezed too hard by the requirements.”

“The appetite of large firms to buy smaller providers who fell foul of the new regime was always doubtful, so the FCA’s decision to go for carrot rather than stick makes sense.”

“The biggest impact is likely to come from the moving of the standard asset goalposts. By finally confirming that commercial property is a standard investment, the FCA has ended months of speculation.”

“But there are some surprising anomalies in the formula that the FCA proposes should determine how much capital firms should hold when compared to the formula in CP12/33. It is odd that those SIPP providers with a very high proportion of clients with non-standard assets will see their capital requirement fall, while those with very low numbers of non-standard clients will see their capital adequacy bar raised.”

Nigel BennettNigel Bennett, InvestAcc

“We are pleased that the regulator has clearly taken on board the constructive industry feedback and taken time to consider carefully the shape of the new requirements for SIPP Operators. We think this is a sensible outcome that will result in a stronger market and deliver on the aim of better outcomes for consumers, whilst at the same time allowing innovation and healthy competition to be a feature of the market.”

“The few Insurance Companies that remain in the “full SIPP” market are probably disappointed by these new rules, as they may have hoped that specialist independent companies would be killed off by overzealous regulation. Their argument that an insurer would be unlikely to fail a regulatory capital test will now seem less relevant, and so why would a consumer pay much more (in some cases) for the privilege of using an Insurance Company based SIPP to purchase Commercial Property, for example?”

“Looking at the bigger picture, we are mindful that the regulator issued warnings to the SIPP industry a few days before the Policy Statement, when it wrote to CEOs of all SIPP Operators to give general feedback about due diligence standards.”

“From a consumer’s point of view, this is all good news, although this does not mean that care should not be taken when considering any investment or SIPP Operator. We believe there will still be people pushing inadequate, unregulated and even fraudulent investments via SIPP, and it is too early to tell whether all SIPP Operators will heed the warnings of the FCA when it comes to accepting these investments. The regulator has already warned that if it sees further evidence of failings at SIPP Operators then it may revisit the rules published yesterday.”

Christine HallettChristine Hallett, Carey Pensions

“The FCA new capital framework for SIPP operators is welcomed, it suggests that they have taken into account the responses that many SIPP operators took time to prepare and provide to the FCA, in the hope that the initial consultation proposals would in some way be amended to reflect the needs of the industry and the needs of the disparate range of SIPP operators providing services to advisers and their clients.”

“They have appeared to have listened with the new framework reflecting this to some extent, UK commercial property is back within the standard asset listing, which will be welcomed by the majority of us, and is entirely right. However, the devil is always in the detail and I am sure each SIPP operator will now embark on what this really means to them and the impact it will have on their current capital held.”

“On first past however, signs are looking positive and will have less of an impact on the overall market, meaning that there will continue to be room for the smaller players as well as the larger ones which was a serious concern if they had stuck to their original plans for the calculation, this enables advisers and clients to have choice and therefore in theory should be to the benefit of us all. There is room for us all and the marketplace needs us all to operate and to ensure good consumer outcomes.”