SIPP providers - publication of FCA finalised guidance

The Financial Conduct Authority published finalised guidance for Self-Invested Personal Pensions (SIPP) operators on 8 October 2013 that is unchanged from initial guidance produced a year ago following the FSA’s 2012 Thematic Review. The FCA has also informed SIPP operators that it is initiating a new Thematic Review of the sector – the third in 6 years. The FCA intends investigating whether SIPP operators are following the guidance on their regulatory responsibilities.

The key to the FCA’s attitude may lie in feedback provided following last year’s Thematic Review. Although there were only 6 separate responses, the Association of Member-Directed Pension Schemes (AMPS) responded on behalf of 52 SIPP operator members. AMPS reported that 93% of its members considered that their senior management were sufficiently aware of the regulatory requirements prior to the publication of the thematic report. The FCA disagreed with what it views as complacency. The FCA states: “Our thematic findings evidenced a lack of previous, regulatory experience within the senior management of over half the SIPP operators reviewed and a widespread poor understanding of their regulatory responsibilities for the quality of business they administer”. The new Thematic Review can be expected to place SIPP operators’ compliance with the regulatory requirements set out in the FCA guidance under robust scrutiny.

With confirmation that the FCA’s guidance is unchanged, SIPP operators will need to keep their focus firmly on the Treating Customers Fairly (TCF) principles and having all required systems and controls in place to ensure compliance with the guidance. Many of these relate to administration, documentation and client account rules, where the guidance provides examples of good practice. SIPP operators must also collect sufficient management information to enable them to identify possible instances of financial crime and consumer detriment.

The most controversial area relates to investment advice. The FCA acknowledges that members’ IFAs are responsible for investment decisions and that SIPP operators are not responsible for SIPP advice given by financial advisers. At the same time, however, the SIPP operator is said by the FCA to have a responsibility for the ‘quality’ of the SIPP business it administers. It is not clear what FCA means by this exactly. FCA makes clear in its guidance, though, that it requires a robust due diligence process by SIPP operators, including ensuring that any third party due diligence relied on has been independently produced and verified and in undertaking checks on introducers. The FCA wants SIPP operators to have in place benchmark standards against which both investments and introducers are judged, with the firm declining business if these standards are not met.

The FCA has confirmed its dislike of UCIS schemes in the context of SIPPs, repeating its mantra that these are unlikely to be suitable for the vast majority of retail customers.

SIPP operators should be under no doubt that the regulator will investigate firms that it considers have not taken all aspects of the finalised guidance on board and impose sanctions including financial penalties where it considers this appropriate. Even where management believe themselves to be familiar with those requirements, they should nevertheless consider a thorough review of whether their firms can demonstrate fully documented compliance with the guidance, to ensure that their confidence is not misplaced. Unlike the feedback respondents, the FCA believes that there are still serious shortcomings in the systems and controls of many smaller SIPP operators.

It seems likely that a combination of increased regulatory demands and higher capital requirements for SIPP operators due to be announced any time now is part of FCA’s push to see some consolidation in the industry.

Further reading: FG13/8 – A Guide for Self-Invested Personal Pensions (SIPP) Operators