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Who Regulates SIPP Providers?

Who regulates SIPP providers?

Since the 6th April 2007, all SIPP providers have required authorisation by the Financial Conduct Authority (FCA), the body who regulates SIPP providers. This includes anyone involved with the operation of your SIPP, including banks, insurance companies and building societies. The establishment, operation or closure of a personal pension are all activities which now require FCA authorisation.


When this new regulation came into effect, the clients of any SIPP provider who failed to obtain the necessary authorisation lost the ability to either draw down retirement funds or make changes to their investments.


Capital Adequacy Requirements

The vast majority of SIPPs are established as part of a trust, controlled by the provider, who is the trustee. Within the trust, each individual has their own plan and can instruct the provider/trustee to invest or disinvest funds as they so desire. It is this level of flexibility that has proved so attractive to investors, living both in the UK and abroad. They have far greater control over how their funds are managed and the level of risk which they are willing to incur.

Changes in 2016 to the status of funds held within a trust had profound implications for SIPP providers. They were already obligated to meet capital adequacy requirements, meaning that they had to have a certain level of cash in reserve in a bank account. Those funds were set aside for the purpose of covering any losses should the business run into difficulties, offering customers greater security. The level of cash required varied from provider to provider but could be as high as one quarter of the organisation’s annual expenditure.


In 2016, the formula establishing how much each provider had to keep in reserve was altered. Now, firms are obligated to hold either 10, 15 or 25 times the square root of the value of assets under administration. There is also an additional surcharge based on the proportion of SIPP plans which contain non-standard assets. The FCA discourages the use of non-standard assets by SIPP providers on the basis that they cannot always be quickly sold to raise cash. Non-standard assets are generally illiquid in nature and could not be easily sold within 30 days. Commercial property is a common example.


As a result of these changes in regulation, SIPP providers have been increasingly moving away from non-standard assets.


Additional Areas Of SIPP Regulation

Whilst SIPP providers are not legally responsible for the advice of any independent financial advisors’ (IFA), they are compelled to review the nature of the SIPP investment on a regular basis. They are also required to consider the size of investments that the IFA has recommended and determine its suitability. When there is cause for concern, the SIPP provider should be requesting copies of any suitability reports to confirm their understanding of the situation.


2007 also saw the introduction of cancellation rights. SIPP investors are still given the option to waive those cancellation rights, should they wish to proceed with their investment more quickly. In addition, SIPP providers are firmly encouraged to ask for evidence of source of wealth for contribution payments.


If you are interested in learning more about who regulates SIPP providers, or are seeking independent financial advice on your investment choices, please do get in touch.


Please note that some of the information on this page is only applicable to UK residents.

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MATHSTONE

Mathstone provides financial solutions globally, assisting expatriates worldwide with pension transfer advice (QROPS & SIPPS), capital lump sum investment, savings vehicles, managing existing portfolios, insurance cover, repatriation advice and wills.

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