The Financial Conduct Authority (FCA) has recently written to chief executives of self-invested private pensions (Sipp) operators in a “call to action”.
In the letter, the regulator says the issues it raised concerns about in its October 2013 Thematic Review remain and Sipp operators are not playing their part in preventing scams and pension fraud.
The FCA is scrutinising companies acting as trustees and administrators for investors’ Sipps and, although its October 2013 guidance was unchanged from that issued in 2012, the regulator’s paper suggests an increased interest in Sipp operators – especially when considered alongside its new capital framework.
In addition, the regulator comments that Sipp operators are to have some responsibility for the “quality” of the Sipp business they administer. It suggests operators should undertake due diligence on investments that investors seek to introduce to their Sipps, and for Unregulated Collective Investment Schemes (Ucis) that responsibility was “enhanced”.
The ‘Dear CEO’ letter refers not to Ucis but to non-standard assets – those that would incur additional time and cost should they need to be transferred to another operator, and which were listed definitively in a policy statement in August.
The FCA’s letter also appears more forceful. Rather than suggesting operators consider certain due diligence, such as collecting management information on investments introduced to Sipps and measuring against benchmarks, it wants operators to ensure investments are:
• Not a scam or linked to fraudulent activity, money laundering, or pensions liberation;
• Capable of independent valuation;
• Safe and secure (which the FCA appears to consider as being subject to a binding contract); and
• Not impaired (the FCA gives an example that previous investors in the same asset have previously received the income expected from it).
Unlike in its 2013 paper, the FCA does not list procedures that it considers good practice, rather it notes that operators had difficulty completing due diligence for non-standard, overseas assets. It says operators should be able to ascertain the structure of an investment, where pension funds are being transferred, and should not rely solely on a provider’s marketing literature to do so. The FCA’s views are oft-quoted by investors whose Sipp investments have not performed well and who seek to claim against the operator.
Recently, in a case the Financial Ombudsman Service (FOS) deemed it had jurisdiction to consider, a complaint against a Sipp operator that had accepted a pension investment in potential Ucis, AgroEnergy, to a client’s Sipp was upheld.
The ombudsman noted that the investment was unusual and esoteric and the operator should have been aware the investment and the Sipp were potentially unsuitable for the client.
The ombudsman went on to cite the July 2009 Sipp Thematic Review paper, which referred, among other things, to identifying anomalous investments to enable the firm to seek appropriate clarification of the suitability of what was recommended to the client.
This FOS decision is believed to be the first of its kind and out of kilter with decisions from the Pensions Ombudsman Service, which, to date, has expected only limited duties of due diligence on operators.
