Industry commentators have described the FCA’s proposed changes to self-invested personal pensions (SIPPs) rules as taking a ‘sledgehammer’ approach and risking ‘unintended consequences’.
In a recent consultation, which closed this week, the FCA suggested introducing due diligence requirements to reduce the risk of scams and fraud, alongside a new Pension Scheme Money and Assets (PSM&A) regime to ensure firms protect and keep record of pension scheme money and assets where they use unauthorised trustees.
Speaking on behalf of the UK Platform Group (UKPG) in response to CP26/20, Julia Sage-Bell, senior policy adviser at PIMFA, called for the FCA to set out clear expectations of firms and establish how proportionate the due diligence checks on SIPPs need to be so that firms can assess what resources they would need.
“In their current form, the proposals risk imposing a host of unintended consequences on consumers with legacy assets,” Sage-Bell said.
“In cases where firms have inherited arrangements, through acquisitions, in-specie transfers or historic business models, firms may not have sufficient influence to implement new terms of business or revised contractual obligations.
“While the proposals expect firms to ‘take reasonable steps to mitigate harm’ where due diligence requirements can’t be met, in many cases firms will be unable to take action due to product or legislative restrictions. In other cases, action will result in consumer detriment through charges or taxation.”
Sage-Bell also called for regulator to consider how new requirements interact with the existing requirements in the handbook.
“In the spirit of streamlining, we believe the FCA should retain and refine the existing standard and non-standard asset classification, instead of introducing a further list of assets subject to core or additional due diligence. This would encourage consistency, simplicity and automation, leading to better consumer outcomes over time.”
Mark Rendle, AJ Bell advised managing director, applauded the FCA’s intentions but described the proposals as “a classic ‘sledgehammer to crack a nut’ response’.
He added the rules will need refining to ensure they are proportionate, practical to implement, and meet their objective.
“Responsibility for compliance should reflect the activities each regulated firm carries out and the permissions it holds,” he said.
“SIPP operators should remain responsible for properly checking, managing and overseeing the third parties they work with. Otherwise, there is a danger that in their current state, the rules could prove unnecessary, duplicating work in some areas and only adding another layer of needless prescription.
“Getting the rules right is important as the consequences could be serious. The FCA itself acknowledges that the proposals could drive some firms out of the SIPP market, leaving clients without a provider.
“Client security is a goal worth striving for, but the FCA should continue its work to regulate ‘bad actor’ firms without overloading all SIPP firms with disproportionate new rules and reducing choice for clients.”
The Society of Pension Professionals (SPP) said it backs the enhanced due diligence on higher-risk, unregulated, overseas and unusual third-party arrangements, but caveated firms should not be expected to duplicate the FCA’s existing supervision of authorised firms.
Madalena Cain, deputy chair of the SPP Defined Contribution Committee, said: “The SPP supports the FCA’s ambition to strengthen consumer protection and bring greater consistency to the SIPP market, but the new regime must be proportionate and risk-based.
“We support stronger scrutiny of higher-risk investments and third parties, while avoiding duplication of existing FCA supervision. Clearer rules, practical guidance and a sensible implementation timetable will be critical. In particular, we believe the proposed look-through requirements could place significant and unnecessary burdens on firms where assets are already subject to robust regulation.”
She added: “The FCA should focus its most intensive requirements where the risks are greatest, giving firms enough time to implement the changes without driving unnecessary costs, consolidation or reduced investment choice for consumers.”
