The statement was made in a letter to the Work and Pensions Select Committee from Megan Butler, the FCA’s executive director of supervision – investments, wholesale and specialists divisions.
Butler was responding to a series of questions from committee chair Frank Field about the scale of non-standard investments (NSIs) in the pension product.
“Since 2009, we have been particularly concerned with the quality of some of the NSIs being held in Sipps and the due diligence before accepting them,” she wrote.
While stating that not all NSIs are “problematic”, she added that “our concerns with some NSIs are exacerbated by the potential for scams”.
No ban
She explained that, since 2016, the UK model does not dictate what can be placed in a pension, “rather, which investments attract tax relief”.
“The effect of this is that many more types of investments can now be placed into pension schemes, such as Sipps.”
Rather than imposing a ban, Butler added: “We believe suitable advice from financial advisers accompanied with effective due diligence checks by Sipp operators is a more proportionate way of preventing harm to consumers.”
She highlighted that not all unregulated investments or NSIs are high risk. “Some investments are deemed non-standard because they are not capable of being liquidated within 30 days.”
Commercial property and fixed term deposit accounts were given as two examples.
“We would not necessarily want to ban sophisticated and high net worth individuals from making these investments should they wish to, based on sound advice and consideration,” Butler added.
Regulatory action and court cases
In response to Field’s other questions, Butler provided some key insights.
- As of September 2017 – the total amount of NSIs held in Sipps, from all sources, was just under £6bn ($7.9bn, €6.8bn).
- This accounts for around 2% of the total £300bn of assets under management with the largest contract-based Sipp operators, as of March 2017.
- During 2017, the total amount withdrawn from defined benefit funds was £22.44bn.
- The FCA currently has one live skilled persons review underway that relates to the due diligence performed when accepting an NSI.
- So far, two Sipp operators have been referred to the Enforcement and Market Oversight Division, which decides if more punitive measures are required for failures.
- There are currently 33 open investigations into advisers who the FCA suspects have given poor advice.
- Several court cases involving Sipp operators and relating to investors who did not take regulated financial advice are currently progressing through the courts.
Due to the ongoing nature of the investigations and court cases, Butler was unable to provide details of the individuals or firms involved.
