Sipps were identified as “the primary vehicle used by unscrupulous advisers to channel individuals’ pension savings into unsuitable investments”, by committee chair Frank Field in a letter to the FCA’s Megan Butler on 22 May.
He wrote: “The role of Sipps in intermediating this sort of investment is a longstanding concern.”
Calling into question the repercussions Sipp providers face if they fail to meet due diligence requirements, Field posed five questions to the FCA’s executive director of supervision – investment, wholesale and specialist.
- What is the value and proportion of funds transferred from DB pension schemes into Sipps in the last two years which are held in the form of non-standard or unregulated investments?
- What due diligence are Sipp providers required to conduct on the investments that they provide access to, and how does the FCA monitor this?
- What powers does the FCA have to punish Sipp providers for failure in due diligence, and how have these powers been used?
- In what circumstances can a Sipp provider be deemed liable to pay compensation to a customer whose funds ended up in an unsuitable investment scheme, rather than the financial adviser who arranged the investments?
- Is the FCA considering the option of barring unregulated or non-standard investments altogether from inclusion in Sipps?
Field wrote: “Although the FCA has warned Sipp providers about what it expects of them regarding due diligence, it is not clear what repercussions a provider faces if these expectations are not met.
“Primary responsibility for paying compensation for mis-selling falls to the financial adviser, who can evade this by folding their firm.”
What prompted the questions?
The key drivers behind the committee’s questioning of the FCA appear to be the regulator’s own findings.
In his letter, Field highlighted the FCA’s 2013/14 thematic review of Sipp operators, which found “unacceptable”, “significant” and “widespread” failings in due diligence and consumer protection.
He added that, last year, the FCA warned operators about the risk of exposure to “increasingly sophisticated” scams if due diligence processes were not robust.
Sipp providers were also asked to provide details of the level and type of non-standard investments held in the self-invested schemes.