Tom Selby reports that the FSA is under pressure to view Sipp regulation
The FSA is facing calls to re-think the way it regulates Sipps after two failed investments in two weeks left 2,500 investors facing losses of up to £92m.
Last month, Money Marketing revealed around 1,000 investors in Arck LLP are facing losses of up to £60m after a liquidator was appointed for the specialist property investment firm.
Arck operated a scheme where funds obtained through IFAs, property agents and accountants were used to facilitate foreign property developments. Many investors used their pension savings to invest in the scheme through Sipp firm HDSipp.
Last week, Money Marketing revealed another group of investors are facing losses of up to £32m after the Serious Fraud Office appointed administrators to wind up a number of related “sustainable” investment companies.
Southwark Crown Court issued a freezing order in February on assets held by Sustainable AgroEnergy, Sustainable Wealth Investments (UK) and Sustainable Growth Group (UK) after a request from the SFO.
Money Marketing understands that a total of 1,500 people, mostly Sipp investors, could lose out as a result of the collapse of the firms that invested in biofuel companies in South-east Asia.
The two cases have focused attention on the role of pension administrators in ensuring due diligence is carried out on Sipp investments.
MoretoSipps principal John Moret says the Sipp regulatory regime is not fit for purpose. He says: “The appalling revelations about HD-Sipp and Arck LLP have convinced me it is time there was a thorough review of Sipp regulation and related HMRC rules.
“It is time for a rethink before the whole Sipp industry becomes tarnished as a result of the shortcomings in the current regime being exploited through incompetence or worse.
“There are almost a million Sipp investors with total assets in excess of £100bn. The vast majority of them are invested in legitimate Sipp investments with reputable firms but growing numbers will be concerned when they hear of these small-scale but, nevertheless very worrying, developments.”
Suffolk Life is reviewing the way it treats Sipp investments in response to increased FSA scrutiny of the role of providers. Head of marketing Greg Kingston says: “In an ideal world, the regulator wants us to treat advised clients in the same way as non-advised clients. With non-advised customers, we want to make sure we speak to them first before they take an investment decision, particularly if that investment is unregulated.
“On the advised side, we are looking at moving towards a position where the adviser keeps us informed of how the client is investing their Sipp.
“This will most likely involve us sending a confirmation note to the investor if they are moving their Sipp into an unregulated investment and a reminder that these kind of products are only suitable for sophisticated investors.
“However, we have to be careful that we do not undermine the relationship between the client and the adviser.”
Dentons Pensions director of technical services Martin Tilley says the provider does not differentiate between advised and non-advised Sipp customers when carrying out due diligence.
He says: “There is a mixture of opinion about what a provider should do with regard to due diligence. Our view is that, as a trustee, we have a fiduciary duty to undertake thorough due diligence of the investments that go into our products - but we would not differentiate between clients who are advised and those who are non-advised.”
James Hay managing director Tim Sargisson says the provider, which has a dedicated due-diligence team based in Salisbury, has now stopped allowing landbanking investments into its Sipps and holds “very few” unregulated assets.
He says: “Fundamentally, the role of the Sipp provider used to be to make sure investments were allowable from an HMRC perspective. Since Sipps became regulated in 2007, the FSA has increasingly demanded that providers undertake due diligence above and beyond what HMRC expects.
“It is not about suitability, it is about ensuring the Sipp provider is comfortable with the risk profile of the underlying assets it is holding. We were not comfortable with landbanking so we decided not to allow it in our Sipps.”
Kingston says the FSA is taking a three-pronged approach in its attempt to protect Sipp investors. He says: “First, it is looking to make sure the provider takes more interest in what goes into the Sipp to make sure investments are relatively liquid.
“We also know that it wants to increase the level of capital Sipp administrators have to hold, which will inevitably lead to a reduction in the number of active providers and should make it easier for the FSA to monitor the market.
“Finally, the regulator is clamping down on unregulated investments, which have been at the heart of the recent problems.”
30 May 2012