He used the same stage again in November last year to reinforce that message, and this time there was more than a hint of immediacy to his tone. Speaking on the back of recent investigations into several smaller SIPP providers amid concerns over use of high risk esoteric investments including UCIS, Cartwright was unusually forthcoming and direct and was reported as saying: “What we have found is; for those SIPP operators that come into difficulty it takes a long time to sort them out. At the moment it’s six weeks’ expenses. We have found that six weeks is inadequate when the schemes get into problems. Especially with UCIS or non mainstream investments.”
What is interesting is the regulator’s assumption that SIPP operators are already in difficulty. Those investigations took place in September following reports that initial questionnaires were sent out to 70 providers earlier in 2011, resulting in 33 telephone interviews and visits to eight providers. They uncovered signs of poor controls, record keeping and due diligence as Cartwright concluded, “We saw examples where it was not clear to see whether the investment existed at all. This was particularly the case with unlisted shares; one example had £10 million in unquoted shares and it was not clear where this was held. This gives us cause for concern. There are obvious repercussions for consumers, for retirement planning and even financial crime issues.”
These are strong words. During the same presentation Cartwright offered thoughts on what extent of capital reserves might be required to meet the challenges of winding up a SIPP firm: “We are actively considering raising capital requirements for SIPP operators. There will be a consultation next year. The one closest example is occupational DC schemes, which is 18 months to two years. I’m not saying it will be two years, there are bigger operation risks, but that gives you an idea. It enables a more consistent and orderly wind down.”
Separately, FSA head of investment policy Peter Smith suggested that capital adequacy could be linked to whether providers offer a full SIPP proposition. Those allowing more flexible investment could face higher capital adequacy requirements.
Let us be very clear, the FSA have this in their sights and will be watching very closely. They have said they will consult during 2012, but it seems likely that implementation will follow quickly.
Capital adequacy implications
So what changes might be made? A formulaic approach of requiring (say) 26 weeks’ or 52 weeks’ expenses would be relatively straightforward to design and implement, but could have a major impact on some providers, particularly those without a history of good cashflow and profitability.
