The Financial Conduct Authority’s (FCA) publication of CP26/20 represents a significant evolution in the regulation of the Self-Invested Personal Pension (SIPP) market. Designed to strengthen consumer confidence and support sustainable market growth, the consultation proposes replacing principles-based expectations with clearer, enforceable rules that promote greater consistency, accountability and consumer protection.
At first glance, the consultation may appear inconsistent with the FCA’s broader objective of simplifying regulation and reducing unnecessary regulatory burden. However, these proposals reflect a targeted response to persistent consumer harm within the SIPP sector, where principles-based expectations have often been interpreted inconsistently. Rather than changing the outcomes firms are expected to achieve, the consultation seeks to define more clearly how those outcomes should be governed, evidenced and supervised.
While the consultation contains a wide range of proposed rule changes, they can broadly be grouped into three themes that are likely to have the greatest impact on SIPP operators.
The proposals at first glance
The proposed framework centres around three key areas, each designed to strengthen governance, improve consistency across the market and provide firms with clearer regulatory expectations.
Clearer due diligence standards – Establishing explicit minimum standards for the due diligence SIPP operators should undertake before accepting investments or allowing assets into a pension.
A new Pension Scheme Money and Assets (PSMA) regime – Introducing a new Pension Scheme Money and Assets (PSMA) regime for SIPP operators that currently sit outside CASS because they use unauthorised trustee structures.
Stronger governance and accountability – Stronger governance expectations across the SIPP lifecycle. Together, these proposals are intended to improve consistency across the market, strengthen consumer protection and provide greater regulatory certainty around the standards the FCA expects firms to meet. We will look at each area in more detail below.
Clearer due diligence standards
Although due diligence has long been an FCA expectation, CP26/20 formalises many of the principles previously set out in FG13/08 by introducing detailed Handbook rules with clearer minimum standards.
The proposals require firms to undertake proportionate due diligence before accepting investments or entering into relationships with relevant third parties. Firms must consider factors such as the nature of the investment, the investment structure, counterparties and, where relevant, introducers and promoters. Importantly, firms will also need to be able to demonstrate how they reached their conclusions and why any identified risks were considered acceptable.
The FCA also makes clear that due diligence should not be viewed as a one-off exercise. Firms will be expected to maintain ongoing oversight throughout the life of the investment or relationship by monitoring matters such as regulatory status, financial standing, disciplinary action, complaints, adverse media and other emerging risks.
Many firms already undertake periodic reviews, but this consultation raises the bar by making continuous oversight and documented evidence an explicit regulatory expectation rather than simply good practice.
Introducing the PSMA regime
Perhaps the most significant structural change proposed by the framework is the introduction of the Pension Scheme Money and Assets (PSMA) regime.
The PSMA framework is designed to provide greater protection for pension scheme money and assets where SIPP operators use unauthorised trustee structures that currently fall outside the traditional CASS regime. While it is a new framework, many of its underlying principles will feel familiar to firms with experience of CASS.
The proposals introduce requirements around:
- accurate books and records;
- regular reconciliations;
- clear audit trails;
- governance and oversight;
- oversight of outsourced service providers;
- documented policies and procedures; and
- annual independent assurance.
These are long-established concepts within CASS, which the FCA aims to adapt with the risks faced by SIPPs in mind.
Governance becomes central
A consistent theme running throughout CP26/20 is governance.
Nearly every proposal requires firms not only to perform an operational task but also to demonstrate that appropriate governance supports it. Whether reviewing investments, assessing introducers, overseeing third parties or maintaining records, firms will be expected to establish clear ownership, documented policies, escalation procedures and meaningful management information.
Many of these concepts will already be familiar through existing requirements under SYSC, Consumer Duty and Operational Resilience. However, the consultation places greater emphasis on evidencing how governance operates in practice. The FCA is interested in whether the governance arrangements in place enable firms to identify, understand and respond to risks before consumer harm occurs.
For SIPP operators, the emphasis is therefore no longer simply on reaching the right outcome, but on demonstrating how decisions were made, what risks were identified and why those risks were considered acceptable.
Looking beyond the consultation
The FCA’s proposal is about more than introducing new rules for SIPP operators. It reflects the FCA’s continuing direction of travel towards stronger governance, greater accountability and better evidence of good customer outcomes.
Whether through due diligence, governance or oversight of pension scheme money and assets, firms will increasingly be expected to demonstrate not only that they have reached the right decisions, but also that they can evidence the governance, processes and controls that underpin them.
For many firms, the consultation is therefore less about adopting an entirely new approach and more about ensuring that existing governance arrangements are sufficiently robust, documented and capable of meeting a more explicit regulatory standard.
What firms should be doing now
Although the consultation remains open and the final rules are not expected until 2027, many firms are already considering how the proposals could affect their existing governance frameworks. Independent reviews can help identify where current arrangements already align with the proposals and where enhancements may be required once the rules are finalised.
At Square 4, we support firms by:
- performing independent gap assessments against the consultation proposals;
- reviewing due diligence and investment approval frameworks;
- assessing governance arrangements, management information and committee reporting;
- evaluating oversight of introducers and outsourced service providers;
- reviewing record keeping to ensure key decisions are appropriately evidenced; and
- supporting implementation planning once the final rules are published.
Taking these preparatory steps enables firms to understand the potential impact of the proposals. For firms that will fall into the proposed rules around client assets, more decisive action can be taken now. The FCA has been clear and consistent in its messaging, including in the November 2024 ‘Portfolio letter: FCA’s expectations for SIPP Operators’ that firms should make sure that they are appropriately protecting client assets in accordance with Principle 10.
Natalia Mortlock – Consultant
