Portfolio letter: FCA’s expectations for SIPP Operators
The FCA has issues a Dear CEO Letter to SIPP Operators, which is intended to be read in conjunction with the May 2023 letter to the same firms. The new letter sets out the FCA’s priorities and plans for supervision of the sector as well as clarifying its expectations of firms. The FCA recognises the important role SIPPs play in pension planning, whilst also acknowledging that the larger size of a SIPP pension pot can often compound the impact of any issues that arise.
The FCA issued data requests to relevant firms during the summer of 2024 and will use the responses received to guide proactive engagement with firms through a rolling series of visits over the course of next year. Firms are likely to need to demonstrate to the FCA how they have acted to ensure the expectations set out in the May 2023 and this November 2024 letter are being met. The FCA specifically call out a lack of progress from firms in addressing the concerns highlighted in the May 2023 letter around redress payments for customer due diligence failings. There are also several additional topics highlighted in this new letter, on which firms will need to take action.
Redress
The FCA notes that due diligence cases with FOS are reducing but that many have been open for a significant period of time. The FCA is of the view that some cases are capable of being resolved informally, if decision making was based on ‘lead’ or published Final Decisions from the FOS. The FCA’s will continue to focus on redress being paid appropriately and promptly and through its supervision work, it will engage with firms to assess whether they are satisfying relevant DISP and Consumer Duty obligations.
Pension scheme money and assets
Whilst CASS 7 might not apply to SIPP operators that use a separate, unauthorised trustee company to handle the investment monies, the FCA has concern that some trustee bank accounts are not subject to adequate controls and oversight, putting money belonging to investors at risk. Further to this, the FCA has concerns that for some firms, books and records of assets held are not appropriately maintained or updated.
These issues can impact the valuations that clients base retirement planning decisions on and in some cases, can impact how money and assets belonging to the schemes are safeguarded. This in turn can lead to shortfalls, fraudulent payments or delays in the event that a firm needs to wind down or transfer its business to another provider.
The FCA will be carrying out more in-person site visits, to review firms’ systems and controls, with a particular focus on how firms ensure accurate books and records. SIPP operators should take this opportunity to review arrangements in this area and take any action necessary to enable them to demonstrate to the FCA that it is maintaining complete and accurate books and records.
Consumer Duty
The FCA has reviewed Consumer Duty implementation work of 19 SIPP operators and whilst good work has been done, there’s still more needed in some areas. Specific concerns highlighted by the FCA include:
- A lack of understanding amongst SIPP operators as their role as both manufacturers and distributors under the Duty.
- Insufficient detail when specifying the target market for products, leading to long term fair value concerns, particularly for customers with smaller pension pots or no need for the flexibility that SIPPs offer.
- Fair value assessments based on market comparisons without taking account of cost and margin considerations.
- Overreliance on third parties to ensure communications are understood by retail clients.
- Inadequate implementation of the Duty for closed products and services.
The key improvements the FCA wants to see in this area are focussed on how well SIPP operators are taking account of the Duty with respect to distribution of products. Firms must take account of the needs of the target market, ensure that products are only distributed to the target market and in a way that ensures fair value when considering the entire distribution chain. Firms are encouraged to refer to the FCA’s final guidance FG 22/5 along with its recently published update on the price and value outcome.
The FCA will be engaging with firms that have not yet implemented the Duty for all products, or that have not yet fully met FCA expectations and will proactively work with them to ensure standards are raised.
How Square 4 can help
At Square 4, we have deep expertise supporting firms across the Wealth sector to help them achieve compliance and meet regulatory expectations. Our work on Consumer Duty includes developing and implementing Price and Value Assessments, Governance and Control Frameworks, Outcomes Monitoring, and other conduct-related processes. We work with firms to develop and refine complaint handling processes as well as advising on all aspects of holding money and assets. If you need support in any of these areas, just let us know.
