The FCA has recently issued a portfolio letter to Self-Invested Personal Pension (SIPP) operators, detailing its expectations and priorities for 2024. This follows a Dear CEO letter sent to these firms in May 2023 and highlights new and additional areas of focus for the Regulator.
The FCA has emphasised how the SIPP operator portfolio is an important supervisory portfolio for the FCA as the SIPP product can play a key role in enabling consumers to plan for their retirement with a greater degree of flexibility and control. However, as the average SIPP pension pot sizes are often higher than other types of personal pension, harm to individual consumers can be greater when issues materialise. Currently, the total assets under administration within SIPPs reported by all firms stands at £567bn, for approximately 5.3m consumers. Given the gravity of the potential harm, the FCA will be using the data to identify any firms which pose a potential risk to the wider market or consumers, engage with these firms individually and take any necessary supervisory action where the standards are not at the expected levels.
It is imperative for the FCA that the SIPP operator portfolio delivers high standards, so that consumers investing in SIPPs can do so with confidence, understanding the risks they are taking and the regulatory protections provided.
- Increased Supervision
The FCA plans to enhance its proactive engagement with SIPP operators through more frequent visits to ensure compliance with regulatory expectations, particularly those highlighted in a previous letter from May 2023. That is important because the concerns set out in the May 2023 letter remain, as the Regulator has not yet seen sufficient progress from all firms to address them.
- Redress
Firms are urged to promptly address outstanding complaints, especially those directed by the Financial Ombudsman Service (FOS).
Although the number of open SIPP due diligence cases at the FOS is decreasing (from 3,500 to 800 in the last four years), there still remains a concerning number of open complaints, some of which are now over two years old.
Following FOS’s successful defence of another judicial review earlier this year about its handling of SIPP due diligence complaints, firms receiving a lead decision from FOS are expected to take appropriate action to rectify the situations where consumers have been harmed and to resolve complaints as quickly as possible.
- Asset Management
There are also growing concerns about whether firms have been operating trustee bank accounts with adequate controls and oversight and whether the firms’ books and records are being appropriately maintained and updated.
These system and control weaknesses can mean consumers are provided with incomplete or inaccurate valuations or statements of their pension, impairing their ability to make informed decisions and plan appropriately for retirement, sometimes even leading to shortfalls in pension scheme bank account and fraudulent payments being made from the pension scheme.
Operators must provide robust asset protection and maintain appropriate and precise record-keeping. The FCA will be looking at firms’ systems and controls when completing its site visits as part of its our proactive strategy, with a particular focus on ensuring accurate books and records.
- Consumer Duty
In assessing SIPP operators’ implementation of the Consumer Duty, the FCA has determined that alongside those firms who have taken significant steps to implement the Duty, there were also some who have demonstrated that additional work is needed.
Specifically, while firms understand their role as manufacturers, many are unclear about their obligations as distributors under the Consumer Duty. Some firms also need to specify their target markets more precisely to ensure fair value for consumers. Additionally, there are operators who rely too heavily on third parties for client communications and have not fully implemented the Consumer Duty for closed products and services, despite the July 2024 deadline.
The FCA expects SIPP operators to maintain, operate and review their product distribution arrangements to ensure they meet the needs and objectives of the target market. Firms must ensure their distribution practices provide fair value, considering all remuneration in the distribution chain.
How can Complyport help?
The FCA will engage with firms that have not yet established a robust framework for their SIPP products and will work proactively to ensure compliance with its standards. The overarching goal is to protect consumers and maintain high standards in the SIPP market.
Complyport can support you to meet the Regulator’s standards, by providing:
- Regulatory Guidance: helping your firm understand the FCA’s expectations and providing expert advice on the relevant regulatory requirements;
- Documentation updates: assisting in drafting appropriate policies and procedural documents, particularly on the areas where the FCA is focusing, i.e. complaint handling, the Client Asset rules and the Consumer Duty;
- Consumer Duty framework review: assessing your firm’s Consumer Duty arrangements and relevant work;
- Complaints and redress framework review: supporting your firm with the review of complaints and the appropriateness of the relevant arrangements in place;
- Ongoing Support: providing ongoing support to ensure that your firm remains compliant as the FCA’s expectations are updated and regulatory requirements evolve;
- Training: providing training on the practical requirements and best practices for compliance.
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