SiPP Firms Punished For Slack Management

SiPP Firms Punished For Slack Management

Self-invested pension providers (SiPP) are accused of acting as a ‘conduit for financial crime’ in a review of the market by financial regulators.

The Financial Services Authority (FSA) has publishes a catalogue of problems after looking at how 72 SiPP firms work – and concluded some may have been used for money laundering by criminals.

The FSA views the problem as so serious that the Serious Fraud Office and The Pensions Regulator have been called in to ‘repair’ the sector.

Financial crime

The FSA’s findings included:

  • Senior managers had a poor understanding of regulatory requirements and their individual responsibilities, while lacking management oversight of their firm’s operations
  • Poor corporate governance, which may have resulted in some firms being targeted financial crime.
  • Inadequate risk identification processes and risk mitigation planning, underpinned by poor quality management information
  • Poorly monitoring an increasing number of ‘non-standard’ investments
  • Firms holding insufficient capital as a buffer against unexpected liabilities that risked ongoing viability
  • Failing to carry out due diligence of introducers and investments
  • Evidence of conflicts of interest with some firms acting as administrator, trustee and adviser without sufficient controls in place to manage potential conflicts

The FSA also explained that 70% of firms held ‘non-standard’ investments including unregulated collective investment schemes (UCIS) of which there had been a ‘significant increase’.

Poor systems and controls

The FSA has instructed all SiPP operators to review their businesses against the faults revealed in the review before attending a mandatory programme of workshops for SiPP operators before the end of 2012.

The FSA said: “The findings of this review confirmed our concerns. Poor firm compliance with regulatory requirements, particularly in the area of risk planning and mitigation, has significantly increased the risk posed by SiPP operators.

“In addition to generally poor systems and controls, the majority of SiPP operators we visited were unable to articulate accurately the application of Cass to their business structure. This led in some cases to a failure to protect clients’ assets adequately, putting clients at risk of loss if a non-compliant SiPP operator were to fail.

“We also found inadequate controls over the investments held within some SiPPs. Together these findings make it clear that SiPP operators have the potential to lead to significant consumer detriment through a failure to adequately control their businesses.”

The FSA will publish a policy statement by the end of the year announcing changes to capital adequacy requirements, disclosure rules and projections.

SiPP firms failing to reach the required standards face regulatory action, added the FSA.