What Are the Challenges for the Consumer? SIPPs and the New Capital Regime

Unless you are an avid follower of financial laws in the UK, you may be unaware that SIPP providers were subjected to a new capital regime by the Financial Conduct Authority (FCA) back in September 2016.

This new legislation required SIPP providers to increase the amounts of capital that they held in their cash reserves, and it was designed primarily to protect savers against the risk of firms going bust.

There has been a clear media focus on how the new regime has impacted on the providers themselves, with a total of four providers having failed FCA adequacy rules as of March. But what about the end customer, who was intended to be the main beneficiary of the new legislation?

What Does the New Regime Mean for Savers?

Under the terms of the new regime, SIPP firms are required to hold a fixed amount in their cash reserves at all times, with this capital intended to serve as a buffer to reimburse customers in the event that the providers goes bankrupt. The legislation, which was welcomed by thousands of savers across the UK, was welcomed with open arms after a large number of controversies that saw service providers wind down and left customers out-of-pocket.

This will yield benefits for savers in the long-term, particularly those who manage their funds through reputable SIPP providers such as Bestinvest. It will also provide genuine peace of mind to savers, who can rely on a regulated safety net that safeguards their investments at all times. There have been some initial challenges as a result of the new regime, however, with some providers having essentially transferred their additional costs directly onto customers.

This is particularly relevant to high-end customers who are invested in valuable asset classes or those that are defined by the regulator as being non-standard. These include commercial property holdings to shares in firms that are not listed on the stock market, and some customers associated with these assets have found themselves subjected to inflated fees. This reflects how the new regulations have increased the administration burden for SIPP operators, and how the management of this challenge is affecting customers directly.

The Last Word

The vast majority of providers have managed to absorb these costs while increasing their cash reserves, however, which means that even the firms that are non-compliant at present will soon begin to toe the line under the watchful gaze of the FCA.

This means that all customers will soon begin to feel the full benefits of the FCA’s new capital regime, as costs stabilise and their long-term investment interests are safeguarded. Above all else, they can save in the knowledge that their money will not be lost in the event that their provider exits the industry.