FINANCIAL Services Authority (FSA), which regulates the City, is planning to quadruple capital requirements on firms offering self-invested personal pensions (SIPPs) to offset the costs of winding the companies down if they fail.
Currently, firms offering SIPPs must hold a minimum of £5,000 – but the FSA plans to hike this requirement to £20,000, and firms holding illiquid assets will have to keep up even bigger cash buffers, according to proposals in a consultation paper.
The capital needed will rise with the size of the firm “up to a point”, the consultation paper says, eventually tapering off because bigger SIPP operators can realise economies of scale.
FSA head of investment policy David Geale said that the measures were needed to bring regulation “up to date” with changes in the SIPP market, protecting investors from winding down complex firms. “We believe these proposals are pragmatic and proportionate, but this is a consultation so we want to hear from the industry and consumer groups to ensure they are also balanced,” Geale said.
This move comes after SIPPs came close to failure, with some collapsing, during the financial crisis.