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MPs have asked the FCA to explain what the repercussions will be for SIPP providers that fail to meet the regulator’s due diligence expectations.
In a letter to the FCA, MP Frank Field raised concerns regarding the role of SIPPs in relation to defined benefit transfers and asked for clarification from the regulator to make the consequences of ignoring the rules clearer.
He wrote: “During our examination of defined benefit transfers, it has become clear that SIPPs are the primary vehicle used by unscrupulous advisers to channel individuals’ pension savings into unsuitable investments.
He went on to explain that the role of SIPPs in intermediating this sort of investment is a “longstanding concern”. He cited “unacceptable”, “significant” and “widespread” failings in due diligence and consumer protection and said: “most SIPP operators failed to undertake adequate due diligence on high-risk, speculative and non-standard investments.”
Mr Field ended the letter with a number of requests. He asked:
1) What is the value and proportion of funds transferred from DB pension schemes into SIPPs in the last two years which are held in the form of non-standard or unregulated investments?
2) What due diligence are SIPP providers required to conduct on the investments that they provide access to, and how does the FCA monitor this?
3) What powers does the FCA have to punish SIPP providers for failure in due diligence, and how have these powers been used?
4) In what circumstances can a SIPP provider be deemed liable to pay compensation to a customer whose funds ended up in an unsuitable investment scheme, rather than the financial adviser who arranged the investment?
5) Is the FCA considering the option of barring unregulated or non-standard investments altogether from inclusion in SIPPs?
Earlier this year, MPs carried out a report into the British Steel Pension Scheme (BSPS) and found that many steelworkers were “shamelessly bamboozled” by financial advisers, with many victims discovering their pensions had been poured into “unsuitable funds characterised by high investment risk, high management charges and punitive exit fees.”
In a 40-page document, MPs argued that there is “worrying evidence that BSPS members have, over the past year, been exploited for cynical personal gain by dubious financial advisers.”