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SIPP Provider Capital Requirements

Many of you will have read articles regarding the FSA’s consultation paper which has proposed a new formula to which all SIPP Providers must adhere to in calculating the amount of financial resources they must keep in reserve to assist with the orderly wind up of the business.

In view of the recent failures of SIPP Providers in the market place a review of the capital requirements should be a welcome piece of legislation. This is where the consensus of opinion in the market now ends.

The FSA proposal does not follow the expenditure based model which is adopted by many other firms in the financial services sector as it is deemed inappropriate and open to interpretation for the SIPP Provider market.

As an alternative the FSA are basing the capital calculation on “Assets under Administration” (AUA). This formula unfairly penalises small providers or those providers with large SIPP values, such as commercial property, in their portfolio.

Currently from some of the modelling that has been undertaken capital resources by some firms could increase by 20 or 30 times. One has to question whether this is viable or achievable. Further if smaller providers are forced out of the market, who is going to take on their business as any potential buyer will still have to meet the resource requirements. In its consultation paper the FSA state that it expects some providers to leave the market as a result of this legislation however one has to question whether it is the right providers the FSA is targeting.

Taylor Patterson has always been well resourced and kept capital above the minimum required by the regulator but the proposals in their current form will see a substantial rise in this capital requirement.

Members of AMPS have come together to debate and discuss all these issues and are currently putting together counter arguments and alternative solutions for the FSA to consider. Taylor Patterson has attended and contributed to these AMPS round table discussions. The consultation period ends on the 22nd February and we will provide further updates when the FSA publish their findings.

For further information, contact Taylor Patterson on 01772 555073.

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