The FCA certainly took their time in issuing their final policy on a new capital framework for SIPP operators in August of last year following extensive comment and feedback from the industry and other interested parties. The new rules are set to come into force from 1st September 2016.
Now that we have had a chance to digest the implications of the changes, we thought that you might like to know how the new rules will impact us at DP Pensions Ltd.

Background

The FCA require all businesses that they regulate to hold sufficient capital reserves to allow for an orderly wind down of the business without any consumer detriment. Each sector of the financial services industry has its own set of capital adequacy rules that it must adhere to.
At DP Pensions, we have always ensured that we have sufficient capital to enable us to grow in a controlled manner without putting our clients at risk. Under our current capital adequacy rules, we are required to maintain solvency of at least 13 weeks of operating costs. At our last reporting date we held significantly more than that threshold with 59 weeks solvency.

The new rules

The calculation of the capital required under the new rules will be based on the total assets under administration within an operator’s SIPP product and the percentage of those SIPPs that hold a “non-standard” investment. Non-standard investments include assets like unlisted shares, unregulated collective investment schemes and other non-regulated investments. However, the final policy confirmed that commercial property would not normally be treated as a non-standard asset. Details of the new rules can be found in the FCA Policy Statement.
These new rules will significantly increase the amount of capital that most SIPP operators will have to hold from 1st September 2016 and investors and their advisers are quite rightly concerned whether SIPP operators will be able to meet them.
At DP Pensions, we already hold enough liquid capital to meet the new capital requirements even if they came into effect today. In fact our capital reserves exceed the new requirements by 50%.
We are projecting various business models to see how the new rules will impact on the capital needs of the business going forward. Clearly there are many variables pulling in different directions but our work so far suggests that our position will get easier as we move forward under the new rules. We are therefore confident that we can continue to operate DP Pensions under our current business model for the foreseeable future.
If you have any queries about this news item then please do not hesitate to contact us.