Capital adequacy: Fear over balance sheets before consumers

A senior figure at a Sipp firm fears operators could put their balance sheets before the best interests of consumers if the FCA fails to get its latest capital adequacy plans right. Allowing Sipp operators to make the judgement on the capability of individual assets to be transacted in 30 days could prove problematic, Greg Kingston, head of marketing at Suffolk Life, says.He said questions still hang over key aspects of the new capital adequacy rules despite the FCA’s proposed changes, particularly relating to UK commercial property.The regulator has set out some amendments and clarifications on its original announcement last year. See previous story for full details.{desktop}{/desktop}{mobile}{/mobile}The changes - which the FCA says will reduce firms’ compliance costs - included a relaxation of the frequency of calculating AUA.Amendments to the standard asset list and some clarifications have also been outlined by the regulator in its June quarterly consultation.But commercial property is the “biggest loose end”, Mr Kingston said.He said the FCA appeared to have made “a significant change” on the outstanding question on whether UK commercial property was a standard or a non-standard asset.This seemed to hinge on whether it could be transacted within 30 days, he said.He said: “The FCA has suggested that the asset must be “capable of being...readily realised within 30 days”, and this would represent a significant change.“There’s a significant difference between theoretical capability and what’s practicably achievable.“The important point is that the likely outcome, once again, is to allow Sipp operators to make a judgement on the capability of individual assets to be transacted within 30 days.”He fears this could be problematic, saying: “To have this grey area or to leave it in Sipp providers’ hands doesn’t really move us forward.“If the FCA wants to drive the best outcome for consumers it should probably take that decision away from providers.”Allowing Sipp operators to make the judgement, Mr Kingston believes, leaves “an inherent conflict that is unlikely to survive the governance structures of the Sipp operators in which the FCA has shown such little faith”.He is concerned this risks leading to Sipp operators choosing to wrongly classify risky assets as standard in order to satisfy their own capital requirements.He said: “If the regulator can navigate that tricky issue and ensure that consumers are protected from Sipp operators putting their balance sheets before consumer outcomes, then there should be a clear path ahead for implementation of new rules that should provide a stronger, more sustainable Sipp market in the longer term.”The FCA is to consult on the proposed amendments.

Capital adequacy: Fear over balance sheets before consumers

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