Sipp firm capital rules remain despite PIF changes

The minimum capital adequacy requirements for directly authorised personal investment firms will be doubled to £20,000 next June. But such firms that operate a Sipp will continue to apply the current requirements for the period until 31 August, due to the fact new capital regime for Sipp operators comes into effect on 1 September.Over 90% of PIFs are currently required to hold a minimum £10,000 of capital resources, regardless of their income. The FCA has ruled today that 5,000 directly authorised personal investment firms must hold at least £20,000 or 5% of their annual income from investment business – whichever is higher.{desktop}{/desktop}{mobile}{/mobile}These changes will take effect from 30 June 2016.Smaller businesses will be given extra time and have been they must have at least £15,000 from 30 June 2016 or 5% of their annual income before reaching the £20,000 level from 30 June 2017.The FCA documents stated: “Some PIFs have permission to operate Sipps. As a new capital regime for a Sipp operator comes into effect on 1 September 2016, to avoid the unnecessary burden of two sets of rule changes in quick succession for PIFs that operate a Sipp, we proposed to continue to apply the current requirements for the period until 31 August 2016.”From 1 September 2016 onwards, the FCA proposed a requirement that is the sum of:• the requirement that will be applied under the new capital regime for a Sipp operator (under PS14/12)• the relevant requirement for the PIF business based on the proposals in the consultationsThe paper stated: “From 1 September 2016, the requirements under Interim Prudential sourcebook for Investment Businesses for both PIF operations and Sipp operations will be based on the relevant activity rather than the firm’s activities as a whole.“The Sipp capital requirement covers operation of the schemes, and the PIF element captures investment advice, including advice on investing in a Sipp where relevant. As such, our view is that the requirement would be more appropriate as the sum of the two sectoral requirements, rather than a higher-of requirement. We will therefore take forward the approach that we proposed in the consultation.”The FCA said the new rules will advance its objectives to secure an “appropriate degree of consumer protection, enhance market integrity and promote effective competition”.Officials said: “We have to set the requirement at a level that will be proportionate for the population of 5,000 firms and will not be an unreasonable barrier to entry for new firms.“We will therefore take forward the approach that we proposed and set the minimum requirement at £20,000.”The paper, published today, stated: “Our proposals include a proportionate staged introduction for smaller firms by increasing the minimum capital resources requirement (from the current £10,000) to £15,000 from 30 June 2016, before reaching the required £20,000 from 30 June 2017.“This gives firms time to secure any necessary additional financial resources, whilst taking into account the fact that the deferred rules created an expectation that the capital resources requirements are to increase.“The current minimum capital resources requirement (£10,000) has almost halved in real terms since it was set in 1994. As a result, it would now be insufficient to meet just one average pension or investment claim following unsuitable advice.“We do not want compliant PIFs to fail unexpectedly under normal operating conditions, resulting in claims on the Financial Services Compensation Scheme, which would then need to be funded by other firms in the sector.”

Sipp firm capital rules remain despite PIF changes

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