Proposals for SIPP capital requirements based on assets under administration should be scrapped as it could risk consumer harm, Association of Member Directed Pension Schemes (AMPS) has told the FSA.
In a response submitted to the FSA's capital adequacy paper CP12/13 based on feedback from 82 SIPP providers, AMPS has recommended two alternative formulas for capital requirements and a revised capital surcharge based on the number of illiquid SIPPs.
The first model is based on the greater of annual turnover and annual expenditure times the number of illiquid SIPPs. The second is the number of SIPPs versus the number of illiquid SIPPs.
The FSA's approach could lead to undesired consequences such as SIPP operators offering low-cost, cash only SIPPs to reduce their percentage of SIPPs with non-standard assets or disallowing investments in term deposits, to lessen capital requirements.
AMPs has also called for a minimum fixed capital requirement of £50,000, which is higher than the FSA's proposals at £20,000, and an additional capital requirement of 20% for firms who do not meet an objective systems and controls test.
Andrew Roberts [pictured], chairman of AMPS said these requirements were low enough to encourage new entrants but would not encourage firms uncommitted to the market take on SIPP business.
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