The Financial Conduct Authority (FCA) has launched a consultation paper on proposed changes to SIPP governance, including new due diligence requirements for operators and enhanced protections for pension scheme money and assets. The proposals form part of the regulator’s wider review of whether the pensions framework remains fit for purpose as defined contribution pensions become increasingly dominant, with industry participants now weighing the potential benefits against the risk of additional regulatory burden.
Rachel Vahey, head of public policy at AJ Bell, comments:
“The FCA is right to scrutinise SIPP governance, but it is disappointing to see it move so quickly towards new prescriptive rules when the existing regulatory framework already gives it strong powers to act.
The Consumer Duty already requires firms to define their target market, monitor products and tackle potential harm – and the regulator acknowledges that the majority of providers are doing the right thing now. The FCA’s focus should therefore be on robust supervision of the minority of firms with repeated poor practice, rather than broad new rules that could add cost and complexity for well-run providers.
Due diligence remains vital to reducing consumer harm, especially where SIPP operators put banking and custody arrangements in place. Firms should keep these arrangements under regular review, but the FCA should avoid detailed new record-keeping rules unless it can show the benefits would outweigh the extra costs.”
– Rachel Vahey, AJ Bell
What does the FCA propose?
“The FCA’s proposals centre on introducing new explicit rules for SIPP due diligence and extending rules to protect client money (CASS rules) to all SIPP providers.
They want SIPP providers to carry out core due diligence on all investments held within the SIPP scheme, so they understand the nature and risks of the investments, with additional scrutiny steps for higher risk investments which have fewer existing protections under applicable regulatory regimes. SIPP providers would have to focus on the risks relevant to consumer harm and scam prevention.
But most SIPP providers already carry out this level of due diligence under Consumer Duty rules, meaning imposing a new regime is an unnecessary step and instead the FCA should focus on whether SIPP providers are meeting the current regulatory requirements.
The FCA also wants to introduce a new pension scheme money and assets (PSM&A) regime to mirror the rules carried out by SIPP operators already subject to CASS. However, the approach being suggested is broad and disproportionate to the challenge they are trying to address.”
– Rachel Vahey, AJ Bell
How did we get here?
In December 2024, the FCA published a discussion paper exploring whether the pensions regulatory framework needs updating as the UK moves further towards defined contribution pensions.
The FCA tackled three different areas:
- Tools and modellers – the FCA suggested new rules were needed for pension projections shown on tools and modellers. They followed this up with a consultation published late last year (CP25/39) and we expect the final rules later this year.
- Pension transfers – the FCA was concerned about the length of time pension transfers took. Despite this, in their consultation paper (CP39/25) they suggested new rules for non-advised pension transfers that only threatened to create additional paperwork and delays. AJ Bell responded by asking the FCA to think again on its ‘anti-consumer’ pension transfer plans.
- SIPPs – the final area of the discussion paper questioned whether new regulations were needed to keep pace with the variety of different SIPP business models. AJ Bell’s view was that it must be clear what harm any new rules were trying to prevent, and that they must be proportionate to the problem.
