FCA further clarifies capital requirements for SIPP operators

From next September, SIPP operators will be required to increase their minimum capital holding from £5,000 to £20,000, which is intended to cover the cost of winding down an operator in the event of financial difficulty. Additional requirements will apply to firms that offer non-standard assets.

In August 2014, the FCA reclassified commercial property investments as 'standard' assets providing that certain conditions were met in response to feedback from SIPP operators. The regulator had originally proposed classifying all commercial property as 'non-standard'. Commercial property should be classed as 'standard' if it could "be transferred between pension providers at relative ease", which would not be the case where "it would take more than 30 days" to do so, according to a paper published at the time.

The FCA's latest update covers how firms should decide "whether an asset is capable of being readily realised within 30 days". Firms should "consider whether the transaction can be concluded within that time limit in the ordinary course of business" - for example, "such a date can be the date of exchange of contract– or any other date when both parties have unconditionally agreed to undertake their contractual obligations to realise the asset", it said.

For the purposes of this test, the 30-day period runs from the date when the transaction is initiated until the date it is concluded, according to the FCA. An asset can still be considered standard if the transaction takes longer than 30 days to complete due to delays in receiving information from third parties, or delayed third-party permissions, it said.

The FCA has now updated its handbook for SIPP operators to include delays caused by waiting for the consent of mortgage lenders, joint owners or lease holders as examples of delays due to outstanding third-party permissions. It does not intend to clarify its stance on commercial property any further, because "the right policy principle has been set, and it should be for the firms to consider this within common practices for the specific asset market", it said in its policy update.

Financial services regulation expert Michael Lewis of Pinsent Masons, the law firm behind Out-Law.com, said that although the update was "not particularly helpful, it did not contain any major surprises".

"A firm needs to determine whether an asset is standard or non-standard based on its knowledge of the asset and its experience of realising that asset. The concern is that the FCA will use this rule against SIPP operators after the event," he said.

The FCA said that it did not intend to include crowdfunding and peer-to-peer assets in the standard asset list at this stage, despite proposals from the industry. However, it may review its position when it conducts a full market review of the industry in 2016, it said.