The Financial Conduct Authority has identified several areas where Sipp providers need to improve their consumer duty compliance.
In a Dear CEO letter, published yesterday (November 4), the regulator said it had reviewed 19 Sipp providers and had found improvements were needed.
The regulator said it had “growing concerns” about the handling of pension scheme money and assets by some firms, and the accuracy of firms’ books and records.
Consumer duty
In particular, the FCA found some providers remained unclear about their consumer duty obligations as distributors, despite understanding their role as a manufacturer.
Sipp operators are seen as both manufacturers and distributors under the consumer duty rules.
This is because they sell a product when they grant rights under a personal pension scheme to a member.
The FCA also found some providers were reliant on third parties, such as advisers, to ensure communications were understood by clients and it found some had not implemented the consumer duty for closed products and services, despite the July 31, 2024 deadline now having passed.
Elsewhere, some firms had not specified the target market for their products at a sufficiently granular level.
The FCA stated: “This is significant because of long-term fair value concerns for groups of consumers who do not need the flexibility of a full Sipp or who do not have a significant pension pot and are therefore unlikely to fall within the target market for this product.”
On fair value, some firms assessed the value of their product primarily through market comparisons.
The FCA added: “We will be engaging individually with firms who have not yet implemented a robust framework for all products under the duty and/or have not met the expectations set out in our recently published update mentioned above. Where standards have not been met, we will work proactively with these firms to ensure they are raised in line with our expectations.”
Pension scheme money and assets
The FCA also had concerns that some firms have not been operating trustee bank accounts with “adequate controls and oversight”.
It was worried that some providers’ books and records, particularly in relation to the assets being held for the pension scheme, were not being appropriately maintained and updated.
The FCA said in its letter: “System and control weaknesses in these areas can mean consumers are provided incomplete or inaccurate valuations or statements of their pension, impairing their ability to make informed decisions and plan appropriately for retirement.
“In worst case examples, they can lead to shortfalls in pension scheme bank accounts, fraudulent payments being made from the pension scheme, and can also lead to significant delays in the orderly wind down of a firm where its pension business is being transferred to a new operator.”
The regulator said it would carry out more in person visits to look at firms’ systems and controls.
Sipp numbers
While the number of Sipp cases at the Financial Ombudsman Service has fallen from around 3,500 in 2019-20, there are still 800 open complaints, some of which are more than two years old.
