The regulator has always had one eye on self-invested personal pensions (SIPP).

Aware that the responsibility of regulating the industry has fallen to it, there has been a resounding interest in the way that SIPPs work for consumers, or in some instances, the way they have not. If you’re thinking of stopping reading here, fearful of another repetitive history lesson, I urge you to read on.

Like most good stories, this one has a developing plot and the most interesting and crucial chapter in SIPP regulation is yet to be written.

SIPPs became regulated on 6 April 2007. At this point, the Financial Services Authority (FSA) was fully aware of their new popularity, driven by the earlier excitement and eventual U-turn around residential property investment. Then-chief executive John Tiner warned advisers: “Advice to switch into SIPPs should be suitable – reflecting the customer’s needs, priorities and circumstances – and not influenced by commission payments.”

First thematic review

In December 2008, the FSA conducted its first thematic review of SIPP operators, covering approximately 60 small SIPP operator firms, publishing the findings 10 months later in September 2009.

Its guidance stated: “We do not believe that taken as a whole, small SIPP operators pose a significant threat to our statutory objectives. We were pleased to discover some very well run firms and many examples of good practice. Nevertheless, the project uncovered a number of concerns on how firms conduct their business, which are discussed in this report.”

One of these concerns related to the quality of SIPP business, stating: “We are concerned by a relatively widespread misunderstanding among SIPP operators that they bear little or no responsibility for the quality of the SIPP business that they administer, because advice is the responsibility of other parties, for example, IFAs.”

The report further stated that “We agree that firms acting purely as SIPP operators are not responsible for the SIPP advice given by third parties such as IFAs”, balanced with examples of good practice observed and suggestions made to firms.

The publication of the first thematic review findings in September 2009 marked the first formal feedback and instruction delivered to SIPP operators by the regulator. It feels relatively tame compared to where both the industry and regulator find themselves a decade later.

Second thematic review

Less than two years later, the FSA conducted a second thematic review of SIPP operators, stating that its “view of the sector was changing”.

Some 72 SIPP operators were contacted in April 2011, with the results published over a year later in October 2012.

The regulator’s view had indeed changed. A number of concerns were listed, covering CASS, risk and controls, senior management experience and understanding of regulation and whether corporate governance failings presented a target for financial crime.

Importantly, the concept of non-standard assets and due diligence on investments was introduced, with concerns about whether sufficient capital was being held to meet Principle 4, alongside the quality of due diligence undertaken on introducers and investments.

The regulator then held a series of workshops for SIPP operators early in 2013, but it wasn’t until October 2013 that the regulator provided updated formal guidance for SIPP operators when FG13/08 was published.

This guidance, the regulator advised, was not making any new rules since its previous guidance in 2009, but was instead a clarification.

Regulatory expectations 

The reality and general understanding is that the shift in regulatory expectations of SIPP operators’ responsibilities didn’t occur at the point of regulation, nor at two years later when first guidance was issued but between 2011 and 2012 during the second thematic review.

Certainly, that has been how the Financial Ombudsman Service has viewed it – while their understanding has seemed to wobble around the specific well-reported case with Berkeley Burke, the overwhelming number of decisions along these lines act as precedent.

Despite the regulator insisting that final guidance provided in October 2013 was unchanged from September 2009, a very simple read of the two documents shows that this is far from the case.

FG13/08 was the culmination of the cumulative understanding and knowledge gained by the regulator from two thematic reviews – the written equivalent of the SIPP operator workshops conducted earlier in 2013.

Third thematic review

The subsequent third thematic review, launched at the same time as this final guidance was first published, was very clearly the regulator’s review of the rules that it had finally published with sufficient clarity for SIPP operators. This was evidenced by the fact that this third thematic review was the first time that the regulator took widespread action to hold operators to account by those rules.

So, where are we now? The regulator’s understanding of the industry and its understanding of SIPP operators continues to evolve much as it has done since April 2007.

Evidence of this is rarely delivered in the form of formal guidance unfortunately but can be found if sought from other sources.

These include Megan Butler’s written response to questions from Frank Field MP in June 2018, and Financial Conduct Authority submissions to the various civil court cases involving SIPP operators.

The results of the lack of consistent clarity and the dangers of hindsight may be profound.

SIPP operators of good quality books of business are now at risk of increasingly being targeted by claims management companies alongside those of poorer quality.

Managing these speculative claims through the Ombudsman will take valuable resources away from front line services, and ultimately lead to falsely elevated hopes of consumers being dashed.

The Ombudsman will be under significant pressure too, as it will need to have sufficient skilled resources in place to distinguish between cases where operators met the requirements as expected, and those where they did not.

If there’s a mistake at this point then I wouldn’t be surprised to see another case at the High Court, backed by PI insurers, and all parties involved in the industry under uncomfortable scrutiny.

Greg Kingston is head of communications at Curtis Banks