#1 Capital is not there just when it is needed

Number 1 in a series of headscratchers about SIPP capital adequacy proposals

Using an extreme example to illustrate this anomaly, a SIPP operator that markets itself as allowing non-standard assets such as UCIS may meet the capital requirement when it sets out on business and continues to trade for the first few years. With 500 SIPPs whose average value is £50,000, the capital requirement at that point is £600,000.

It later transpires that the non-standard assets are not accepted by any other SIPP operator, hence the concentration in business. Suspected fraud reduces the value of those non-standard assets, which become suspended due to regulatory intervention, to nil.

The Capital Requirement for the SIPP operator plummets to £20,000, releasing cash to the SIPP operator, who would continue to meet their (very much reduced) regulatory capital requirement.

We expect that this is counter to what the FSA is trying to achieve.

I'd love to hear your thoughts

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