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Financial Institutions FSDR e-briefing: FCA bans and censures managing director of SIPP operator

    • Financial institutions - Briefings and articles

    12-07-2013

    FCA bans and censures managing director of SIPP operator

    Summary

    On 18 April 2013, the FCA published the Final Notice issued to Kevin Wells, managing director of a self-invested personal pension (“SIPP”) scheme operator, for failings relating to operating a SIPP.

    The FCA imposed a public censure on Mr Wells for breaching Statements of Principle 6 (due skill, care and diligence) and 7 (compliance with relevant regulatory requirements) of the FCA’s Statements of Principle for Approved Persons (APER).  It also banned Mr Wells from performing any significant influence function relating to any regulated activity.  Mr Wells would have been fined £58,500 but for the fact that he was able to show that the penalty would cause him serious financial hardship.

    Failings

    Mr Wells was approved to perform the CF1 (Director) controlled function at Montpelier Pension Administration Services Limited (“MPAS”).  However, following its investigation, the FCA concluded that Mr Wells did not have an adequate understanding of the SIPP operator’s regulated activities and corresponding regulatory responsibilities, or of his own responsibilities as the managing director of the firm.

    Mr Wells led a rapid expansion of the business, away from standard investments, but had not identified or mitigated the risks involved for the MPAS SIPPs and SIPP members as a result of his expansion.  By allowing a high proportion of non-standard investments in the MPAS SIPPs without the necessary controls or adequate capital resource, he exposed customers and MPAS itself to a significant level of risk. 

    Further, Mr Wells did not understand, or make reasonable efforts to understand, MPAS’ capital and compliance needs, which meant that provisioning for both was lacking.  The FCA also found that Mr Wells’ failings meant that MPAS put client money at risk by breaching FCA rules on client assets; failed to vet and monitor third parties, for example the IFAs and fund managers with which MPAS dealt; and lacked adequate knowledge of the assets it administered for clients.

    In the press release accompanying the Final Notice, Tracey McDermott, FCA Director of Enforcement and Financial Crime, recommended that anybody operating, or thinking of operating a SIPP reads the Final Notice in detail as it “covers almost all aspects of SIPP operation and is a good indicator of the standards” that the FCA expects.

    Comment

    This case is significant as it is the first time that the FCA has banned a senior manager of a SIPP operator.  It reflects an increasing focus that the FCA and its predecessor, the FSA, has applied to private sector pensions.

    SIPPs became regulated by the FSA in 2007.  Since then, regulatory concern has grown as SIPPs have become increasingly mainstream and difficult to distinguish from other personal pension products.

    In its Retail Conduct Risk Outlook 2011, the FSA expressed concerns about poor conduct among SIPP operators and potential for widespread consumer detriment.  These concerns were echoed in the FSA’s Retail Conduct Risk Outlook 2012 which observed that the SIPP market had increased nearly 500% between 2007 and 2010.  The FSA’s particular concerns were: poor controls, creating the potential for general consumer detriment; asset liquidity; and unregulated collective investment schemes and other “exotic, risky and potentially poor value products” being held within SIPPs.  In October 2012, the FSA published the results of its second thematic review of SIPP operators since taking over their regulation.  The FSA reported that its findings confirmed its view that the SIPP operator sector “has the potential to cause significant consumer detriment” and that there was evidence of poor firm compliance and poor systems and controls, particularly in relation to the handling of client assets and risk planning and mitigation.

    It is expected that the FCA will undertake more supervisory work across SIPP operators and that further regulatory action may follow, particularly where operators are unable to demonstrate that they have reviewed their systems and controls as a result of the FSA’s thematic review and made any necessary improvements.

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