Panel wins clarification on FSA regulation of SIPPs from April 2006

21 November

The Consumer Panel has today released details obtained from the FSA about the extent of their ability to regulate the sale of Self-Invested Personal Pensions (SIPPs), after the taxation rules are relaxed from 'A' day in April 2006 and ahead of detailed regulation rules which will not be put in place until early 2007.

The Consumer Panel had raised concerns with the Treasury Select Committee (TSC), that the approach of 'A-day' in April 2006 is already stimulating talk of SIPPs as the latest way to save. Yet consumers will be vulnerable as there are currently no FSA rules covering the sale of SIPPs and it is unlikely that such rules can be put in place before April 2007.

John Tiner, Chief Executive of the FSA told the Treasury Select Committee (TSC) last week that a lot of companies offering SIPPs were already regulated by the FSA and that the FSA has a broad principle of Treating Customers Fairly (TCF). He said that the FSA will be expecting those firms to treat their customers who set up SIPPs fairly. The Consumer Panel Chairman, John Howard, sought clarification of that statement and, in particular, whether financial promotions of SIPPs will be monitored by the FSA and whether this meant that consumers would have access to the protections afforded by the Financial Ombudsman Service and the Financial Services Compensation Scheme if they purchased a SIPP through a company already regulated by the FSA.

In a letter to the Consumer Panel Chairman, which the Consumer Panel is making public, John Tiner has set out the limits to the FSA's powers in regard to SIPPs. He points out firstly:

"For the avoidance of doubt I should emphasise that unless and until the Treasury brings SIPPs under direct FSA regulation, SIPPs as a wrapper, and unregulated assets held within a SIPP, will remain unregulated, irrespective of whether the firms offering them are currently FSA authorised."

John Tiner then uses his letter to set out:

• the way that the FSA's regulatory principle of Treating Customers Fairly (TCF) can be applied to regulated firms who also conduct SIPPs business;
  

• how the current conduct of firms will be taken into account when the FSA assumes responsibility for the regulation of SIPPs business;

• how financial promotions and sales practices can be monitored in the meantime

• what steps the FSA is taking to inform consumers about key information in relation to SIPPs

Chairman of the Consumer Panel, John Howard, said:

“At the moment, there’s a lot of talk in the media and in the industry of SIPPs as the latest way to save for your pension. And yet the necessary rules to protect consumers will not be in place for another year. This is a potential minefield for consumers. The FSA has made it clear that they will have some limited powers in relation to regulated firms selling SIPPs when the remit is extended from 'A' day. But the FSA will have to act robustly if this is going to provide any protection to consumers. The FSA will not be able to do anything to prevent unregulated firms from misselling these products. The Treasury and FSA will need to work hard to make sure that consumers are warned about the risks of the new freedom to invest in SIPPs which comes without full regulatory control for the first year."

Notes to editors

1. A full copy of the exchange of letters between John Howard and John Tiner is being made public on the Consumer Panel's website.

2. The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives. The Consumer Panel has statutory status. The FSA must consider its representations and, if it disagrees with a view expressed or proposal made in the representation, it must give the Panel a statement in writing of its reasons for disagreeing.

3. The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit.

4. The Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.
   

5. There are currently eleven members of the Panel as listed below (for further information on individual members, see the Panel's website).

   John Howard (Chairman)
   Adam Phillips (Vice Chairman)
   Caroline Gardner
   Harriet Hall
   Tony Hetherington
   Stephen Locke

   Nick Lord
   David Metz
   Paul Salvidge
   Robert Skinner
   Carol Stewart