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Catch 22


"There was only one catch and that was Catch-22........."

Or, in the more erudite wording of the formal definition of a Catch-22 I read on the internet "A paradox in which the attempt to escape makes escape impossible".

I'm thinking that this definition neatly describes something we're seeing in the SIPP industry at the moment. The FSA are worried about some SIPP operators writing high levels of new business with non-standard investments, the sort of thing I keep banging on about, off plan hotel rooms, bamboo trees, land banking schemes etc etc. The FSA are right to be worried, too much of this sort of thing is going on without any advice and precious little due diligence by the SIPP operator.

One of the FSA's proposals for dealing with this, maybe the main proposal, is to increase the capital adequacy requirement for SIPP operators, and link them to the proportion of non-standard investments in a SIPP book. So, the more of this stuff in a SIPP operator's book of business, the more capital they will have to hold. The theory is that this will discourage SIPP operators from taking on this sort of business and in linking this level to SIPP investments the clean SIPP books will not be unfairly penalised.

Again I don't have a problem with that. The problem in practice is that many of these self same SIPP companies are struggling to make a profit, even without the need to push up their regulatory capital. What do they do to improve their position? Well, of course they maximise their new business to boost their profits and maybe the only way to do that is to accept the business other operators won't touch. This tends to mean lots of SIPPs with non standard investments and, hey presto, they're doing exactly what the FSA set out to avoid!

As I said above "a paradox in which the attempt to escape makes escape impossible". Or in the words of Joseph Heller  "That's some Catch, that Catch-22......". "It's the best there is".....

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