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6 weeks or 13 weeks?


No, not my holiday for next year, but the more complex subject of capital adequacy requirements for SIPP operators. This is now getting a few headlines, and a bit of explanation might be useful.

Why is this important? Well, all regulated firms have minimum capital adequacy requirements and the FSA have been looking closely at SIPP operators recently. Their concern is that the more complex nature of SIPPs, and the unusual investments in many SIPP books, could mean that SIPP operators will need more capital, should they ever need to run down their operations in an orderly way.

The "6 or 13 weeks" part is a strange one - some SIPP companies work on 6 weeks' worth of expenses as minimum capital, others work on 13 weeks. It comes down to how you hold client money, all perfectly valid but a bit odd that 2 companies doing essentially the same thing can have completely different capital requirements (and since you're asking, we're on the 13 week rule).

I'm hearing that there will be a consultation on all this next year. In the meantime, pressure on smaller less profitable SIPP companies is bound to increase, and (I know that I have said this before) consolidation in the market is likely to become more prevalent. With approaching 4,000 clients and increasing profits, we're in the right place on this.

Do SIPP providers need more capital in order to be able to wind themselves down properly, should the need ever arise? One factor in their favour is that, unlike some other financial companies, SIPP providers will continue to receive fee income in any wind-down period, so the need for a high level of capital is reduced.

To my thinking strong corporate governance is just as important, and planning in advance for such a scenario. We have put such a plan in place as part of our operational systems, something we hope never to have to use but essential nonetheless.

Along with the million other questions an adviser needs to ask a SIPP provider, asking them whether they operate on 6 or 13 weeks' capital and whether they have a wind-down plan in place ought to be added to the list. These points might be very much in your clients' interests should the worst ever happen.    

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