The FCA has proposed changes to the new capital adequacy rules - including a relaxation of the frequency of calculating AUA - which it says will reduce firms’ compliance costs.
Amendments to the standard asset list and some clarifications have also been outlined by the regulator in its June quarterly consultation.
It follows disgruntlement from some working in the Sipp sector. There was criticism in certain quarters when the rules, set to take effect in September 2016, were announced last year.
AMPS attempted to bring a Judicial Review, but failed. It made the move after discussions with members who questioned whether the way the regulator went about creating the new capital framework for Sipp operators led to the outcome being "seriously flawed".
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Andy Leggett, head of business development, Sipps at Barnett Waddingham told Sipps Professional in January he feared that a failure to clarify the rules could lead to worried firms going too far in an attempt to meet requirements and therefore end up increasing costs for clients.
His company colleague Andrew Roberts, a former AMPS chairman and blogger for Sipps Professional said in December: “What's clear, is that the rules are not clear, and that's a problem.”
The FCA said it has received comments not raised during the original consultation – including on the practicalities of the policy.
The regulator said in its quarterly consultation: “In some cases, these comments identified areas where it was felt that clarifications could be useful.
“Therefore, we propose some minor changes to the rules along with some guidance to clarify certain areas, as explained in more detail below.
“We expect these changes to reduce compliance costs on firms, who we strongly encourage to read them.
“We also consider that they do not pose any risk to our statutory objectives of consumer protection, market integrity, and effective competition in the interest of consumers.”

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Proposed changes:

Standard asset list

The FCA proposes to expand what is categorised as a standard asset. The current list allows shares traded on the
 Alternative Investment Market, London Stock Exchange or a recognised overseas investment exchange to be categorised as a standard asset.

The FCA said: “We propose to expand this to all securities admitted to trading on a regulated venue. Regulated venue means an exchange (for example a stock exchange, or trading venue such as a multilateral trading facility) that is authorised by a financial regulator or government agency.

“It is not restricted to the EEA. The term ‘security’ is defined in the FCA Handbook and is broader than shares, including bonds. As such, we propose to remove ‘corporate bonds’ from the standard asset list, to capture quoted corporate bonds, which are covered by this new wording. Firms should note that, whilst this proposal expands the standard asset list, the requirement that the asset must be capable of being readily realised within 30 days, to be considered a standard asset, will still apply.”

Frequency of valuations

The FCA said: “For some firms, obtaining accurate quarterly valuations of the AUA in a timely manner can be difficult, largely due to systems and reliance on third parties. Therefore, we propose that firms can rely on the valuations provided to members for the purpose of the calculation in these rules.

“This would be calculated as the sum of the most recent annual valuations of the personal pension plans administered by the firm over the preceding 12 months, adjusted to include any revaluation of assets that may occur between the date of the most recent annual valuation and the date when the firm must calculate its AUA.

“So, on 1 September 2016 when the rules come into force, a firm would calculate the sum of the most recent annual valuations provided to members, subject to any revaluations. This would be recalculated quarterly, looking at the preceding 12 months of valuations.

“If, for any reason, a firm expects not to have this data available at 1 September 2016, it should contact the FCA.

Six-month period to apply the increased constant

The FCA said: “We also propose that, when the firm’s AUA increases and the result is that a higher constant 
is required to be used to calculate the firm’s initial capital requirement, the firm has six months before it must apply the new constant. This will allow the firm time, for example, to raise any additional capital, if required.”

Other proposed changes and clarifications:

- ‘Bank deposits’ to become ‘deposits’, as defined in the FCA Handbook, which makes clear that building society or credit union deposits are eligible.

- Guidance to clarify what ‘capable of being...readily realised within 30 days’ means. On this, the FCA said: “The key consideration is whether this would be capable of taking place. This is a broad judgement on whether there is a market for the asset and whether it could be sold at a value close to the most recent valuation if no material change to the underlying economic condition has occurred.”

- UK commercial property: “Asset should be considered to have been realised at the point that the land registry is formally notified and responsibilities and expectations around valuations and due diligence is in line with previous FCA guidance.”