Why robust SIPP governance matters

For financial advisers, choosing a SIPP provider has never simply been about investment flexibility or cost. Increasingly, it is about selecting a partner with the operational strength, governance and expertise to navigate an ever-more demanding regulatory landscape.

That landscape is only becoming more challenging. Over the next few years, the pensions industry must contend with a series of major legislative and regulatory changes, including the introduction of inheritance tax on unused pension funds, new disclosure requirements and the new Value for Money framework. Alongside these headline reforms sits another important development that has attracted less attention: the FCA's latest consultation on strengthening oversight of SIPP operators.

Why the FCA is acting

The consultation follows the regulator identifying weaknesses at some firms, including shortcomings in due diligence, poor controls over trustee bank accounts and inadequate record keeping. Its objective is clear enough – to strengthen consumer protection and improve standards across the market.

Among the proposals is a requirement for SIPP operators to carry out more extensive due diligence on third parties, including discretionary investment managers. Robust oversight is essential, but many established providers have already significantly strengthened their due diligence processes in recent years. There is a risk that the FCA's approach simply adds another layer of prescription.

The regulator is also proposing to introduce a CASS-style framework for SIPP operators through a new Pension Scheme Money & Assets (PSMA) regime. At first glance, this makes sense. Clients should expect the same high standards of protection regardless of how they access pension savings.

The risk of unintended consequences

The difficulty lies in how those standards are delivered. The proposals introduce extensive new controls, reporting obligations and reconciliation requirements for cash and assets held both directly by the SIPP trustee and indirectly by third parties. SIPP operators already undertake regular reconciliations of monies held within trustee bank accounts, and third parties appointed to hold SIPP money and assets – such as custodians – are already subject to FCA rules. In many cases, the protections the regulator is seeking already exist.

More concerning is the FCA's own acknowledgement that the additional compliance burden could force some providers to withdraw from the SIPP market altogether.

Fewer providers would inevitably mean less competition and reduced choice for advisers and clients, without any guarantee that the new rules would have prevented the misconduct that prompted the consultation in the first place.

The danger is that the regulator is reaching for a broad solution to a relatively narrow problem. Consumer protection should always come first, but there are more proportionate ways to address poor practice by targeting those firms that fall short, rather than imposing costly new obligations across the entire market.

What this means for advisers

While debates around reconciliations, reporting requirements and client money rules can seem highly technical, they highlight something much more fundamental: administering a modern SIPP is an increasingly specialist discipline that requires sophisticated systems, experienced people and rigorous governance.

The SIPP market has evolved considerably over the past 35 years. The issues that once damaged its reputation were driven by a small minority of firms operating to poor standards. Today's market is very different. Stronger regulation and significant investment by providers have created a sector that is far more robust, offering clients a secure and flexible way to save for retirement.

That evolution makes the choice of provider more important than ever.

Advisers have a responsibility to look beyond product features and charges, and assess whether a SIPP provider has the operational capability to manage increasingly complex administration, the financial resilience to adapt to continuing regulatory change, and a genuine commitment to supporting advisers and protecting client outcomes.

As regulatory expectations continue to rise, the firms that succeed will be those that combine strong governance with high-quality service. For advisers, partnering with providers that are operationally robust, financially secure and committed to putting advisers and clients first will become an increasingly important part of delivering consistently good advice.