Debate Magazine

More Nonsense from Planet FS Regulation.

Posted on the 27 June 2014 by Markwadsworth @Mark_Wadsworth

I have been working with a new company who are raising development capital.  One of their ways of doing this was to specifically create their stock in a manner consistent with being suitable for SIPP (Self Invested Personal Pension) investment.  All the backing documentation is of admirable quality and clarity. The promoters have used this method previously and successfully.  They are both serial entrepreneurs with excellent CV's and track records of success in launching businesses.
As you know the whole purpose of a SIPP is that the members can manage their own funds and chose their own investments.  You do not need an insurer, an investment manager or an adviser.  It's DIY.  So, as we are an 'advisory' business, why are we needed in respect of investing in this unquoted equity?
Well, the FCA has carried out another of their 'thematic' reviews, this time into SIPP companies and what they call 'non-standard investments'.  In this process they interviewed a number of SIPP providers and assessed their due diligence processes.  I have been told by one of the SIPP trade body people that whatever DD was done it was never enough in the eyes of the FCA.  In any event, as it is a SIPP why are the SIPP companies required to carry out DD in the first place?  It's the responsibility of the member. Yes, there is a sensible requirement that pension assets need to be able to be valued in some way, and in the case of unquoted stock there are established accounting methodologies for doing this.
Why we are now involved is because one of these new FCA requirements is that members wishing to invest in 'non-standard assets' must be 'advised'.  That is you are not allowed to invest directly.  You must go through someone like us. (The experienced cynic in me knows that the real reason for this is that if it goes wrong - or more accurately if the FCA can see an opportunity to create a bit of marketing for itself - they can make claim against our PI insurance and our assets.).
The SIPP companies have been asking for clear guidance on how they are required to assess non-standard assets.  The FCA have persistently failed to provide this.  My contact and I agreed that this is because the FCA will at all costs avoid taking responsibility.  Basically they want the ability hang you and leave themselves completely outside any sanction for failure. They absolutely do not want any legal certainty.
Finally, why are unquoted equities 'non-standard' assets anyway?  As long as the supporting DD is good (and in the case of the outfit I am working with, it is excellent - and IMHO they have a stunning business opportunity) how and in what way is such a share a non-standard asset?
So, the consequence of the Failed FCA's 'thematic review' and 'guidance', is that SIPP companies cannot now take in investments that the FCA names as 'non-standard' (but not defining actually what 'non-standard investments' mean).  This leaves the company we are working with unable to achieve their funding cashflow.
Oh, and FYI, we are not being paid by the sponsoring company at all as I feel that would leave me with a conflict of interest when acting as an 'independent adviser' (as the FCA require) to the clients wishing to invest in the stock, which also I have not promoted.  Just want to make that clear.
If you want to know what the opportunity is ask in the comments.

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