Friday 27 June 2014

More Nonsense from Planet FS Regulation.

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 CVs 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 choose 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.

We are now involved 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 it. 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' means). This leaves the company we are working with unable to achieve their funding cash flow.

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 requires) to the clients wishing to invest in the stock, which also I have not promoted. Just wanted to make that clear.

If you want to know what the opportunity is ask in the comments.


Bayard said...

"That is you are not allowed to invest directly. You must go through someone like us."

Of course, you can't have people cutting out the middleman. Well done the FCA in spotting this attempt to do sterling fellows out of a job and stamping on it.

Lola said...

B. Hahahahahahah

Mark Wadsworth said...

It's all great, pile layer upon layer of public and private regulators on stuff, get solicitors to vet the offer document wording and auditors to audit the cash flow forecasts and apply for the tax breaks!

Steven_L said...

There are a few 'SIPP companies' out there that are more or less just money launderers for boiler rooms and other investment frauds.

There's a few IFA's out there that are more or less just enablers for boiler rooms and other investment frauds too.

Of course, what the government should do is maintain a black list of pensions schemes based on their HMRC numbers. Anything comes up associated with a scam and it goes on the list.

Then every other pension company has a duty to check the black list and refuse the transfer if the scheme is on it.

At the moment HMRC register the scams (enabling the transfers) and then the FCA, the Pensions Regulator and HMRC all dither for 2 years while millions of pounds of folks savings vanish to sunnier climes.

Lola said...

@SL. Indeed. But that'd be entirely sorted by 'self regulation', proper property rights and the rule of law. And the government stopping buggering about with the pensions 'system'.

The costs of protecting the minority that fall prey to these scams is miniscule in relation to the costs of the (failed) regulation trying to stop them. And this statutory regulation gives false credibility to many bad and marginal businesses that would otherwise fail, and creates massive moral hazard in the general public who simply stop thinking.

Bayard said...

Bureaucrats always think that the best way to stop fare dodging is to make every passenger fill out a six-page form before buying a ticket.