The regulatory reforms finally kicked in last week after years of discussions.
@SIPP announced in June that it holds capital in excess of the new FCA capital adequacy requirements and stated additional capital was secured by its existing shareholders with no external financing required.
There have already been some acquisitions in the sector, but Eddie McGuire, managing director of @Sipp, told Financial Planning Today the pace of consolidation has perhaps been slower than many might have anticipated in the run up to September.
He said: “But, as that time is now upon us, there is no hiding place for businesses unable or unwilling to meet the new capital requirements.
“We believe the shake up in the market will continue with fewer providers prevailing in the years to come. As this happens, the old adage of ‘buyer beware’ will be increasingly appropriate.
“The issue is more about looking under the bonnet of the business rather than just looking at the headline numbers.
“Factors such as the exposure businesses have to ‘toxic’ assets such as Harlequin, ease of integration into the parent company and the knock on effect on “core” businesses all need to be considered.”
He said: “It will be interesting to see what attitude the FCA adopts where it is clear providers are taking an inconsistent approach to the new rules – for example in areas such as commercial property and the recent spate of suspensions amongst property funds.
“It remains to be seen how long they may accept operators’ rationale for treating similar assets in a different fashion for capital adequacy purposes.”
His firm’s current financial position means that assets could increase by 75% without any additional capital being required, he explained.
Mr McGuire believes some “potentially unintended consequences” of the rules are starting to be understood.
A good example, he said, would be the “unbreakable” term deposits.
He said: “It seems counter-intuitive that (say) a 60-day deposit which has no break clause is deemed non-standard whereas a commercial property could be standard.”
A number of Sipp experts have outlined concerns about ‘grey areas’ they believe still exist in the rules. Click here for more.