FSA increases capital requirement for personal pension firms Regulators want pension firms to boost the amount of capital they hold, in order to offer greater consumer protection. The Financial Services Authority has published a consultation paper that proposes those administrating Sipps (self-invested personal pensions) must hold four times as much capital as they do at present, to ensure customers are not left out of pocket, should the firm go bust. There are fears that these increased requirement could cause some Sipp firms to close. Currently, Sipp providers have to hold just £5,000 in reserve. The FSA is proposing that this increases to at least £20,000. Those firms holding significant assets under management, or those that have "non-standard" assets, which could include commercial property, or hedge funds, will have to hold significantly more. David Geale, the FSA's head of investment policy, said: "While the Sipp market has grown substantially over time, the capital regime has not changed and needs bringing up to date. These proposals reflect the volume, range and complexity of assets now being put into Sipps and - ultimately - will protect investors better in the unfortunate event an operator is wound down. Put simply: the more assets you have under administration - the more capital you will need; and if some of those assets happen to be more risky you will need even more. However, Sipp administrators won't be required to hold sufficient capital to back every single pound invested. This is because the funds that customers investors in are effectively ring-fenced. So, for example, if you invest in an Invesco Perpetual fund, though a Sipp, your money should still be in this fund, if the administrator got into difficulties. However. the additional capital required should ensure customer are not out of pocket while a firm is wound down. The FSA said that it recognised these proposals would require companies affected to raise significant new capital. It is inviting comment from the industry and consumer groups, and when the final rules are implemented firms will have a year to put this additional finance in place.