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SIPP Providers Call for Due Diligence Reviews as Scammers Get Sophisticated

There is no doubt about it; cyber crime is a growing concern for citizens and financial institutions across the globe. In the UK alone, there were an estimated 3.6 million cases of fraud and two million instances of computer misuse during 2016, while the threat facing citizens also became increasingly diverse.

Not only this, but we have also seen the emergence of increasingly sophisticated scams as technological advancement has taken hold. This is even true in the investment market, with the Financial Conduct Authority (FCA) recently revealing that scammers have developed second and third generation schemes aimed at leveraging non-standard asset classes.

Why SIPP Providers Are Backing the Regulators Demand for Due Diligence Reviews

In the recent alert, the FCA revealed that the typical scams used by companies had evolved considerably in recent times, from basic schemes that offered unregulated and overseas assets directly to investors. In a bid to negate more stringent regulatory measures, scammers have developed more sophisticated second and third generation schemes, which attempt to obscure unregulated assets and hide them within special purpose, SPV bonds.

Most worryingly of all, the latest scams have utilised a so-called discretionary funds managers (DMF), which adds legitimacy to the scheme and helps to obscure questionable assets even further.

Firms and scammers engaging in this practice are investing an average of 15% in unregulated assets, leveraging overseas vehicles and DMF to confuse regulators and reassure clients respectively. Many of the vehicles are accessible through a niche exchange, which on the surface fulfils stringent regulatory criteria and the definition of standard assets that has been publicised by the FCA. Given the nature of the threat and its increasingly complex (and not to mention sophisticated) nature, the FCA is now calling for a review of all due diligence practices in a bid to update the regulatory measures in place and reinstate a permitted investment list for all SIPP providers.

The Bottom Line: Why Progression is Key in the Fight Against Sophisticated Scammers

Leading SIPP providers such as Bestinvest have echoed these calls, in order to restore order to the market and protect the assets of hard-working clients. This is in the best interests of all parties associated with the market, while a review of due diligence practices is the only way to respond to evolving threats and cope with increasingly sophisticated scammers. This is a process that must continue, so it is reassuring that both regulators and the UK’s leading SIPP providers have moved quickly to drive change.

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