The watchdog’s proposals follow 22 SIPP operator failures between 2011 and 2023, that left investors with £526m in uncompensated losses after falling victim to scam investments due to inadequate provider due diligence.The broader SIPP market is estimated to be worth more than £650bn across 6m investors.

Under the consultation the FCA proposes stricter due diligence checks on consumer-driven investments and non-standard third parties, alongside a new Pension Scheme Money & Assets (PSM&A) regime to close regulatory gaps where client asset rules (CASS) do not apply. SIPP operators would also be required to appoint a senior manager directly accountable for compliance.

The changes would mean providers would need to run basic eligibility checks on every single asset and apply more detailed scrutiny to higher-risk investments with operators expected to face know your customer (KYC) obligations for third parties such as financial advisers and investment managers, with formal contracts put in place to guarantee transparency and real-time data sharing.

To avoid disrupting existing plans, the changes to due diligence won’t apply retrospectively to current holdings unless an investor transfers them or tops them up. AJ Bell warned that the heavy record keeping requirements will drive up the costs for normal consumers who follow the rules rather than stopping fraudsters.

However, legal and industry experts warn the proposed rules carry practical compliance risks and unintended consequences ahead of the consultations closure later today.

Simon Laight, pensions partner at Pinsent Masons, noted that the heavy onus placed on firms could restrict investment flexibility, adding: “An unintended consequence may be that the due diligence proposed constrains the range of investment opportunities consumer-directed SIPPs invest into… For sophisticated scams and fraudsters, due diligence checks by firms may also not necessarily be an insurmountable deterrent.”

Aberdeen Adviser chief executive Rich Denning called for greater standardisation and cross-agency transparency. He said: “This provides a timely opportunity to highlight the limited and fragmented public information available on the SIPP market. Policymakers and industry would benefit from a clearer and more consistent picture… This is a broader policy issue that extends beyond the proposed PSM&A return and warrants further consideration across the FCA, HMRC and DWP.”

Following the consultation’s close, the FCA expects to publish its final rules in early 2027. The regulator proposes a 12-month implementation window for the due diligence rules and a two-year window for the PSM&A regime.