Link to Introduction Introduction
On 22 June 2026, the Financial Conduct Authority (FCA) published Consultation Paper ‘CP26/20: Adapting our rules for a changing market: self-invested personal pensions’. According to the FCA, the self-invested personal pensions (SIPP) market in the UK has grown substantially, both in terms of complexity of business models, structures and assets, as well as the scale of assets involved, with assets under administration reaching approximately £567 billion across 5.3 million consumers in 2024.
As the FCA acknowledge, regulation must adapt to a changing market, ensuring to support continued growth and innovation while also strengthening consumer protections. The FCA is therefore proposing two sets of rules: first, explicit due diligence obligations for SIPP operators; and second, a new Pension Scheme Money and Assets (PSM&A) regime within chapter 19B of the FCA’s Conduct of Business sourcebook (COBS) for firms that use unauthorised trustees.
This is the first of two articles on CP26/20, focusing on the proposed due diligence requirements for SIPP operators. The second article, which can be accessed here, turns to the second limb of CP26/20 which is the PSM&A regime. That regime addresses a related but distinct gap in the current framework, namely the treatment of pension scheme money and assets held by unauthorised trustees, which currently fall outside the protections of the FCA’s Client Assets Sourcebook. Read together, the two articles cover the full scope of CP26/20’s proposals: enhanced due diligence obligations on third parties and SIPP assets (addressed here), and new safeguarding, record-keeping, reconciliation and audit obligations for firms using unauthorised trustee structures (addressed in the second article).
Link to Significance Significance
In our view, these are the most significant developments to the regulatory framework applicable to SIPP operators, and the firms they work with, since implementation of the Consumer Duty in 2023 and, before that, Finalised Guidance ‘FG13/8: A guide for Self-Invested Personal Pensions (SIPP) operators’ (FG13/8) in 2013.
There have been many examples of judicial intervention in the market, and firm failures concerning SIPPs. The FCA’s intervention may be seen by some firms and business models as overdue. For some, their interpretation of FG13/8 and implementation of the Consumer Duty may mean that a raise in standards required by these proposed rules is not material. For most, there are likely to be significant changes to processes and business models which could result in a degree of consolidation and transactions in the sector.
The FCA’s cost-benefit analysis emphasises the significant benefits that the proposals are expected to deliver: reduced consumer harm from scams and fraudulent investments, reduced redress liabilities for operators, stronger supervision, fewer uncompensated losses, and improved market trust.
In addition to understanding the proposed due diligence requirements, this article also considers wider practical implications for SIPP operators and situates the paper within the broader trajectory of SIPP regulatory reform.
Link to The road to CP26/20 The road to CP26/20
The development of SIPP operator due diligence obligations has been shaped by a series of notable court decisions. In Adams v Options SIPP [2021], the claimant transferred his pension into a SIPP to invest in long leases of storage pods, on a recommendation from an unregulated introducer. The Court of Appeal held that the SIPP agreement was unenforceable under Section 27 of the Financial Services and Markets Act 2000 (FSMA) where it was entered into as a result of unauthorised regulated activities carried on by an introducer. The case highlighted the risks of unregulated introducer networks and the importance of introducer oversight and customer protection in the SIPP sector.
The earlier decision of Berkeley Burke v FOS [2018] also shaped the landscape. The case arose after a SIPP member invested in a fraudulent ‘green oil’ scheme through a Berkeley Burke SIPP. The High Court upheld a Financial Ombudsman Service (FOS) determination that the SIPP operator had failed to act with due skill, care and diligence where its checks focussed on whether the investment was capable of being held in a SIPP, without adequately examining the underlying investment itself. The significance of this case was the court’s endorsement of the proposition that, even on an execution-only basis, a SIPP operator’s responsibilities may extend beyond simply processing customer instructions.
It is in this wider context of the SIPP market that, in December 2024, the FCA published Discussion Paper ‘DP24/3: Pensions: Adapting our requirements for a changing market’ (DP24/3), which sought feedback on its proposals to strengthen the regulatory framework for SIPPs. The FCA noted that it had “observed pockets of poor practice in the SIPP market” and that SIPPs have frequently been “targeted as vehicles for scams and fraud by bad actors.” As a result, two of the key themes explored in DP24/3 were a lack of due diligence by firms, and firms’ failure to have “robust control over pension scheme money and assets”(emphasis added).
The responses to DP24/3 confirmed broad industry support for more prescriptive rules, with the Pensions and Lifetime Savings Association (now Pensions UK) expressing support for “more detailed Handbook rules” which could “help protect consumers…improving the consistency of due diligence across SIPPs”.
As explained in our second article, DP24/3 also previewed the FCA’s concerns regarding firms’ control over pension scheme money and assets, which fed directly into the proposed PSM&A regime.
You can read more in our Global Regulation Tomorrow blog post, here – FCA publishes discussion paper on adapting the pensions regulatory framework for a changing market | Global Regulation Tomorrow.
More recently, the FCA’s Pensions Regulatory Priorities Report, published in March 2026, explicitly committed to consulting on due diligence and PSM&A rules for SIPPs within the first half of 2026. CP26/20 delivers on that commitment.
Link to New due diligence rules New due diligence rules
While SIPPs can offer consumers greater levels of flexibility in retirement, average pot sizes are often larger than other types of personal pension, meaning that significant harm can be caused to certain consumers when something goes wrong; the FCA note that they have seen “extreme cases where consumers using a SIPP as their main retirement saving vehicle have lost all their pension savings”. The existing regulatory architecture for SIPP due diligence rests on a combination of high-level principles, general conduct rules, and non-Handbook guidance. Principle 2 of the FCA’s Principles for Businesses requires firms to conduct their business with “due skill, care and diligence”, while COBS 2.1.1R requires firms to act honestly, fairly and professionally in accordance with the best interests of the client. These are supplemented by FG13/8, which sets out the FCA’s expectations regarding due diligence by SIPP operators, including the assessment of investments and vetting introducers.
This framework has certain limitations (as the courts have had to respond to, and the FCA acknowledges); while high-level principles offer flexibility, they leave considerable room for divergent interpretations. The result has been inconsistency in the standard of due diligence applied across the sector with end consumers detrimentally affected.
CP26/20 proposes to produce a more coherent set of Handbook rules and guidance that address proportionate and risk-based due diligence and monitoring requirements.
These rules would apply to personal pension schemes that offer consumers flexibility (i.e., it would not apply to schemes that offer limited, pre-selected investments or risk-rated model portfolios). The aim of these measures would be to strike a balance between safeguarding consumers’ pension savings with a proportionate, risk-based approach.
Importantly, the FCA states that the proposed requirements “do not require firms to assess the suitability of an investment for an individual consumer” (emphasis added), which will be a key source of concern for firms in the sector given FOS decisions in the event of customer loss. This also mirrors the scope of legal requirements on pension trustees required to diligence advice on certain transfers to SIPPs.
The key aspects of the proposals for SIPP operators to take notice of are:
- A tiered approach: Rules would not be one-size-fits-all, with a greater focus on asset categories with fewer existing protections, arrangements involving unvetted third parties (e.g. unauthorised introductions or overseas third parties), or areas with a higher risk of fraud. Certain schemes are proposed to be out of scope, so as to focus on those which give consumers flexibility and choice over the underlying investments on an ongoing basis.
- Third party due diligence: It is proposed that SIPP operators will be required to carry out initial and ongoing due diligence on introducers, advisers, and discretionary investment managers (DIMs) with the aim of satisfying themselves that the third parties they interact with have the required regulatory permissions and do not pose risk to consumers. Again, this mirrors the Pensions Regulator’s guidance for trustees who may deal with transfers to SIPPs.
- Due diligence on third parties would be divided between ‘core’ and ‘additional’ due diligence requirements. The FCA has summarised these new requirements such that if a firm cannot satisfy itself that engaging with the third party “involves no undue risks to the consumer” then they must not enter (or must end) the arrangement with the relevant third party. Many firms will be concerned with the drafting of proposed COBS 19A.2.2R and the extent to which it goes beyond the more specific checks and verifications described in 19A.2.3R-8G. There have been a number of recent enforcement actions relating to firms which failed to spot that firms which they engaged with did not hold appropriate regulatory permissions for their business, and so these new requirements should very much be seen as part of this increasing emphasis on firms’ own controls to manage risks to which they (and end retail customers) are exposed through proper due diligence.
- Core requirements
- Firms would be required to carry out a number of core checks on all relevant third parties, including: ID verification; checks on whether the relevant parties are subject to criminal or disciplinary proceedings, investigations or convictions; checks on legal and regulatory requirements and permissions; and checking relationships “across parties connected to the third party to identify and manage any conflicts and dependencies not aligned with the consumers’ best interests”.
- A critical next step for firms implementing final rules is likely to be a review and uplift of terms of business or other contractual arrangements with those relevant third parties.
- Additional requirements
- It is proposed that operators carry out additional checks on third parties that present heightened risks to consumers which include, for example, unregulated introducers or overseas third parties. The FCA proposes to set out guidance providing firms with examples of when and which additional checks are appropriate in each case.
3. Due diligence on SIPP assets: All assets proposed for inclusion in a SIPP would be subject to core due diligence requirements to reduce the risk of accepted assets being fraudulent. Core checks are designed to act as a baseline filter, identifying at an early stage those investments that present indicators of fraud, scams, or implausible commercial propositions. This would include:
- ensuring accepted investments are not taxable property for the purposes of HMRC pension tax rules;
- the SIPP operator satisfying itself that there is proper custody and good title to the investment and firms can administrate it effectively; and
- ensuring that the investment can be reliably valued at the outset and on an ongoing basis.
Where custody or title is held via an unauthorised trustee structure, these due diligence obligations are complemented by the safeguarding, record-keeping and reconciliation requirements of the proposed PSM&A regime, which we address in our second article.
Additional due diligence activities would be required for higher-risk investments. The FCA does not propose to prescribe these requirements, instead expecting firms to take “a reasonable and proportionate approach…based on the asset type, risk profile and specific circumstances.” The CP sets out a number of assets that the FCA does not propose firms need to conduct additional due diligence on, including cash deposits (including NS&I), units in regulated investment funds, and shares in Long-Term Asset Funds (LTAFs). However, the FCA would expect additional due diligence on:
- non-mass market instruments (i.e. non-mainstream pooled investment or speculative illiquid securities);
- restricted mass market investments (except LTAFs); and
- direct investments in UK or overseas commercial property.
If during the due diligence process firms identify indicators of fraud or scams, the FCA would expect the firm to reject the investment or take additional due diligence steps, as required.
Operators will be required to establish an internal policy on risk which sets out the firm’s arrangements to avoid the harms identified in these proposals and its approach to these new diligence requirements.
While this may contribute to the reduction of customer harms, it may also mean that SIPP operators adopt a more conservative approach with the investment strategies, thereby reducing customer choice and potentially being at odds with the UK Government’s drive to encourage more investment in UK and productive assets and greater diversification in the pensions saving industry.
4. Third parties that acquire and manage assets in a scheme: Operators are expected to be required to carry out the following steps in relation to third parties that could acquire and manage investments for the scheme on behalf of the consumer without the SIPP operator being involved in the transaction, which may result in new requirements flowing out to other firms involved in the overall development and operation of SIPP products, including wealth managers:
- assessing the third party at onboarding;
- setting clear contractual parameters, including the types of permitted assets;
- carrying out periodic oversight of the third party;
- ensuring that there are contractual arrangements with third parties that, at a minimum, define the expectations of the parties and set clear parameters on the types of assets that the third party may select within the SIPP; and
- carrying out periodic monitoring of the assets managed by a third party, allowing the SIPP operator to satisfy itself that:
- the investments remain within agreed contractual parameters;
- changes to the asset type / classification are identified promptly; and
- capital adequacy requirements are met and up to date.
If the firm identifies assets outside of the scheme parameters, they will need to act to avoid foreseeable harm to their customers. This might include taking timely and proportionate actions such as restricting further dealings with the third party, reassessing whether the asset should be held, or considering exit options. These oversight obligations sit alongside the record-keeping, reconciliation and audit requirements proposed under the new PSM&A regime discussed in our second article here, which similarly targets the risks arising from third parties holding or managing scheme money and assets outside the SIPP operator’s direct control.
5. Governance, monitoring and record keeping requirements
Firms should establish governance arrangements that enable the oversight of due diligence processes, which includes appropriate staff training. Firms would be required to gather and analyse management information (MI) to assess the effectiveness of their due diligence process. This MI would require updating every six months. SIPP operators would be required to maintain documentation that demonstrates compliance with their due diligence requirements.
The FCA proposes a 12-month implementation period for firms to make the necessary changes to their due diligence processes and procedures. After this, firms will need to ensure that all investments, onboarding of assets and relevant third-party relationships comply with the new proposed rules.
Link to Conclusion Conclusion
Ultimately, CP26/20 represents a watershed moment for SIPP regulation. As this article (and part II) explore, the move from principles-based expectations and non-binding guidance to explicit Handbook rules is a qualitative change in the regulatory relationship between the FCA and SIPP operators. It reflects the regulator’s conclusion – informed by recent litigation, enforcement experience, and industry engagement over more than a decade – that the existing framework has not delivered consistently adequate consumer protections across the sector.
For those operators which have already aligned their practices with the expectations articulated in case law, FG13/8 and the Consumer Duty, the transition to the contemplated prescriptive rules may be welcome and capable of being efficiently embedded. For others, the consultation paper is a clear signal that the period of any ambiguity is ending.
Read our second article on the PSM&A regime here, which explains the new requirements for firms using unauthorised trustee structures to hold or receive pension scheme money and assets. Our team of Financial Services Risk Advisory professionals has extensive experience of supporting firms in connection with risk management arrangements within the investments and wealth sector, and we would be pleased to discuss ways we can support firms grappling with the organisational and governance implications of these proposals.
The authors would like to thank Matthew Greenhill for his contribution to this article.