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Inside the legal battle for Sipp supremacy

Michael Klimes explores the arguments and potential outcomes from two landmark court cases that have now been heard.

Long-running legal battle over unregulated investments approaches judgment day

The fierce and long-running legal battle to define the responsibilities of Sipp providers in relation to unregulated investments has entered its final phase.

Rulings from two court cases, the latest of which finished last week, are expected to clarify these duties and have wide implications for the industry when they emerge.

The stakes are high for all parties involved, including the FCA, which has submitted evidence to both cases, raising questions over whether Sipp providers breached its conduct rules by accepting esoteric investments without due diligence.

The first case is a judicial review into a long-standing dispute between Berkeley Burke Sipp Administration and the Financial Ombudsman Service, which Money Marketing covered extensively from court last week. It goes back to 2014, when the FOS ruled against Berkeley Burke for failing to carry out adequate due diligence on a £29,000 unregulated collective investment scheme for a client called Mr Charlton.

In 2011, Mr Charlton invested his money into plots of agricultural land in Cambodia via a Berkeley Burke Sipp. In February 2017, the FOS stood by its initial ruling after an appeal, but Berkeley Burke decided to challenge the decision again. In October 2017, the High Court struck down Berkeley Burke’s second challenge and a question remained over whether the firm would pursue a judicial review to appeal the decision for a third time.

That is what happened, and the judicial review of the FOS decision against the provider is expected to have wide-ranging implications, as it could establish with greater certainty whether Sipp providers have a duty of care to vet unregulated investments for their clients.

The second case, with similar stakes for those involved, concerns Carey Pensions, which claimed it did not break conduct-of-business rules when it set up a Sipp for a client, as it entered a High Court hearing in March. In this case, lorry driver Russell Adams alleges Carey Pensions missold him a Sipp in February 2012, when he was paid an inducement of £4,000 into his savings account to encourage him to put money into rental scheme Store First. He subsequently transferred £50,000 into a Store First investment on 12 June 2012 before the scheme hit troubles.

Money Marketing takes a deeper look at the arguments involved, and the potential outcomes for the FCA and Sipp providers when the rulings are published in the near future.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. If this goes the wrong way this will have serious impact on Execution only and Insistent client business going forward.

    Which pension provider, or PI provider would accept a Pension Transfer from a DB Scheme where the member has been advised not to transfer but still goes ahead via the Insistent client route. Not sure I would if the public has an open ended get of jail free card.

  2. A great article with some excellent common sense expert and adviser views.

    I agree it is completely wrong that anyone should be entitled to compensation for their own decisions and that this undermines the value of taking regulated financial advice.

  3. I was involved in compliance consulting with SIPP firms pre-2011 and I have to agree that FSA expectations radically changed between 2009 and later. The problem was that rather than being clear and transparent on their expectations via publications they evolved their approach by the actions of Supervision which meant that many firms were in the dark as to FSA’s expectations (=requirements) until they had a visit.

  4. Matthew Rodhouse 19th October 2018 at 2:39 pm

    It seems to me that there is a legal question here. The Law Commission in its 2014 report on Fiduciary Duties said that, for contract-based products, the duty on product providers to ensure initial and continuing suitability (matching that which lies occupational schemes) on lay in COBS 2.1.1R (the client best interests rule) introduced in 2007 and RPPD (The Responsibilities of Product Providers and Distributors) which existed before that date – it did not mention S.13 of The Supply of Goods and Services Act 1982 (Implied term about care and skill – In a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill) or the FSA’s/FCA’s Principle 2 “A firm must conduct its business with due skill, care and diligence”. These SIPPs are of course trust-based but covered by the same rules. I note that The Trustee Act 2000 says that a trustee does not have to apply due diligence on investments where the trust deed specifically exempts him,/her but I am not clear how this dovetails with FSA/FCA Rules (which include Principles). in addition, I am not clear whether these companies are trustees (which may be cleared the Trustee Act 2000) or SIPP administration companies with separate SIPP trustees (obviously, if just administration companies, the Trustee Act 2000 does not apply). I await the findings of the Court.

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