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Sipp provider has appeal against FOS granted

Appeal-Court-High-Court-Building--700x450.jpgEmbattled Sipp provider Berkeley Burke has been granted permission to appeal a ruling that says it failed to vet unregulated investments for one of its clients, Money Marketing can confirm.

Last year, the High Court heard a judicial review in a longstanding dispute between Berkeley Burke Sipp Administration and the Financial Ombudsman Service.

In the judicial review Judge Jacobs upheld a 2014 FOS decision 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.

The judgment spelled warning signs for many Sipp providers, who see it as place a duty of care on them to vet unregulated investments for clients.

Money Marketing reported on the case where legal representatives for the claimant Berkeley Burke said FOS’s decision was legally incorrect.

In January Berkley Burke Sipp Administration applied to appeal the decision and said it expected to hear within a couple of weeks whether its submission has been granted.

In a statement today, Berkley Burke Sipp Administration confirms permission to appeal has been granted by Rt. Hon. Lord Justice Hickinbottom in the Court of Appeal, Civil Division.

The appeal to be heard at the Court of Appeal, in a hearing expected for the autumn of 2019, will be in respect of the earlier judgment from Justice Jacobs.

In delivering the reasons for granting permission to appeal to the Court of Appeal, Justice Hickinbottom says: “I am persuaded that this decision is potentially of considerable and wider importance within the industry and for customers, and that the issues raised by it should be considered by this court, which has not considered them before.”

In its statement Berkley Burke Sipp Administration says: “[We] maintain that the FOS has erred in law applying the FCA Principles (‘the Principles’), chiefly Principles 2 and 6, in a way that created a new and unexpected duty of care on the part of Sipp operators- which would also apply to any execution only FCA-regulated financial services operator – to investigate investments before accepting them into a Sipp, overriding therefore even any signed disclaimer obtained from an IFA and/or the investor that the operator was not providing investment advice.”

Berkeley Burke Sipp Administration’s exclusive statement to Money Marketing in full

The impact of the FOS ruling on a £27,000 execution-only investment brought to Berkley Burke Sipp Administration  – with four separately signed liability disclaimers by both the investor and his agent – impacts the entire financial services sector.

Unless and until overturned on appeal by the Court of Appeal in a hearing now due this autumn, the judgment handed down by the High Court reaffirms the primacy of the Principles in financial services regulation and importantly the breadth of FOS discretion to decide what is ‘fair and reasonable’.

That primacy, coupled with the freedom of FOS discretion, means that there is to be in effect no fettering of any subjective interpretation of what is ‘fair and reasonable’ by reference to the COBS rules. Operators are rightly asking themselves why bother to have COBS rules in place at all if they don’t provide finality  – certainty – to a regulated providers’ duties to its clients.

FCA-regulated operators feel that new rules have been introduced without any of the statutory consultation required by the FSMA.

It has been a long, public-stated aim of the FCA going back as far as 2012 to reduce the number of operators in the Sipp market. Changes to regulatory capital requirements have already had that effect, with the 14 per cent to 18 per cent reduction first envisaged more than achieved.

But the effect of the FOS ruling will have more unmanageable pain. Unless overturned by appeal it will result in that reduction going far beyond that stated aim and most likely spill over into a reduction of other execution-only services.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. What is going on, this has been going on since 2012 and every time Berkeley lose they appeal. If FOS lose this time, can they appeal? When will it end. The poor investor will be dead and buried before he gets his money, If I was the FOS I would uphold all the outstanding claims against these Sipp Providers NOW to show their authority and prove that Berkeley Burke and other Sipp Providers are liable

    • It ends when the legal process is finished, it can’t go higher than the Supreme Court which is where any final appeal ends (assuming it is accepted to be heard).

      This case is about the authority of the FOS and whether they have exceeded it so making more decisions doesn’t achieve anything until such time as the extent of that authority is determined.

  2. I must disagree with Kevin Souter. Sipps were introduced partly to permit investors to self-manage their pension assets. HMRC protects pension assets from investor foolishness by imposing some restriction on permissible SIPP investments. The SIPP provider is obliged to enforce these restrictions and some limited protective measures – but that does not include questioning a permissible investment selected by the investor or his advisers, if the type of investment is permissible within the rules of the particular SIPP. Intermediaries should conduct adequate due diligence on investments before recommending them – but if an investor is self-selecting, that responsibility falls on him. If incapable of conducting adequate due diligence he should seek advice – but if he fails to, then caveat emptor. The SIPP provider is not liable for the investor’s foolishness and ignorance. The Court seems rightly to have permitted appeal against this decision of the FOS – although I comment without knowledge of all the facts. What if an investor bought a commercial property without a proper survey report – would that make the SIPP provider liable if the building collapsed? The FOS appear to be saying it would – rather than that the investor would be to blame for failing to obtain a survey. Nonsense.

  3. Andrew the Investor did not select these investments, they were cold called by unregulated Introducers who had already selected as too what Investments being offered and how much to put in them. The Sipp Providers should have informed FCA of the hundreds of investment transfers that they were being offered and refused to take them. They didnt and said nothing. They paid these Unregulated Introducers for every transfer obtained. Millions of investors life savings are now lost forever.

    • The FCA were aware but chose to do nothing.

      I don’t think the SIPP providers paid the unregulated introducers, they may have been paid by the investment company.

      The question is whether SIPP providers have a duty to protect unadvised investors by carrying out detailed due diligence on any investment placed in their wrapper. It is clear that if that is the expectation then no SIPP provider would ever have done this business as it’s not viable. The regulator and FOS know this so why didn’t they point it out BEFORE investors put money in? The answer is simple – they make it up as they go along and then blame firms for not working it out themselves beforehand.

  4. A small point – Judge Jacobs is Mr Justice Jacobs and Judge Hickinbottom is Lord Justice Hickinbottom. The judgement against which leave to appeal has been granted is at https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Admin/2018/2878.html

  5. On the merits of the appeal, it is important to understand the limits of the Court’s authority. The Financial Services and Markets Act empowers the Ombudsman not the court to reach fair and reasonable results, without necessarily applying the law. So, the only issue is whether FOS’ approach of applying FCA/FSA Principles 2 (due skill care and diligence) and 6 (treating customers fairly) was beyond the wide discretion given to FOS by the Act. This would be the case if the decision was so unreasonable that no Ombudsman could reach it. In other words, Mr Justice Jacob did not rule on whether the Ombudsman was right. He ruled on whether the Ombudsman acted within his powers. The Court of Appeal will have to decide whether Mr Justice Jacob made an error of law in his approach.

    The Court of Appeal’s decision could be appealed to the Supreme Court but only with the permission of either the Court of Appeal or the Supreme Court. Leave or permission is relatively rarely granted for that purpose.

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