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Foot Anstey: Beware regulatory clashes over Sipp complaints

Claire Williams

The Financial Ombudsman Service’s landmark decision in relation to Sipp provider Berkeley Burke has been widely reported. By way of reminder, in 2014 the FOS upheld a complaint against Berkeley Burke on the basis it had not carried out sufficient due diligence into one of the claimant’s Sipp investments: Sustainable AgroEnergy. The FOS concluded that, had sufficient due diligence been carried out, Berkeley Burke would have realised the advice being given to the claimant was potentially unsuitable. After Berkeley Burke issued judicial review proceedings the FOS decided to review this decision. The outcome has not yet been published.

At the end of March this year the Pensions Ombudsman Service rejected a complaint against Berkeley Burke, which alleged it failed to carry out sufficient due diligence in respect of the complainant’s investments into Green Oil Plantations and Harlequin Property. The PO commented that the FSA’s recommendations in relation to Sipp providers were “aimed at ensuring providers put in place certain controls and systems designed to flag potential instances of unsuitable or poor investment advice”. The PO concluded that, since the complainant did not take any advice on the investments into Green Oil Plantations and Harlequin Property, the FSA’s recommendations did not apply in this case.

The PO appears to be differentiating the above complaint on the basis it was execution only. But on what basis did the PO and FOS determine which organisation had jurisdiction over two complaints that, at least on first look, appear to have materially similar facts?

The FOS’ jurisdiction covers any act or omission by a firm in carrying on a regulated activity. Operating a Sipp will involve regulated activities and therefore complaints about Sipp operators can legitimately be dealt with by the FOS.

Notwithstanding this, a Memorandum of Understanding exists between the FOS and PO in relation to jurisdiction. This memorandum states:

“It is agreed that:

  • The Pensions Ombudsman will deal with matters which predominantly concern the administration and/or management of personal and occupational pensions [. . .]
  • The Financial Ombudsman Service will deal with matters which predominantly concern advice in respect of the sale or marketing of individual pension arrangements.”

Allegations of due diligence failures would appear to concern the administration and/or management of a Sipp and do not relate to advice. Indeed SIPP providers usually specifically state they do not provide advice. While complaints about Sipp operators do technically fall within the FOS’ jurisdiction the FOS does not seem to be following its own guidelines as set out in the Memorandum of Understanding.

The responsibility of Sipp providers to identify potential instances of customer detriment or unsuitable advice is relatively new to the industry (or at least it is only recently the FCA has sought to clarify what it regards as Sipp providers’ responsibilities in this regard) and one which many providers previously did not consider themselves to have any significant liability in relation to. With this in mind, the precedent set by the decisions of the FOS and PO will have a significant impact on delineating the scope of a Sipp provider’s duties. It is therefore crucial such decisions are well reasoned and, perhaps even more importantly, consistent.

Consistency is far more likely to be achieved if all complaints relating to Sipp due diligence are dealt with by the same organisation. Perhaps the FOS and PO should decide who is best placed to determine these disputes (or clarify the already existing guidelines in the Memorandum of Understanding). Moreover, differentiating factors between cases should be clearly explained to avoid, as in this case, seemingly similar complaints being resolved differently. While there may be good reasons why the facts of the PO case justify a different result to the FOS case the decisions in both instances should make this obvious to the industry so that it can adapt accordingly.

In summary, inadequate due diligence resulting in secondary liability for unsuitable advice (advisers remain primarily liable) is a new risk to the Sipp industry. Therefore it is only “fair and reasonable” for the FOS and PO to provide consistent and clear decisions that allow the industry to positively engage with its regulatory obligations. In contrast, the current situation is understandably confusing and frustrating for businesses. It is therefore with bated breath we await the FOS’ review of the Berkeley Burke complaint. We are not aware of any time frame having been set for this.

Claire Williams is a solicitor at Foot Anstey

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Anthony Smith 1st July 2015 at 9:23 am

    I wouldn’t say this was new. Numerous thematic reviews and published reports on the FCA website point to SIPP providers responsibilities. The FCA has also pointed to the regulatory guidance RPPD which itself goes back to a TCF consultation paper from 2007 and clearly sets out the responsibility of providers and distributors for the fair treatment of customers in the distribution chain.

    Trustees also have a responsibility and if an investment is clearly unsuited to a pension scheme (e.g. it has retention clauses that would make it impossible to meet a death claim within 2 years) then it should be automatically excluded.

    Providers and distributors (i.e. platforms) do have responsibilities in what they do or do not do when it comes to the fair treatment of customers. Open architecture without responsibility has to be a thing of the past as reality dawns.

  2. Lawrie Hainey 1st July 2015 at 9:54 am

    Where is the regulation for unregulated (non qualified) advisers to recommend transfers from personal pensions to SIPP. Will FOS get involved in unregulated advice cases? There are people out there making vast sums from commission via PP transfers to SIPPs in green oils, and Harlequin Property. If the unregulated adviser cant be touched and the provider i.e. in this article – Berkeley Burke cannot be touched, where is the protection for the client and so much for the regulator who has poosie footed around this for years. Its a disgrace.

  3. The case clearly hinges on application of ‘advice’, and execution only thereby should remove the case from FOS. I disagree with the sentiment that the provider should be liable though: the question on such liability rests on the responsibilities of the different entities involved in a SIPP, and here is where the providers have brought on their own problems.

    What is generally labelled as a provider, is more correctly defined as the SIPP administrator. Next up there is the role of the SIPP trustee and is the trustee who/which has the fiduciary responsibility for ensuring investments are appropriate for providing pension benefits. This is a hybrid FA2004 and TA2000, but it is quite clear under both that the trustee has that investment responsibility. I do hope BB get their day in court as this case is long overdue, and, correctly argued, will bring much needed clarity to advisers, administrators, investors, and, importantly, the regulators. The latter have supported this fudge for over a decade, ignoring what is in fact a fairly simple and well-defined definition of trustee responsibilities.

    Where firms decide to own both administrator and trustee a structural bias against the investor occurs – where is the independence of the trustee, to protect assets from incompetent or negligent administrators? I for one would be quite willing to pay for a ring-side seat on that legal challenge. Why have the regulators allowed this to continue? The Pensions Regulator would simply bring the administrators’ gravy train to a very swift temporary halt if given jurisdiction. And that should indeed be given.

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