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FOS ruling cannot add new duties for Sipp providers, court hears

Royal Court of Justice High Court 480Upholding a Financial Ombudsman Service ruling against a Sipp provider over due diligence failures would not create new requirements for the market as a whole, a judicial review into the decision has head.

A court is currently hearing arguments as Berkeley Burke challenges a ruling that it, as a Sipp provider, could be held responsible for investment failures.

In 2011 a client, known as Mr Charlton, invested his money into plots of agricultural land in Cambodia via a Berkeley Burke Sipp.

In 2014, the FOS ruled against Berkeley Burke for failing to carry out adequate due diligence on the £29,000 unregulated collective investment scheme.

QC James Strachan, who is representing the FOS, the defendant in the case, told the court today that asking a Sipp provider to check an investment in a foreign country is simply an application of existing due diligence requirements.

QC Jonathan Kirk, representing Berkeley Burke, had earlier said in his submission to the court that FOS has stretched the requirements of due diligence in its ruling in the case.

Kirk argued FOS has created a new duty of due diligence in its ruling on Berkeley Burke that would have widespread repercussions for the Sipp industry depending on the outcome of the judicial review.

But Strachan in his closing argument pointed out recasting FOS’s ruling as a misapplication of law is wrong, as the concept of due diligence already includes the kind of inquiry it claims Berkeley Burke should have conducted.

He said: “The legal representatives of Berkeley Burke do not like the width of the ruling, [but] the duties on due diligence were defined before the case [in guidance such as the FSA’s thematic review on Sipp providers].

“The FOS concluded there was a duty to look beyond mere ‘Sippability’ [in the case of Mr Charlton] and at the type of investment being proposed.

“These duties take their importance from the circumstances and if you as a Sipp provider are dealing with an unsophisticated investor then that shapes the level of due diligence needed to treat the customer fairly compared to a sophisticated investor.”



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There are 11 comments at the moment, we would love to hear your opinion too.

  1. This is annoying me now.

    Counsel for FOS is Mr James Strachan QC. Counsel for BB is Mr Jonathan Kirk QC. *Not* QC James Strachan and / or QC Jonathan Kirk.

  2. Weasel words from Mr Strachan QC

  3. Great reporting Michael – this is a very important case for our industry and it’s good to get concise reporting of the facts and the arguments.

  4. Given that the clients made an execution only investment and ignored written warnings from BB I fail to see how they can become liable for the client’s own actions.

    The FCA has also clearly shown it doesn’t know its own rules, yet expects other to.

    This is a complete mess. The investment was stupid and yet the client insisted on proceeding with it. I would have told them to find another provider, but if the FOS wins this just sends out a clear message that clients can invest in any old rubbish without any risk of loss as it is always someone else’s fault.

  5. Matthew Rodhouse 12th October 2018 at 4:30 pm

    I agree that FOS should not effectively create new Rules. However, as outlined in the Law Commission’s 2014 report on Fiduciary Duties, there were then and are now duties of care in place which seem to have required some due diligence by the SIPP administrator (if not the SIPP trustees). From 1 November 2007, the combination of the FSA’s COBS 2.1.1R (the client best interests rule), COBS 10A (the appropriateness test for complex investments) and RPPD did require them to ensure that the investment was appropriate for that type of investor at time of sale and ongoing. The FCA’s current version of RPPD is called “The Responsibilities of Providers and Distributors for the Fair Treatment of Customers” but it did exist in 2007 and before then.

    • @ Matthew Rodhouse

      Are we not getting to the crux of the issue here, and why the FCA and FOS have tied themselves up in knots that are now starting to become apparent to more than just the adviser community?

      On Thursday the FCA realised, after discussion with their legal team, that the investment in question was not considered a designated investment (a point they never knew previously and has been commented on here, FCA doesn’t understand its own rules)and as such it was not party to COBS rules regarding Best Execution.

      So, if its not a Designated investment and COBS best execution rules do not apply then in turn it cannot be considered for ANY section of COBS.
      COBS rules make no distinction between some applying for Designated business and some not. It either is, or isn’t.

      Therefore the FCA have admitted, in open court, that investments of this ilk (unregulated we often say) do not fall under COBS rules and as such do not need to be treated in regard to those rules.

      So, COBS 2.1.1R and COBS 10A cannot apply can they.

      This should then further mean any “unregulated business” conducted by a regulated firm that does not fall under COBS becomes outside the scope of the FCA and of FOS, a point many have argued for a long time.

      I have always said, if I sell my car to a client and the engine falls out halfway up the road, and he cashed in his ISA to get the money to pay me for the car, can he complain to FOS?

  6. As I read somewhere else, if you read across the responsilities of SIPP provders with this investment, what then becomes the responsibility where Pattiserrie holdings has been purchased and that can be in pretty much any wrapper, bit just a SIPP. Reccomended by DMs and purchased within GIAs, ISAs and PPPs. It then transpires that the accounts were dodgy despite one of the big accountancy firms having audited. Who in the food chain is at fault for the failure to identify this until the proverbial hist the fan. Once again it sounds very much like what happened with Keydata i.e. HMRC claim triggers the collapse and it is only then that we see that there is a gaping hole in the finances that the auditors have failed to identify. Last time with Keydata advisers were blamed. With SIPPs, they are being blamed. Who will be blamed with PH? DMs?

    • Seems to me the one point of consistent failure is auditors failing to pick up inconsitencies which could then lead to identifying fraud when it is them and them alone who have access to full financials.

      • A few weeks ago The Sunday Times did a piece on the dilemma facing the big four accountancy firms in that, if they give a company too hard a time with their audit, it could mean that they might miss out on the opportunity to pull in other more lucrative business as the client, in a huff, may choose to go elsewhere!

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