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FOS upholds complaint against Berkeley Burke over Ucis

The Financial Ombudsman Service has upheld a complaint against Sipp operator Berkeley Burke Sipp Admin-istration for failing to carry out adequate due diligence on a £29,000 unregulated collective investment scheme.

In 2011 an investor, referred to as Mr A, transferred £29,394 from a personal pension plan into a Sipp through Berkeley Burke after being introduced by an unregulated agent. He invested £24,195 in Sustainable AgroEnergy, an unregulated investment. The firm went into administration and Mr A lost his entire fund.

In a decision published earlier this month, ombudsman Roy Milne upheld the complaint, ruling that Berkeley Burke should have been alert to the fact the investment was potentially unsuitable and should have made further enquiries.

The decision cites an FSA thematic review of Sipp operators in 2009 which listed the following as examples of good practice: confirming the intermediaries that advise clients are regulated and being able to identify anomalous investments and seek appropriate clarification of their suitability.

Berkeley Burke argued it had not advised the investor and as a Sipp operator could not have been aware of the investment’s suitability or otherwise for him.

But Milne says: “Mr A’s investment was introduced by an unregulated intermediary. In my view, Sustainable AgroEnergy was an unusual and esoteric investment. This was a relatively small-value Sipp invested in an unusual and new investment. These factors should all have alerted Berkeley Burke to the fact that this investment and the Sipp were potentially unsuitable.

“Berkeley Burke should have made further enquiries to establish whether the investment was suitable for Mr A.”

The FOS has ordered Berkeley Burke to pay the investor the difference between the value of his investment and the return of the FTSE WMA index over the same period, plus £500 for distress and inconvenience. It says it assumes the investment has no value.

Plan Money director Peter Chadborn says: “There is a large onus on Sipp providers to carry out proper due diligence and do some joined-up thinking. An unusual investment coming from an unregulated source should have set alarm bells ringing.”

Berkeley Burke declined to comment.


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Marvin the paranoid android 25th July 2014 at 10:10 am

    a precursor of more to come I think…

  2. Alasdair Sampson 25th July 2014 at 10:16 am

    It would be interesting to know whether or not the FCA has investigated the unregulated intermediary.

    I suspect that it is only a matter of time before FOS upholds a similar complaint against. SIPP operator even where the intermediary was regulated.

  3. This is a very important decision for all regulated firms, not just SIPP administrators. Everyone should read this very carefully. It can be found here:

    It was acknowledged that the client signed to say he understood the investment was high risk and that he wasn’t given advice by the firm (indeed they were not authorised to do so). In spite of this the FOS found against the firm based on it’s failure to follow ‘best practice’ examples and guidance (NOT rules) published by the FSA/FCA.

    Consider this extract from the Ombudsman decision:

    “Although BBSAL did not provide advice, it did operate the SIPP. The FSA’s thematic report
    of SIPP operators published in September 2009 was therefore relevant. I was not satisfied that
    BBSAL had taken the steps it should have done following that guidance.

    If BBSAL had made enquiries it would have established that there was a high probability that
    the investment was not suitable for Mr A. It was an unusual and esoteric investment, the
    pension fund was all of Mr A’s pension provision and the introducer was not a regulated
    financial adviser.”

    In other words BBSAL were expected to give advice despite the fact it was not authorised to do so. Which begs the question as to why they are allowed to operate in this way if there is such an expectation?

    Now play forward to the guidance consultation on simplified advice. Fail to follow any part of that (even before the caveats that every client situation has to be assessed on it’s own merits) or other reviews and guidance and the FOS can get you for it.

    Be afraid, be very afraid… for it is only a ‘Grey Area’ until such time as the FOS decide it is black…

  4. Marvin the paranoid android 25th July 2014 at 11:11 am

    It was interesting to attend a FOS “Open Day” recently at which they outlined their philosophy of establishing “fairness”.
    It is closer to the “balance of probabilities” burden of proof in civil cases, rather than the “beyond reasonable doubt” burden of proof in criminal case.

    This leads to more focus on the underlying intentions and softer facts than the FCA would apply to a “file check”.

    I think that IFAs who entered into arrangements with unregulated firms to set up SIPPs for Harlequin and the like, could be hit hard by the FOS.

    The defence that “we didn’t advise on the investment, we just set up a SIPP” will not be sufficient in my opinion, no matter how well documented…..

  5. @Grey Area

    Years ago, the Ombudsman was quite explicit that it would not look at complaints about investment performance. Interestingly, this is still in the Rules [DISP 3.3.4R(13)].

    What this particular case betrays is the tendency of the various FSMA bodies to actively seek to pin investment losses on regulated firms on the pretext of some failing, however tenuous it might be. So in this instance, with no rule changes having been consulted on, let alone made, we have liability creeping up on SIPP providers via the ‘fair and reasonable’ discretion of the Ombudsman – just as in other instances, we’ve had regulatory ‘back filling’ of vaguely worded higher-level requirements.

    You are right that the case should be considered worrying, but it is sadly in keeping with the general approach – and therein lies the risk.

  6. @Marvin

    Determining cases on the ‘balance of probability’ has always been the case with the FOS. However, that has more to do with deciding whose version of events to believe, client or adviser.

    Fairness is a different matter altogether. It involves a value judgement about what should have happened independently of the rules. In this respect the Rule of Law must operate or it brings the law into disrepute. The guiding principle here is ‘legal certainty’, i.e. that the law must be applied so that those subject to it are able to consider and comply. It is questionable whether the FOS system can provide this certainty. At the very least we are clearly in a period of establishing precedents for fairness, albeit 13 years in. If this judgement itself sets a precedent then every time the FCA issues guidance the ‘rules’ change’. Not a good place for firms to be in.

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