FSCS calls for Sipp provider responsibility challenged by trade body

employee engagementSipp operators have no proven responsibility to conduct due diligence on investments, a trade body has said, as it warns the Financial Services Compensation Scheme is taking the wrong approach by making them foot the bill for redress claims.

The Association of Member-Directed Pension Schemes has written to the lifeboat fund on the back of its annual plan and budget last week in the which the FSCS says it will begin accepting claims against a number of Sipp operators for failing to look closely enough at the underlying investments held by them.

AMPS says it is aware of a Sipp operator launching a judicial review against a Financial Ombudsman Service decision that claimed it bore due diligence responsibility, the outcome of which could hit other Sipp operators and be influenced by the FSCS’ statements on the market.

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AMPS chairman Zachary Gallagher says: “The FSCS would seem to be premature in its presumption that a Sipp operator was responsible in law for ‘due diligence’ on investments chosen by Sipp members, at a time likely to be material in actions resulting in claims seemingly accepted by FSCS.

“The AMPS Committee is concerned that the FSCS risks going far beyond its function of acting as fund of last resort. Likely implications could be increased risk of Sipp operator failure, as operators face the cost of defending claims seemingly encouraged by the FSCS’s action; and an effective transfer to the wider industry of responsibility for prospective losses on investments for which Sipp operators had no regulatory authority to advise in favour of or against, and no proven responsibility for ‘due diligence’.”

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Comments

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

  1. I asked a SIPP provider who had requested the Investment advice Instruction from, I also asked them who they had received it from, they had no idea!!!! nor had they recorded the answer to both questions, the clients funds were then transferred to S/America and invested in a time share in Brazil, guess how much the SIPP now holds, o yes and the Provider is still taking their Off Panel charges from the last few pennies, Clearly, SIPP providers “MUST” have a regulatory responsibility to the client and the Regulated Adviser. This case is still at the FOS, so a matter of record.

    • In banking law, there used to be a “duty of care” to the client and I would argue, that is what should be being discussed, rather than “due diligence”
      http://www.businessdictionary.com/definition/duty-of-care.html or
      https://en.wikipedia.org/wiki/Duty_of_care
      If a SIPP provider is knowingley taking multiple introductions from an unauthorised firm of “Non advisers”, I would argue that whilst they might be right to proceed (to avoid “tipping off”, they shoudld immediately be expressing their concerns to the FCA. If they had been doing that, keeping a record of who they had informed at the FCA and nothing had happened, that might be a get out of jail free card for them, but without out it, I do think the SIPP provider should be ending up on the hook.

  2. SIPP providers are regulated entities and as such have responsibilities for treating customers fairly and wider responsibilities under the threshold conditions, systems and controls and the Principles for business.

    The RPPD also requires product providers and distributors to consider their actions and the impact that may have on TCF by what they do or do not do.

    It is clear that all involved in the distribution chain to retail customers must abide by TCF obligations and consider the impact of what they do on customers.

    There are also HMRC obligations on pension providers to ensure their schemes provide for retirement and death benefits as their sole purpose.

    If a prospectus includes provisions that may prevent payment of death benefits or retirement benefits then they are not suitable for a SIPP.

    This is not the wild west. As responsible regulated firms SIPP providers must consider their regulatory obligations and conduct due diligence on all permitted investments especially if they are unregulated.

    • Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]- Duty of Care – TCF is just a loose FCA version of same. The question is do the SIPP providers have an increased duty of care when they believe the “Self Investor” doesn’t have a regulated adviser or even worse has an unregulated introducer involved in the process. I would argue that they do have a wider duty of care, that some may not be meeting.

  3. A Sipp provider approved and operated a scheme that broke Sections 15 & 16 of the Pensions Act 2004, they approved the scheme without the investment memorandum, accepted clients from an unknown unregulated introducer albeit they let the beneficiary part administer the applications and never spoke to the clients – if it was fact it would be laughable

  4. Responsibility? “It’s not my fault” says:

    • The gullible consumer who responds to an unsolicited text/email /call from someone they’ve never heard of and decides to transfer all of their pension wealth into an investment they don’t understand
    • The crooked telesales individual who is seeking to rip off as many people as they can
    • The greedy IFA who puts their own wealth before that of their clients’
    • The manufacturer of the UCIS who sets up an amazing new uncorrelated, low risk, high return utopian investment that they get to dip their sticky fingers into
    • The SIPP companies who willingly accept business at scale without asking too many questions
    • The FCA/FSCS/FOS who don’t seem to know exactly what the responsibilities of a SIPP provider are

    I know who is responsible. All of them.

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