Legal representatives for Berkeley Burke have claimed the Financial Ombudsman Service has misapplied the law to the Sipp provider in a court battle that kicked off today.
The judicial review of a FOS decision against the provider is expected to have wide ranging implications, as it could establish with greater certainty whether Sipp providers have a duty of care to vet unregulated investments for their clients.
In 2014, the FOS ruled 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.
Legal representatives for the claimant Berkeley Burke say FOS’s decision is legally incorrect as its ruling misapplies conduct of business rules to Sipp providers and could create due diligence obligations for them retrospectively.
QC Jonathan Kirk representing Berkeley Burke argues the COBS rule to execute the instruction of a client supersedes that of Sipp providers to check if the instruction is appropriate.
He also argues FOS is wrong to rely on former regulator the FSA’s thematic review of Sipp providers in 2009 to apply due diligence obligations to Berkeley Burke in the case of Mr Charlton who made his investment in 2011.
He said: “Principles themselves cannot become a rule making power because once they are used to create new obligation this undermines the existing rules and guidance [in the FCA handbook].
“We are not seeking to suggest a Sipp provider has no responsibility towards their client but the responsibility has to be proportionate.
“This is case is important because if FOS is right and the Sipp provider’s duty of care involves checking if a client’s investment is a good one and complies with domestic law, then this creates a new playing field for Sipp providers.
“The administrative work the Sipp providers must take is that much higher. FOS has analysed the law incorrectly in this context and we ask the judicial review to acknowledge this.”
Responding to Kirk’s initial submission, Judge Jacobs said: “I am not concerned with the fairness of FOS’s decision, but the lawfulness of it. A lot of this seems [the submission] to be about the nature of the decision and not the law.”