Recent trade press articles have suggested that the dropping of the appeal against the Financial Ombudsman (FoS) determination could have wider implications particularly in relation to advice given on SIPP business prior to 2014 when the FCA confirmed their expectation of SIPP Operators particularly in respect of investment due diligence.
The FCA have been quick to reinforce the message that they sent to all SIPP Operators in October 2018 following the original court decision. They have published a bulletin on their website reminding SIPP Operators of their due diligence responsibilities referring to their Principles for Business.
In assessing the implications of the appeal process not being followed through it’s important to realise that this case relates to one fraudulent investment – although there were over 600 other Berkeley Burke SIPP investors in the particular unregulated “green oil” property scheme.
It’s also very important to appreciate that this case was about a FoS determination and, as is made clear in the judgment on this case, the issue was whether FoS had applied the statutory criteria of “what is fair and reasonable” in reaching their decision.
These criteria are different from what would apply in a court of law and also from those applying, for example, to the Pensions Ombudsman (PoS). What is interesting is that there were several earlier determinations by PoS in other SIPP cases – including Pisarski v Standard Life in 2013 and somewhat ironically Goodwin v BBSAL in 2015 where the complaints were not upheld because in the PoS view it was not the SIPP Operators' responsibility at the time the investments were made to carry out the level of due diligence that the claimants suggested.
Frankly this regulatory fog needs clearing. Essentially there are two issues. The first is to agree some clear guidance on what represents an “appropriate” or “acceptable” investment – something that has never been defined.
There is also a need to define the responsibilities of a SIPP Operator with regard to due diligence. I am hopeful that in the coming weeks we may see some progress on these matters through industry engagement with the regulator and other bodies.
The second is to resolve the historic interpretation and application of FSA and FCA rules and principles. This is potentially a more difficult matter as at the moment there are very differing views – as evidenced by the Pensions Ombudsman decisions.
There are also a lot of what some might regard as spurious claims being lodged by Claims Management Companies in the absence of clarity. The recent Berkeley Burke appeal developments seem likely to swell the numbers of these claims.
It may well be that these issues will only be resolved in a court of law. It is now over 18 months since the Carey pension case was heard and a judgment is still awaited – perhaps an indication of just how dense this fog is.
There may be further legal cases in 2020. Whether one or more of those will resolve the historic issues remains to be seen. But there is an obvious risk of regulatory arbitrage with claimants referring to FoS rather than PoS albeit that in most cases the claim is against the SIPP Operator for not fulfilling its responsibilities rather than against an adviser. Of course in many of these cases there was no regulated adviser involved.
The risks if no action is taken are significant and threaten to destabilise the SIPP market. Further delay will create more uncertainty and simply encourage more extreme claims.
With the introduction of the new SM&CR regime looming and new conduct rules to be complied with it’s a worrying time for all Senior Managers working in this area – both for advisers and providers.
It’s hard to see how you can be sure that you are acting with integrity, due care, skill and diligence; that you are paying due regard to the interest of customers and treating them fairly; and that you are observing proper standards of market conduct when there is so much uncertainty about the rules and regulations that apply. It’s a mess and it’s time for some prompt action.
John Moret is principal of MoretoSIPPs consultancy and one of the UK's most experienced SIPPs experts, commentators and speakers. He has worked for Suffolk Life and several other SIPPs providers.