The High Court has dismissed an application by Berkeley Burke SIPP Administration Ltd (Berkeley Burke) for judicial review of an earlier decision by the Financial Ombudsman Services' (the FOS).
The FOS previously decided that Berkeley Burke, a Self-Invested Personal Pension (SIPP) provider, had failed to act with due skill, care and diligence when accepting the complainant, Wayne Charlton's requested investments in an unregulated scheme in his SIPP. Berkeley Burke had been required to compensate Mr Charlton for the losses he suffered as a result of making the investment.
Although Berkeley Burke has indicated that it will appeal the decision, it could have major implications for the industry. The FCA issued a 'Dear CEO' letter, on the same day as the judgment (30 October 2018), to SIPP providers reminding them of their notification obligations if they anticipate they will be unable to meet their financial commitments as a result of the decision. The letter notes this may result in some firms selling part or all of their business to another firm and that if they do, firms should have due regard to its customers' interests and treat them fairly, in particular any customers who may have claims for compensation.
In 2011, Mr Wayne Charlton invested in a 'green oil' scheme in Cambodia that had been offered to him by a company called Sustainable Agro Energy plc (the SA Scheme). He was introduced to Berkeley Burke as he wanted to hold the investment in a SIPP. Mr Charlton also applied to transfer his personal pension to Berkeley Burke so he could use those funds to invest in the SA Scheme. During the process, Mr Charlton met with the introducer, Big Pebble Ltd, and signed a standard form which stated that he was fully aware that the investment was "high risk and/or speculative, may be illiquid" and "confirm[ed] I wish to proceed". The form went onto say that he was "fully aware that Berkeley Burke SIPP Administration Limited act on an Execution Only Basis…..and that Berkeley Burke SIPP Administration Limited has not provided any advice whatsoever in respect of this investment or the SIPP".
The SA Scheme was later discovered to be a fraud and Mr Charlton lost his investment. He complained to the FOS about the conduct of Berkeley Burke and sought reimbursement of the £29,000 he had invested.
The FOS's review of Mr Charlton's complaint was protracted with a number of ombudsmen involved before a Final Decision was issued on 2 February 2017. In that decision the FOS held that Berkeley Burke had not acted fairly and reasonably in accepting Mr Charlton's the SA Scheme into his SIPP.
The key elements of the decision were:
The FOS concluded that Berkeley Burke did not act fair and reasonably or in accordance with the Principles of Business and failed to carry out sufficient due diligence. Further, had Berkeley Burke complied with the Principles and Rules it would have identified that the investment was not suitable.
Berkeley Burke argued that even though it was acting on an execution only basis and therefore under no duty to advise on the investment, the FOS had irrespective of that still found that SIPP administrators owed a duty to investigate whether high-risk investments were suitable and acceptable for inclusion in the SIPP. In support of its application, Berkeley Burke made a number of submissions:
The Court was not considering a challenge to the conclusions of fact by the FOS, rather it was a challenge to the lawfulness of the FOS's decision. S.228(2) of FSMA requires the Ombudsman to determine a complaint by considering what is fair and reasonable in all circumstances in the case. The judge acknowledged this was a subjective test but it was not argued by Berkeley Burke that the Ombudsman's conclusions were irrational. According to Berkeley Burke, the FOS' errors were errors of law based on the rules in the FCA Handbook.
In ultimately agreeing with the submissions on behalf of the FOS, the judge concluded as follows:
As mentioned, Berkeley Burke has indicated that it intends to appeal this decision and it remains to be seen if permission to appeal will be granted. In meantime, this judgment supports the FCA's position that SIPP providers must comply with the Principles and therefore cannot simply proceed with investments, even if instructed to do so by their customer, without considering them first.
Issuing the Dear CEO letter on the same day as the decision re-enforces that the FCA is monitoring this industry closely and firms should therefore, if they have not done so already, be considering the impact of this decision on their own schemes in terms of both potential complainants and the financial impact on the firm of those complaints.
The next development in this story is likely to be the closely related decision in Russell Adams v Carey Pensions UK Limited which will either further cement this decision or alternatively re-open the uncertainty that has existed prior to this decision.
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