FCA warns of closures as SIPP provider loses landmark High Court appeal
Following a longstanding dispute with the Financial Ombudsman Service (FOS), beleaguered SIPP provider Berkeley Burke has lost its judicial review in a landmark High Court ruling.
The ruling between Berkeley Burke SIPP Administration and the FOS establishes with greater certainty whether SIPP providers have a duty of care to vet unregulated investments for their clients.
In the ruling, Judge Jacobs says that asking a SIPP provider to check an investment in a foreign country is simply an application of existing due diligence requirements.
Legal representatives for the claimant Berkeley Burke contended that FOS’s decision was legally incorrect but a spokeswoman for the ombudsman told Money Marketing: ‘The court has now determined whose responsibility it is as to what due diligence requirement a SIPP provider needs to make before accepting the investments. This clarity can only be a good thing for industry.’
Berkeley Burke posited that the FOS ruling misapplied conduct of business rules to SIPP providers and could create due diligence obligations for them retrospectively.
Representing FOS, the defendant in the case, QC James Strachan told the court that asking a SIPP provider to check an investment in a foreign country is an application of existing due diligence requirements.
Judge Jacobs sided with FOS’s argument and says: ‘I do not accept that the Ombudsman, in his decision, was creating a new rule at all. His approach was simply to identify the existing rules, specifically the principles, which had been consulted upon, and then to decide how those rules applied in the context of the particular facts before him. This is apparent from the decision as a whole.’
In 2011 a client, known as Mr Charlton, invested his money into plots of agricultural land in Cambodia via a Berkeley Burke SIPP.
In 2014, FOS ruled against Berkeley Burke for failing to carry out adequate due diligence on the £29,000 unregulated collective investment scheme; the provider has confirmed that it will appeal the decision.
In response to the ruling, the Financial Conduct Authority has written to the CEOs of other SIPP providers to remind them of their regulatory commitments following the outcome of the case.
The letter from FCA chief executive Andrew Bailey asked firms to consider the ‘potential implications’ of the ruling; he urged providers to notify the FCA immediately if the outcome of the case called into question firms’ ability to meet financial commitments.
He wrote: ‘If the outcome of any of these cases calls into question your firm’s ability both now and in the future to meet its financial commitments as they fall due, you must notify the FCA immediately. Where relevant, firms should also notify claims to their professional indemnity insurers in accordance with their policies.’
‘We recognise that if a firm may not be able to meet its financial commitments, it may be in the interests of some of its customers for part or all of its business to be sold to another firm’
Bailey also reminded firms of their regulatory commitments in the event of failure, noting: ‘We recognise that if a firm may not be able to meet its financial commitments, it may be in the interests of some of its customers for part or all of its business to be sold to another firm.
‘If your firm does so, we remind you that our Principles for Businesses require your firm to pay due regard to its customers’ interests and treat them fairly. In particular, in pursuing any sale, your firm should pay due regard to its implications for customers who may have compensation claims.’
He continued: ‘We expect all directors, as well as complying with the relevant provisions of the FCA Handbook, to comply with their statutory and non-statutory duties. These include, where a firm is at risk of insolvency, their duties to creditors, such as customers to whom compensation is or may be due.’
Mr Bailey reminded firms they were obliged to communicate in an ‘open and co-operative’ way and disclose to the FCA anything relating to them of which it would expect notice. He said this includes whether a firm is considering selling all or ‘a significant part’ of it to another business.
Sipp provider Curtis Bank group communications director Greg Kingston told Money Marketing: ‘The ruling has clear limitations to this case. But the likely outcome is SIPP providers with significant exposure to unregulated assets will review their due diligence processes.
‘There is an expectation this will accelerate the sale of SIPP providers or part of their books. Other SIPP providers will anticipate or expect the FCA or HMRC to work with them to manage poor books to good health.’
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