SIPP administrator defends breach of statutory duty claim for storepod investment arising from activities of an unregulated introducer. FCA intervenes in determination of scope of arranging investments and COBS cusotmer best interests duties. Long awaited judgment expected by mid-November 2018.
The extent of the duties of SIPP operators in respect of investment losses remains to be tested at judicial level; in particular the extent to which those obligations extend beyond ensuring compliance with HMRC rules. The Financial Services Authority produced report on thematic reviews of SIPP operators (September 2009, October 2012) with the FCA publishing SIPP Operator Guidance (October 2013), a "Dear CEO" letter on 21 July 2014 and an alert on 2 August 2016.
FCA is troubled about the level of non-standard investments (“NSI’s”) held within SIPPs. A NSI is an asset which does not fall within the list of standard assets in IPRU-INV 5.9.1R within Chapter 5 of the Financial Resources of the Interim Prudential Sourcebook: Investment Business (IPRU(INV)). Reasons for regulatory concern revolve around principles of investor protection including suitability, toxicity of many NSI’s, influence of unregulated introducers, inadequate monitoring of appointed representatives by principals, inadequate due diligence, failure by SIPP operators to monitor performance of NSI’s and impact on FSCS. The FCA capital adequacy rules were designed as a disincentive for SIPP operators to hold NSI’s.
Ombudsmen decisions on the subject differed substantially; the Pensions Ombudsman taking a restrictive view whilst the Financial Ombudsman Service tended to take an expansive view of the obligations of SIPP operators. This was less than helpful to SIPP operators and those advising them.
Russell Adams v Carey Pensions UK LLP
This case, the hearing of which commenced on 19 March 2018, is expected to determine the obligations of SIPP operators, at least within the context of execution only sales generated by non-regulated introducers. Many prospective claimants are waiting for this decision to decide on their next move.
This case involves a storepod investment with allegations that the investment pursuant to the SIPP operator's business model which accepted retail clients from an unregulated introducer which made recommendations pursuant to which the investments in NSI's were made via SIPPs. A key part of Carey's defence relates to the effect of a contractual Declaration and Indemnity which was signed by the claimant which denied any advisory relationship between Carey and the claimant in relation to the establishment of the SIPP and any investments made by the SIPP as well as an acknowledgement of the high risk and speculative nature of the storepod investments.
Claims made against the SIPP operator related to breaches of statutory duty (section 138D Financial Services and Markets Act 2000) as well as a statutory duty to pay compensation under section 27 of FSMA.
FCA applied to intervene in this case. Whilst the claimant did not resist the application, Carey did so. The application was granted but limited to FCA making representations on issues of construction.
There are clearly going to be factual issues which the Court needs to resolve before it is able to iterate the legal interpretation of what transpired.
This case is expected to receive close coverage in the financial press and by both claimants as well as, FCA, SIPP operators and their professional indemnity insurers.
FCA Enquiries of IFA's
As an aside, data now being assessed by FCA, in response to enquiries made of SIPP operators during September 2017, included:
- details of each NSI held within SIPPs,
- name of financial adviser or introducer for each NSI,
- total number of clients who are advised,
- total number of clients who are non-advised (including
- execution only and insistent clients),
- total amount of investment into each NSI,
- current value of investment in each NSI,
- number of customers who have invested in each NSI during the previous 24 months,
- amount invested in each NSI during the previous 24 months,
- current value of NSI holdings invested during the previous 24 months,
- whether the SIPP operator has deemed each NSI to be impaired, and
- when the asset was last revalued.
FCA will no doubt be seeking to join up some dots with other data requested from IFA’s. Expect ongoing regulatory scrutiny, skilled persons reports and enforcement action on this topic.