The Financial Ombudsman Service (FOS) originally ruled in July on a ‘game changing’ case against Berkeley Burke SIPP Administration. This week the FOS has removed the decision from its website ahead of reviewing its decision.
The Case
In 2011 ‘Mr A’ invested his entire pension fund of £29,000 into a biofuel Unregulated Collective Investment Scheme (UCIS) in South East Asia, Sustainable AgroEnergy. Sustainable Agro Energy is currently being investigated by the Serious Fraud Office (SFO) for conspiracy to commit fraud. He had invested through an unregulated adviser via an introducer agreement with Berkeley Burke.
The FOS argued that Berkeley Burke, in its capacity as the SIPP operator, failed to adhere to the FSA’s 2009 thematic report of SIPP operators examples of ‘good practice’ by not ensuring that the investment was suitable for Mr A. Berkeley Burke has always maintained that investment suitability is not their responsibility but that of the financial advisers.
The Ruling
The FOS ruled in favour of ‘Mr A’. The decision read: “Mr. A’s investment was introduced by an unregulated intermediary. In my view, Sustainable AgroEnergy was an unusual and esoteric investment. This was a relatively small value SIPP invested in an unusual and new investment. Mr. A also waived his cancellation rights. These factors should all have alerted Berkeley Burke to the fact that this investment and SIPP were potentially unsuitable for him. I consider Berkeley Burke should have made further enquiries to establish whether the investment was suitable for Mr A.”
Blurred Lines?
The first issue with this ruling was that the FOS took the case at all. In the Memorandum of Understanding between the Pensions Ombudsman (PO) and the Financial Ombudsman Service it is agreed that the Pensions Ombudsman will deal with matters that predominantly concern the administration or management of pensions and the FOS deals with matters which predominantly concern advice in respect of sale or marketing of individual pension arrangements.
The FOS found against Berkeley Burke arguing that had it followed the guidance issued by the then FSA, Mr A’s investment would not have gone ahead. How the alleged failure of a SIPP operator to adhere to the FSA’s suggestions on good practice could fall within the remit of the FOS is a cause for debate.
The second issue is that the Pensions Ombudsman had decided in favour of SIPP operators on several very similar cases in recent history.
Worryingly, this decision could apply to hundreds of other cases where claims could be brought forward against SIPP providers.
Reviewing the Decision
This week the FOS took the decision down off its website after Berkeley Burke launched a judicial review process to overturn the decision and will consider the complaint ‘afresh’.
Conclusions
There are a few issues at play here. The FOS may have overstepped its jurisdiction and in doing so arrived at a decision that could have massive implications for other cases.
Though there may have been a lack of due diligence, the question is by whom and how much is needed to be done by SIPP operators. Most operators have always taken the stance that their only suitability requirements are to make sure the investment meets HMRC rules and pension legislation, however for a long time now the FCA has felt that SIPP operators should be held more responsible for due diligence on investments before allowing them in their pension.
Had Mr A invested in Sustainable Agro Energy without his SIPP, in the absence of regulated advice he would have had to accept personal responsibility the ramifications of his investment decisions. Should the goalposts be moved so drastically apart because the investment is wrapped in a SIPP?