Sipp firms divided on ‘gatekeeper’ responsibilities
Following the news this week that a number of self-invested personal pension providers could have up to 2,000 clients exposed to up to £40m worth of losses in an unregulated oil investment, the debate over provider due diligence has once again come to the fore.
On Tuesday (25 April) the court-appointed receiver of insolvent Sustainable Growth Group told FTAdviser that 2,000 investors may have lost around £40m through investing in the bio-fuel investment company, which is under investigation by the Serious Fraud Office, through 12-15 SIPP providers.
The case is not unique. In March Greyfriars Asset Management sent warning letters to clients and spoke to IFAs after Nottinghamshire Police confirmed it had arrested two people for fraud in relation to the activities of property investment firm Arck LLP, which marketed investments in a holiday complex in Cape Verde.
FTAdviser was told by law firm Regulatory Legal that case could amount to around £60m in claims.
According to one provider, Suffolk Life, cases such as these have led to vocal pressure on Sipps firms to take a more active role in being ‘gatekeepers’ for investments, particularly unregulated investments. This pressure is “misdirected”, the firm said.
Gregory Kingston, head of marketing at Suffolk Life, said: “I don’t believe providers need to go as far as to determine if the investments physically exist. We need to check that investments are correct and proper but we can’t physically check they exist. We are not responsible to check if the underlying assets are what they say they are.
“The provider is clear: to determine if the investment is permitted by both their own scheme and by HMRC. The responsibility for determining suitability of the investment would remain with the party that recommended it.”
Mr Kingston said that Suffolk Life did not offer the Sustainable Growth investment, saying that generally this investment would be declined as it would involve the purchase of overseas land without undertaking proper due diligence.
He added that there is often “insufficient evidence” in place that such an investment would not involve taxable property in the future.
Mr Kingston said: “There is a responsibility on Sipp providers to monitor this and that responsibility doesn’t dilute if the investment is several thousand miles away.”
Robert Graves, head of pensions technical services at Rowanmoor Pensions, one of the firms that did allow investments into the aforementioned oil investment, stated that it is the provider’s role to ensure that the investment is a bona fide.
He said: “Sipps firms are responsible to do due diligence to ascertain it’s bona fide investment - they need to ensure the documentation is correct, it is registered at Companies House etc.
“How, if you don’t understand the investment you will be going into, can you ensure it is bona fide?”