A recent pensions ombudsman decision has once again brought this to the fore debates that have raged over the past 12 months over how much due diligence self-invested personal pensions should conduct prior to allowing investments to go into a clients’ Sipp.
Jane Irvine, deputy pensions ombudsman, rejected a complaint made against Standard Life over an apparent failure to undertake sufficient due diligence over non-mainstream life settlements bonds investments in the Arm Assured Income Plan, which were placed into a Sipp in December 2009.
Ms Irvine said the complaint should not be upheld against Standard Life because “no injustice” was caused to investor Walter Pisarski as a result of “any failure on the part of Standard Life”.
Ms Irvine added that while Standard Life “may take a less conservative line than other providers” in relation to allowable investments, it is acting within tax rules which state that “any investment which does not give rise to a tax/property charge” is able to be placed into a Sipp.
Prior to April 2007, Sipps had essentially been unregulated. It was only after this date that all Sipps had to be authorised and regulated by the Financial Services Authority, adding another layer of compliance and administration on Sipp providers.
Ms Irvine was critical of the FSA’s handling of Sipps’ regulation, stating it was “introduced somewhat hastily” and it has “taken some time for the FSA to get a good grasp of Sipps”.
Martin Tilley, director of technical services at Dentons, told me that Ms Irvine’s decision “correctly interprets the level of regulatory responsibility imposed on Sipp providers at the time”, that is to say, very little.
In October 2012, the FSA issued a guide for Sipp operators “to give firms further guidance to help meet the regulatory requirements”. It said that firms should have a clear set of procedures in place to help them “deal with appropriately and/or control their exposure to investments that Sipp operators may not retain control over”.
The FSA also said that whilst firms were not responsible for the Sipp advice given by third parties, such as IFAs, the FSA expected Sipp operators to have procedures and controls in place that enable them to gather and analyse management information that will allow them to identify possible instances of financial crime and consumer detriment.
As Mr Pisarski’s investment was made prior to this update, this raises questions as to whether the ombudsman would have had a different perspective and held Standard Life accountable if the investment had been made post-October 2012.
Mr Tilley told me: “Subsequent changes to the marketing of unregulated investments have been made since and also subsequent thematic reviews of the due diligence applied to acceptance of assets by the FSA has transpired.
“Whether either of these changes would have prevented the situation in the article, who knows? There was clearly an IFA involved in the case and it is was not then, nor is it now, the role of a Sipp provider to second guess the advice of a regulated IFA, as the Sipp provider is not in possession of all the client’s data.