Providers who held Harlequin investments could find themselves out of pocket if the financial services compensation scheme turns its attention to Sipps for the purposes of redress.
In March, the FSCS said it was pursuing IFAs for redress in relation to inappropriate advice given over failed Harlequin overseas property investments, requiring advisers to compensate clients to 100 per cent of their initial investments.
However, in 2013 and 2014, FCA audits of some Sipp providers valued investments significantly lower than the initial investment. In July 2014, the Lifetime Sipp wrote to investors telling them the value of their investments had been written down to a nominal amount of £1.
If the FSCS were to turn its attention to Sipp providers, questioning their due diligence process as Fos did in the Berkeley Burke case in 2014, it might require them to pay out compensation at 100 per cent, despite the low audited value.
A pensions lawyer who acts for a number of Sipp providers expressed concern about these firms being held increasingly responsible.
He said: “There has been a change in attitude at Fos, which has started to opine on whether Sipp providers are liable. We are therefore required to do more due diligence than was the case.
“Historically, a more robust view was taken against the individual member because Sipps are generally designed for people who want to manage their own investments.”
Sipp providers with large exposure to Harlequin include: Lifetime, Curtis, Hornbuckle and Rowanmoor.
Robert Graves, head of pensions technical services for Rowanmoor, said: “There seems to be a dangerous precedent being set in the Berkeley Burke case that the provider is responsible, even if they have sent out letters warning that the investment is high-risk.
“It is the IFA’s job to be advising the client on the product and the underlying investment proposition.”
Mr Graves did not disclose whether the FCA had audited and revalued Rowanmoor’s book of Harlequin investments.
A spokesman for Hornbuckle said: “We value all Harlequin contracts at a nominal value of £1.
“We continue to monitor all the arrangements of Harlequin investments, including the ongoing fraud investigations by the SFO, and update our members holding such investments accordingly.
“We are not under investigation by the FCA or any regulatory body in respect of Harlequin investments.”
Curtis Banks managing director Rupert Curtis said he could not offer comment as they were busy getting ready for the pension freedoms.
The Lifetime Sipp did not respond to repeated requests for comment.
A spokesman for the FSCS said it was too early to say what recoveries were available.
This week it also emerged that Harlequin has put its Basildon headquarters up for sale.
Right to reply
A spokesman for Harlequin said: “Investors generally purchased an off-plan property interest in the Caribbean paying a 30 per cent deposit, with the balance payable in stage payments or on completion.
“Due to a multitude of well-publicised reasons, development has currently stalled at most resort sites in the Caribbean while Harlequin is restructuring its business.