That window got a lot bigger as a result of the first of the FSA’s three thematic reviews of Sipp operators, published towards the end of 2009. Surprisingly, given the concerns some FSA officials already had at that time over the activities of some Sipp operators, the FSA’s published report following this first thematic review contained the statement: “We do not believe that, taken as a whole, small Sipp operators pose a significant threat to our statutory objectives.” There is no doubt in my mind that this comment led to complacency among some Sipp operators.
The following three years until the end of 2012 was the period in which most damage was done to the reputation of the Sipp industry through the activities of unregulated introducers, a small number of incompetent and unscrupulous advisers and a few complicit Sipp providers coupled with some inertia by the FSA. It seems extraordinary that given the number of high-profile investment failings at this time the FSA did not initiate a second thematic review until April 2011, which then took 18 months to complete.
The case of 1 Stop Financial Services, about which the FCA finally published a notice in April 2014, is a prime example. 1 Stop was a small advisory firm in South Wales authorised in 2004. During the period from October 2010 to November 2012 it set up almost 2,000 Sipps. That was more than 1 per cent of all Sipps set up in the UK during that period. A substantial proportion of that business was introduced to 1 Stop by unregulated advisers.
By October 2012, 97 per cent of the business’s revenue was derived from Sipps. Indeed, during the two-year period up to the end of October it had earnt more than £4m in revenues from Sipps. The average Sipp investment was less than £60,000 and 49 per cent of the customers involved invested in overseas property developments operated by Harlequin Property. How that was allowed to happen without prompt regulatory intervention continues to baffle me.
1 Stop Financial partners were banned in 2014 by the FCA and the firm has ceased trading.
In its second thematic review the FSA highlighted that there was evidence the relatively widespread misunderstanding among Sipp operators discovered in its first review, “that they bear little or no responsibility for the quality of the Sipp business that they administer,” remained prevalent three years later. It also commented that some Sipp operators were unable to demonstrate that they were conducting adequate due diligence on the investments held and, in some cases, there was over-reliance on third parties to conduct due diligence on behalf of the operator.
