SIPPMar 28 2018

FCA repeats warning on introducers after Carey trial

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FCA repeats warning on introducers after Carey trial

The Financial Conduct Authority has reiterated to providers and advisers the weight of regulation is on them when accepting business from unregulated individuals and companies, in the wake of a closely watched High Court case.

Last week the Royal Court in London heard claims from an investor a self-invested personal pension provider had colluded with an unregulated introducer to push retirement savers into high-risk unsuitable investments, where they lost as much as £3m.

Carey Pensions denies the claims and the case is awaiting judgement.

But rival Sipp Dentons has warned the outcome may have profound effects on the Sipp market and lead to providers winding up their operations in what could mark a watershed moment in the way Sipp claims are handled.

In response to questions from FTAdviser after the trial, the FCA underlined its rigid stance that "the onus is on the authorised firm which accepts business from an introducer to meet its regulatory requirements".

"If it’s non-advised, then the onus is still on the regulated firm who has the introduction to do their due diligence," it added.

FCA scrutiny first swung onto the unregulated - and therefore largely opaque - role of introducers in financial services in 2016, with the watchdog issuing a warning it was "very concerned" at the increase in cases where an introducer has an "inappropriate influence" on how authorised firms carry out business.

The regulator was particularly concerned where the introducer influenced the final investment choice. 

"We also have concerns where the authorised firm delegates regulated activities, for example by outsourcing their advice process to unauthorised entities or to other authorised firms that do not have the relevant permissions, or are not their appointed representatives," the FCA said at the time.

The Carey case follows that of another Sipp provider, Berkeley Burke, which is also subject to legal suits from dozens of policyholders, with claimants again arguing they lost millions after being invested into unsuitable assets as a result of an improper relationship between the Sipp and introducers, claims Berkeley denies.

Introducers generally bring potential clients to a firm on the basis of some kind of reciprocal relationship where both businesses receive a payment or commission.

More vanilla arrangements typically involve so-called 'professional connections' between financial advisers, solicitors and accountants, where the different firms offer complimentary services to a client.

But at the murkier end of the market, unregulated introducers entice unknowing investors into risky deals for a kick-back from often esoteric, illiquid investments. When this is via a financial adviser or a Sipp, the respective firms benefit from the introducer bringing them more fee-paying business.

Martin Tilley, director of technical services at Sipp provider Dentons Pension Management, said his firm is comfortable with some unregulated introducers, "but these tend to be professionals, accountants or solicitors who are referring their clients because they might need a Ssas or Sipp that [invests in] commercial property”.

Mr Tilley added investment promoters pose a far greater risk, however.

“About four or five years ago we’d get calls from investment promoters saying ‘if you accept this business we can give you 20 investors a month,’ he said.

“That, for us, is a turn off for two reasons. One, we don’t believe any introducer will have that number of clients for which that investment product is suitable for them, and secondly, we as a Sipp provider need to manage the risk into our own book.”

According to Jessica List, pension technical manager at Sipp provider Curtis Banks, ensuring due diligence procedures are followed remains key.

“The expectations in terms of due diligence on Sipp providers has changed over the past few years anyway.

"Any providers that have responded to that and have robust due diligence processes in place should in theory not have anything to worry about.”

The FCA was in court giving testimony on the Carey case, in the latest indication it is taking a closer look at the relationship between the regulated and unregulated markets in financial services.

Yesterday (27 March) Capital Alternatives - an unauthorised, unregulated collective investment scheme investing in rice farms in Sierra Leone - was ordered by the High Court to repay £16.9m to investors for pushing investments without authorisation, in a case brought by the FCA.

Although the recent cases have focused on Sipp providers, the FCA also reiterated to FTAdviser financial advisers' responsibilities when dealing with unregulated firms.

“Introducers who introduce customers to [advisers] with a view to those customers purchasing investments may only be able to do so if it is for the provision of independent advice.

"'Independent' in this context means that you are independent of the issuer of the investment.

"It is essential that at all times you maintain full and complete ownership of the advisory process between yourselves and your customer, and any regulated advice you provide must meet the requirements set out in our Handbook.”

Read FTAdviser sister title Money Management's Sipp survey: Success story continues but legal issues lurk for 45mins of CII accredited CPD.