Regulation 

Pension transfers: compliance rests with the board

Pension transfers: compliance rests with the board

Between 2010 and 2013, TailorMade Independent Limited  gave advice on pension transfers and switches involving investment in high-risk assets such as overseas property. 

That advice was subsequently found to be unsuitable. The resulting loss to investors was estimated to be over £100m. 

In 2014, TMI went into default, leaving the Financial Services Compensation Scheme to pick up a portion of the losses in yet another pensions scandal.

In 2015, the Financial Conduct Authority (FCA) sought to fine and ban the four  directors of TMI. The FCA argued that the various directors had failed to take reasonable steps to ensure TMI’s advice process complied with regulatory requirements or that conflicts of interest were properly disclosed. 

Appeal hearing 

Three of the directors accepted their punishment but Mr Burns took his case on appeal to the Upper Tribunal. 

Three years later, his appeal has now been dismissed.

Mr Burns’ defence was pretty simple – it was not his job to deal with compliance issues. He argued that another of TMI’s directors, a Mr Pope, had been assigned that role (he was the CF10 and therefore holder of the compliance function) and that it was more than reasonable for Mr Burns to rely on his fellow director to perform that function.

Not surprisingly, the Tribunal rejected that argument. While it was accepted that a board may vest responsibility for compliance in one of their number, the Tribunal said: “That does not absolve the other members of the board from obtaining a sufficient understanding of the business of the firm which they are ultimately responsible for managing, the key issues that are likely to arise out of its business model, and the manner in which they are 
being addressed”. The Tribunal was also unimpressed by Mr Burns’ self-professed inexperience of regulatory matters and consequent lack of challenge to Mr Pope: “If an individual board member is not able to acquire the necessary expertise to undertake that task within a regulated firm, then he should not accept the appointment”.

The Tribunal’s decision follows long-established regulatory guidance on the joint and the several responsibilities of directors for regulatory compliance. 

This could easily be misconstrued as implying that all directors have the same or similar regulatory obligations. 

That is not necessarily the case. What amounts to reasonable steps would be quite different as between Mr Pope and Mr Burns. 

Key Points

  • In 2015 the FCA sought to ban four directors of TailorMade Independent over unsuitable advice on pension transfers
  • The decision was challenged by one director, but this was rejected on appeal
  • The Upper Tribunal, who heard the appeal, also expressed concern about the regulator’s role

Mr Pope should have taken reasonable steps to ensure that TMI was compliant – he failed to do so and was fined and banned from holding a similar position. Mr Burns’ responsibility was to take reasonable steps to satisfy himself that Mr Pope had 
done what was required. The Tribunal found that Mr Burns “made no challenge to Mr Pope as to the basis on which the advice model was designed or operated”. 

That is ultimately why he ended up being culpable along with Mr Pope.

Comments