Sipp providers welcome clarity over due diligence

Sipp providers welcome clarity over due diligence

Providers of self-invested personal pensions (Sipps) say the High Court’s ruling against Berkeley Burke has provided clarity over due diligence requirements.

James Jones-Tinsley, self-invested technical specialist at Barnett Waddingham, said today’s (30 October) High Court decision was one the industry has been watching closely.

"The best thing to come out of this case is clarity on what the FCA expects of providers and the ruling by Justice Jacobs agrees that the Financial Ombudsman was following the rules set by the regulatory at the time," he said. "We are finally getting the clarity we need."

Meanwhile, a spokesman for the Association of Member-Directed Pension Schemes said: "It is clearly positive that there is no implication that Sipp providers need to give advice to their members or that they should be checking that the investment is suitable for the particular member."

"Knowing the client and what is suitable for them clearly falls to the adviser, if there is one. However, the ruling does make it clear that it is for the Sipp provider to ensure that the investment itself is suitable for the pension scheme.

"The majority of Sipp providers take the due diligence of investments incredibly seriously but care needs to be taken because as we can see from this ruling it is difficult to establish if what has been done is going to be sufficient. Each case will need to be assessed on its merits but we don’t feel that this ruling is a game changer for the majority of our members."

The case saw Berkeley Burke fight a decision from 2014, in which the Fos ruled the Sipp provider had to compensate a client after it failed to carry out adviser-style due diligence on his investment.

The dismissal means the ombudsman's ruling stands, though it is now open to appeal by Berkeley Burke.

A judgement is still pending on the Carey case, where the judge is considering the same issue of due diligence.

A spokesperson for the Financial Ombudsman Service said: "The court has now determined whose responsibility it is as to what due diligence requirement a Sipp provider needs to make before accepting the investments. This clarity can only be a good thing for industry."

After the ruling Andrew Bailey, chief executive of the Financial Conduct Authority, sent a letter to the chief executives of Sipp providers urging them to let the regulator know if they are affected by the rulings of the various High Court claims currently being considered.

Mr Bailey said: "Pending the outcome of any appeal of today’s judgment and these other cases, we expect you to consider the potential implications of them for your firm and its customers. We will be contacting Sipp operators to discuss what these may be.

"If the outcome of any of these cases calls into question your firm’s ability both now and in the future to meet its financial commitments as they fall due, you must notify the FCA immediately. Where relevant, firms should also notify claims to their professional indemnity insurers in accordance with their policies."