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."
The FCA declined a request for further comment on the matter.
The issue in the Berkeley Burke case stems from client Wayne Charlton bringing a complaint to the Fos in respect of the loss of his personal pension which he had invested in a Sipp administered by Berkeley Burke in 2011.
The investments in the Sipp included an interest in Sustainable AgroEnergy PLC, a company which purported to extract biofuel from trees grown in Cambodia.
In 2012 Sustainable AgroEnergy PLC entered receivership following intervention by the Serious Fraud Office as part of a criminal investigation.
Berkeley Burke maintained it had not given any advice to Wayne Charlton and said it intended to seek judicial review of the ombudsman's decision.
An initial decision by the Fos upholding the complaint had conflicted with a decision previously provided by the Pensions Ombudsman which had similar facts.
Berkeley Burke had argued the Fos had erred in law by finding the firm had not been required to execute Mr. Charlton's specific instructions in accordance with Cobs rules and by failing to follow previous decisions of the Pensions Ombudsman.
The case was heard in the High Court over three days earlier this month. The judge ultimately ruled the Fos was right in considering the merits of the case independently of previous cases heard by other ombudsmen.
He also said the Fos was right in its interpretation of FCA rules and principles to come to its decision of what is 'fair and reasonable'.
Mr Justice Jacobs said: "[The ombudsman] considered that he needed to make up his own mind on the basis of the facts of the case that were before him, and the statutory framework in which he was operating. For the reasons given above, this approach was correct and did not involve any error of law."
