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FCA warns its guidance stands despite Carey win

FCA warns its guidance stands despite Carey win

The Financial Conduct Authority has warned self-invested personal pension providers to continue assessing any non-standard investments for suitability, despite a High Court ruling this week that called into question that approach.

The regulator has insisted Sipp operators must continue to follow its guidance, as outlined in its July 2014 ‘Dear CEO’ letter, days after a High Court judge ruled that a company explicitly acting on an execution-only basis cannot be liable for a member’s choice to invest in a high-risk investment.

The High Court rejected submissions from the FCA and sided with provider Carey Pensions, which was defending a claim made by a former client. 

Judge Dight ruled the scope of the regulator’s Conduct of Business Sourcebook must be considered in each case, with contractual arrangements between the client and provider taking precedence.

The judge said that due to the contractual agreement between Carey and the client, Cobs could not be read as imposing on Carey a duty to advise or comment on the suitability of the Sipp or investment, as that would be “unlawful”.

It was also found that breaching FCA guidelines was not sufficient to make a claim, with the judge concluding that the regulator’s earlier thematic review on Sipps “cannot properly be described as a set of rules or even guidance, and in my judgment cannot give rise to a claim for failing to follow the suggestions which it makes”. 

Despite this, the FCA said it still expected providers to meet its expectations on how Sipp operators should protect client outcomes.

An FCA spokesperson told FTAdviser: “We note the judgment and understand that the applicant intends to seek permission to appeal the outcome.

“We have been actively involved in the case as it touched on areas of importance for us, surrounding the way in which Sipp operators conduct their business. 

“We have been clear about our expectations for Sipp operators in a number of previous publications. Operators should continue to meet these.”

Mark Smith, former chief operating officer at Mattioli Woods and founder of consolidator Truinvest, said the comments would create further uncertainty for the Sipp market as the regulator and the courts “remain at odds”.

He said: “The fundamental point of this case centres on whether the contractual agreement between the execution-only client and provider overrides the legislation and guidance from the regulator.

“While the FCA is clear in that legislation and guidance overrides the contract in place, the judge has ruled the opposite.”

The FCA, Financial Ombudsman Service and Financial Services Compensation Scheme have all taken opposite views to the judge over recent years.

Mr Smith added: “The way cases are looked at by the Fos and FSCS will need to be reviewed.

“I cannot see how the Fos can now arrive at a different decision from the judge in cases where the circumstances are similar. There will be further ramifications for the industry, but it is not yet known how this will play out.”