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.”
Claire Carroll, partner at Eversheds Sutherland, which represented Carey in the case, said: “It is not a case of following the FCA’s rules, or the law. The rules created by the FCA are law. The judgment... confirms how those laws should be interpreted in the context of the particular facts of the situation.”
Fos decisions
But others across the industry called on the FCA to provide clarity on what ramifications the judgment will have on Fos decisions.
Denis McHugh, chief executive at Hartley Pensions, said: “The Fos and FSCS issue is a very complicated piece, as decisions have been made based on not only actions taken by the parties involved but also with reference to the FCA thematic reviews. This case has raised a number of issues surrounding the implementation and interpretation of this review.”
Martin Tilley, pensions director at Hurley Partners, said past Fos decisions may “be in doubt”, but only in cases where the investments and due diligence match that in the Carey case.
For example, in the Carey case, the provider acquired and obtained good title on an asset that subsequently did not perform as expected.
Mr Tilley said: “A Sipp provider or any facilitator of such an investment should not be held responsible for the performance of that asset where they themselves have not advised on it.
“Where, however, the client has requested the Sipp provider acquires an asset and they have paid away funds without securing good title to the asset in return, one would question whether they have operated with all due care and may still therefore have a case to answer.”
Adams v Carey case
The High Court case saw claims against Carey dropped on all grounds.
Former client Russell Adams had claimed Carey Pensions mis-sold him a Sipp. He and his lawyers accused the Sipp provider of using a Spain-based unregulated introducer to facilitate investments in Store First unit pods, which were unsuitable and subsequently deemed “worthless”.
Mr Adams had signed an execution-only contract, but his lawyers argued regulatory principles around treating customers fairly meant he should not have been allowed to open the Sipp without advice.
amy.austin@ft.com
