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The impact of Carey pensions case on the Sipp market

The impact of Carey pensions case on the Sipp market

The recent judgment in the Adams v Carey Pensions case may have significant implications for self-invested personal pension businesses – both in the future and for the rapidly growing number of historic Sipp complaints usually involving non-standard investments, often in conjunction with an unregulated introducer.

Following the judgment, apparently, the Financial Conduct Authority has been quoted as saying that Sipp operators must continue to follow the guidance issued in its ‘Dear CEO’ letter of July 2014.

This guidance stated that in undertaking due diligence on NSIs, operators should assess if “assets allowed into a scheme are appropriate for a pension scheme”. But what is ‘appropriate’ has never been defined.

In considering the recent judgment, it is important to understand the circumstances of the case.

It involved a high-risk investment – a store pod arrangement that was not a fraud or scam – on an execution-only basis with the involvement of an unregulated introducer and with an inducement offered to the investor.

Drawing conclusions that might apply to future cases without all these features is dangerous. 

The Berkeley Burke case

Comparisons have been made with the Berkeley Burke ruling in 2018. This case was different in that it dealt with a judicial review by Berkeley Burke Sipp Administration against a Financial Ombudsman Service decision.

The Sipp investment involved was made in 2011 and was an unregulated ‘green oil’ property scheme in Cambodia offered by Sustainable AgroEnergy. The claimant, who was introduced to BBSA by an unregulated introducer, lost all of his investment as it turned out to be fraudulent.

Key Points

  • The recent case regarding Carey Pensions will have a big impact on the Sipp sector
  • The judge appeared to disagree with the FCA's stance on Sipp operators
  • It may also have an impact on Fos rulings

Importantly, the criteria used by the Fos in its determinations is what is “fair and reasonable in all the circumstances of the case”. This is different from a court of law. 

The Carey Pensions judgment confirmed that there was no obligation on the Sipp operator to refuse to accept high-risk investments into an execution-only Sipp or to consider the suitability of those investments.

A significant part of the ruling concerned the impact of regulation and specifically the FCA’s Conduct of Business Sourcebook on contractual terms. This is potentially the most critical and, for some, surprising aspect of the judgment.

Cobs rules

In its deposition to the court in the Carey Pensions case, the FCA argued that what is required under the Cobs rules 2.1.1R “depends on what function the firm (operator) actually carries out”.

But it also argued that if there is any inconsistency between the obligations in the Cobs rules and the contractual terms the duties implied by Cobs should prevail.

The judge did not agree and was clear that the execution-only agreement between the operator and the client was crucial and that regulatory requirements did not override the contract under which the investor took responsibility for their decisions.

It is this aspect that may have the biggest impact.

Due diligence 

On the issue of investment due diligence, it is important to note that inadequacies in this regard were not part of the claim against Carey Pensions.