An advice firm has been ordered to compensate a client after their pension pot was raided by “malign” fraudulent activity.
In a case based on events which took place in 2018, the Financial Ombudsman Service ruled Charterhouse Independent Financial Advisers was responsible for failing to stop a fraudulent withdrawal from their client’s self-invested personal pension.
As a result, ombudsman Kevin Williamson ordered the firm to reimburse the client’s pension by nearly £8,000, to cover any missed investment returns and to pay £250 for the trouble and upset caused.
The case
In July 2018, a fraudster impersonated the client — who the Fos called Mrs G — and sent a request to Charterhouse to transfer £35,000 from her pension pot.
The fraudster said Mrs G was in need of funds while travelling in Australia because there had been a problem with her bank account and she was unable to access her money until she visited a bank branch.
Charterhouse gave instructions to the Sipp provider to execute trades to deliver sufficient liquidity to transfer the £35,000 from her pension pot. Due to the tax implications, some £21,000 landed at Mrs G’s bank.
The fraudster, now impersonating Charterhouse, then sent an email to Mrs G explaining that due to “system issues” at Charterhouse and her Sipp provider, a transfer of £35,000 had been mistakenly paid into her bank account.
Mrs G then “returned” the cash to an account, the details of which were provided by the fraudster.
The fraudster attempted to transfer further funds but both Mrs G and Charterhouse began to uncover what had been going on.
After contacting Action Fraud and the police, she was able to recover around £15,360 from her bank, leaving her Sipp around £7,740 short of its total had the incident not occurred.
Mrs G complained to the ombudsman service, expressing a number of concerns regarding the transaction.
She said that as Charterhouse had transferred money from her pension fund without her authority, it had failed in its duty of care and argued it should have been more suspicious about the request for funds because it represented unusual activity.
Mrs G told the Fos that Charterhouse’s system checks had proved “inadequate”. It was Mrs G who first became alert to the fraudster and she claimed that a more significant attempt of fraud was only stopped when she uncovered what had happened.
Charterhouse disputed the complaint, arguing that its adviser had no reason to be suspicious of the emails as the communications were from her normal address and the request for funds from the Sipp was consistent with the pattern of previous interactions.
The advice firm also argued that its advisers knew any funds would be going into Mrs G’s own bank account and pointed out that it was Mrs G who had transferred the funds to the fraudster.
Fos findings
The ombudsman made it clear that both parties involved were tricked in what was a “sophisticated” case of fraud and that Mrs G and Charterhouse were “victims”.
He said both parties had acted in good faith throughout the episode and had acknowledged that with hindsight, there were things they would have done differently.
However, the Fos placed the onus of the events on Charterhouse, explaining that the regulator’s handbook requires firms to conduct their business in line with the ‘eleven principles’.
Such principles obligate firms to conduct business with due skill, care and diligence, take reasonable care to organise and control affairs with adequate risk management systems and pay due regard to the interests of customers.
The Fos ruled Charterhouse had not acted in line with these principles.
The service also looked at Charterhouse’s typical process on withdrawals from pension funds and said such steps were not followed in Mrs G’s case.
Mr Williamson said: “Had Charterhouse deployed systems and an approach that was more effective I don’t think the fraudulent transfer would’ve been made to Mrs G’s bank account.
“So, it’s responsible for giving effect to the fraudulent movement of funds from her pension pot into her bank account. It’s in breach of the Principles [from the FCA]."
imogen.tew@ft.com
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