Embark shareholders put £71mn into its former subsidiary Rowanmoor to cover any potential redress owed to clients before the adviser platform business was sold to Lloyds Banking Group.
The figure is a fifth of the £343mn redress provision Embark initially put aside as mentioned in its financial results.
Last week, Embark said none of this provision was required anymore due its sale to Lloyds completing in January.
In a document published yesterday (October 24), administrators Evelyn Partners said Embark shareholders paid £71mn into Rowanmoor Personal Pensions Limited (RPPL), the £1.4bn self-invested personal pension business which collapsed in August.
The administrators said this payment was part of the terms for the disposal of Embark and the demerger of Rowanmoor, following a review carried out by RPPL’s professional advisers.
The review, Evelyn Partners said, assessed the company’s potential exposure to customer complaints around July 2021, when the Lloyds deal was first announced.
"Even with the additional funds provided by the Embark shareholders as part of the Rowanmoor demerger in January 2022, it was considered unlikely that there would be sufficient funds available to provide full redress to all customers that had suffered a loss," the administrators said yesterday.
They said this realisation followed a subsequent review of RPPL’s contingent liabilities carried out by its professional advisers, which estimated the liabilities could be in the region of £300mn, around the same amount Embark calculated redress to be last year.
"Unsecured consumer claims comprising of contingent Fos [Financial Ombudsman Service] claims are estimated to be £308,539,884 in the SOA [statements of advice] based on the data assessed in July 2022 with the support of RPPL’s professional advisers," Evelyn Partners said.
RPPL’s credit balances at the date of its administration amounted to £72.9mn.
In May 2022, the Sipp business had engaged Evelyn Partners to commence a sale process to find a purchaser for the company’s business as a going concern.
Evelyn Partners later discovered, however, that the business was insolvent.
The administrators said in documents published yesterday that they were continuing to progress the sale process with contract negotiations.
“It is anticipated that the sale will involve the transfer of responsibility to operate and manage all Sipps and FPTs [Family Pension Trusts] together with a transfer of the assets,” the administrators said.
“If a sale completes, details will be provided in our next report to creditors.”
Some 30 parties showed interest in the RPPL business earlier this year. By the end of June, two offers were received to acquire RPPL’s pension book, which consists of some 4,800 pensions. A preferred party was identified by Evelyn Partners, but they did not disclose the company's identity.
£217mn to £362mn redress range
Earlier this year, the Financial Conduct Authority told FTAdviser that before it approved Lloyds’ purchase of Embark, Embark’s board undertook an assessment of potential redress liabilities.
The regulator said a provision “close to the upper end” of the calculated range of redress was made into Rowanmoor, and that the provision represented “the best estimate of the cost of settling these potential liabilities at the time”.
In Embark’s 2021 financial results, the platform shared its calculated range of redress for claims against Rowanmoor’s Sipp business. The range spanned from £217mn to £362mn.
Embark said it had stuck to the upper end of the redress range it estimated due to the fact time bars on claims would likely be waived, and that the compensation per client would likely exceed the Financial Ombudsman Service cap of £150,000 to £160,000.
Elsewhere in its results, however, Embark said it “no longer has any obligation” to RPPL which saw the £343mn re-absorbed back into Embark and just £1.26mn put aside for customer redress provisions.
The fall of RPPL
The issues leading to RPPL’s insolvency pre-dated Rowanmoor’s acquisition by Embark in 2016.
Back in January, Rowanmoor was found to have failed in its due diligence by the Financial Ombudsman Service.
The upheld Fos complaint found Rowanmoor had failed to verify the integrity of introducer firm CIB Life and Pensions Limited, which it worked with on hundreds of high-risk Sipp investments.
Failure to do its due diligence led to clients taking the introducer firm’s advice and losing their occupational pension savings on an unregulated Cape Verde-based property deal called The Resort Group.
When RRPL was declared insolvent, the Fos was handling some 1,000 claims against Rowanmoor.
The Financial Services Compensation Scheme is investigating if there are any claims that meet the qualifying conditions for compensation.
If claims fall on the FSCS, then clients who lost money can receive compensation up to a limit of £85,000. With the Fos, the compensation cap is £150,000 - £160,000.
FTAdviser is aware of clients of Rowanmor who lost as much as £400,000 as a result of due diligence failures at the pension operator. These failures led some to lose multiple pensions.
Embark declined to comment. Evelyn Partners was approached for comment.
ruby.hinchliffe@ft.com
