The Financial Services Compensation Service (FSCS) could consider clawing back compensation paid to consumers in relation to self-invested personal pension providers if the courts make differing rulings to its position.
Speaking at the Association of Member-Directed Pension Schemes (AMPS) conference today (22 May) in London, James Darbyshire, general counsel at the FSCS, said the lifeboat scheme may need to take a view on claims when there isn't guidance from the courts.
He said: “We have to take a view based on the information that is out there, based on the information that consumers bring to us, and based on our experience as whether we think there is a legal liability or not.”
Mr Darbyshire was answering a question about claims for compensation related to investors who put money into Sipps provided by Carey Pensions and Berkeley Burke, two separate but similar cases currently going through the courts.
He said in a bid to compensate investors as quickly as possible the FSCS may payout before the two legal cases are decided.
But if the final rulings aren't in line with the FSCS' stance, the organisation might decide to clawback the money already paid to claimants.
Mr Darbyshire said: “We have to take a view at that moment in time if it would be appropriate to pursue recovery against those individuals being paid.
“Depending what the courts said, we have to think about if that means we need pursue recoveries or if we just draw a line on the sand.”
Sipp provider Carey Pensions is facing claims worth up to £3m, as it is accused of working with unregulated introducers to facilitate investments in Store First storage pods, which were unsuitable and are now deemed "worthless".
A client, who invested his £60,000 pension in the illiquid commercial property, has heard at the High Court in March, and the ruling will act as a test case for about 90 more clients.
In the Berkeley Burke case, a judicial review hearing in the Sipp provider's long standing battle against the Financial Ombudsman Service (Fos) is due to be heard in October.
Berkeley Burke is fighting a decision from 2014, in which the ombudsman ruled the Sipp provider had to compensate a client after it failed to carry out adviser-style due diligence on his investment.
Mr Darbyshire also explained that the FSCS had to take a similar position in the case of three Sipp providers declared in default in January - Brooklands Trustees, Stadia Trustees and Montpelier Pension Administration Services.
The lifeboat scheme has decided compensate investors in relation to at least 150 claims, related to high risk, unregulated, non-standard investments such as storage pods, oil fields, diamonds and overseas property.
Mr Darbyshire said: “There is still a long way to go in terms of the numbers of claims that come to us from those, particularly firms, and obviously, these may well change as we see claims going through the courts and we may get better direction from the courts.
“It is difficult because in a certain way we are operating in a vacuum in that space, because there haven’t been any decisions that can really give us the best parameters.
“Following a thorough examination of the clients, we took the view that there was a legal liability owed to some of the consumers that brought their cases to us. Some of the most vulnerable customers have now been paid compensation.”
According to Martin Bamford, chartered financial planner for Surrey-based Informed Choice, "consumers deserve a high degree of protection from the regulatory system".
He said: "It’s right that compensation is paid promptly, where a firm is declared in default and there is a genuine loss suffered by an investor.
"Where a case is subject to legal proceedings, the FSCS should not rush to pay out compensation. It’s all too easy for the FSCS to spend other people’s money. They need to strike the right balance between consumer protection and not burdening investors indirectly through excessive levies on regulated firms."
Alistair Cunningham, financial planning director at Wingate Financial Planning, argued that "on one hand, when the FSCS compensate there is already some consumer detriment, and therefore prompt payment is valuable."
He said: "However, I wonder whether in some cases the investors could be no worse off if the FSCS waits? Ultimately the FSCS is writing cheques with others funds, and if there's any potential grievance here, it's that Financial Services underwrites these claims."
maria.espadinha@ft.com
