Regulation 

Court clarifies when Sipp providers must say no to clients

Court clarifies when Sipp providers must say no to clients

Self-invested personal pension providers cannot avoid regulatory principles by accepting business on an execution-only basis, a judge has said.

In his dismissal of the Berkeley Burke judicial review, published yesterday (30 October), Mr Justice Jacobs said a Sipp provider could not rely on a perceived duty to carry out business as requested by the client without considering the outcome for the client in line with FCA client protection rules.

Berkeley Burke had argued it had a duty to abide by Conduct of Business (Cobs) rule 11.2.19R (1), which states "Whenever there is a specific instruction from the client, the firm must execute the order following the specific instruction."

Berkeley Burke argued this meant it was duty bound to execute the instruction the client had given it.

But the Financial Ombudsman Service and the Financial Conduct Authority stated that Cobs 11.2.19R (1) was subject to the FCA client protection principles, which formed the overarching framework governing the rules for the industry at all times.

This means only if it is in the client's best interests should the transaction be carried out.

The FCA had dismissed the applicability of this ruleset to Berkeley Burke's case during the hearing in October because it does not apply to the investments in question.

But it was agreed the rules would be considered during the hearing for the purposes of deciding whether Fos had erred in law when it held the Sipp provider accountable for a client's investment losses leading up to 2014.

The judge said: "Any suggestion that a Sipp provider must, as a result of COBS 11.2.19R, execute a transaction, regardless of the duties contained in the Principles, produces surprising results and in my view cannot be right."

Berkeley Burke had sought to overturn 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.

Client Wayne Charlton had brought a complaint to the Fos in respect of the loss of his personal pension which he had invested in a Sipp in 2011.

The investments included an interest in Sustainable AgroEnergy PLC, a company which purported to extract biofuel from trees grown in Cambodia and entered receivership in 2012, following intervention by the Serious Fraud Office.

Berkeley Burke maintained it had not given advice to Mr Charlton and as such could not be held liable for the client's losses.

But listing several instances in which a transaction may be stopped by a provider, Mr Justice Jacobs ruled Sipp operators had a duty to carry out due diligence on the underlying investment before accepting business. 

The instances where a Sipp operator should intervene, according to the judge, are:

(1) the proposed investment was not "Sippable"; i.e. was not eligible for the tax benefits of putting an investment into a Sipp;

(2) the Sipp provider knew that although it was then Sippable, there had been a legislative change which meant that it would no longer be Sippable in a few months time;

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