The UK High Court has ruled that the Financial Ombudsman Service (FOS) was correct to require a Sipp provider to compensate an investor for losses from a fraudulent overseas unregulated collective investment scheme (Ucis).
In the ruling published on 30 October, Judge Jacobs said asking a Sipp provider to check an investment in a foreign country is simply the application of existing due diligence requirements.
Sipp provider Berkeley Burke had judicially reviewed a FOS ruling made in 2014, in which the FOS had awarded compensation to Wayne Charlton, who had transferred his pension into the Sipp and invested £24,000 ($30,750, €27,000) into a Cambodian bio-fuels Ucis.
The Sipp firm argued that FOS had ruled on the basis of regulations around due diligence introduced in 2014 rather than the rules in force at the time of the investment in 2011. FOS had argued that the Sipp had, among other things, failed to establish title.
The judge added: “I consider there is very good reason not to seek to characterise the ombudsman’s decision as the creation of a new rule. There is nothing in the ombudsman’s decision that indicates he thought he was articulating a new rule, as distinct from applying the established rules to the circumstances of the case.”
Berkeley Burke is seeking to appeal the decision.
FCA warning
The court case and other pending actions have prompted the Financial Conduct Authority (FCA) to send a chief executive’s letter to Sipp providers warning them they must tell the regulator about any financial strains due the judgement and other pending civil claims.
In the letter, FCA chief executive Andrew Bailey wrote: “If the outcome of any of these cases calls into question your firm’s ability both now and in the future to meet its financial commitments as they fall due, you must notify the FCA immediately. Where relevant, firms should also notify claims to their professional indemnity insurers in accordance with their policies.”
The regulator has also reminded Sipp providers of their duty to customers in the event that financial pressures force a sale, including those pursuing compensation claims.
It added: “In pursuing any sale, your firm should pay due regard to its implications for customers who may have compensation claims. We expect all directors, as well as complying with the relevant provisions of the FCA Handbook, to comply with their statutory and non-statutory duties. These include, where a firm is at risk of insolvency, their duties to creditors, such as customers to whom compensation is or may be due.”
