Stop using SIPPs now! -
FCA Dear CEO letter on SIPP investment due diligence requirements
On 30 October 2018, the FCA published a Dear CEO letter on
the due diligence requirements for self-invested pension plan (SIPP)
investments. read here
The purpose of the letter is to draw firms' attention to the judgment
handed down in Berkeley Burke Sipp Administration Ltd v Financial Ombudsman
Service Ltd which can be read here
But the FCA letter also brings some alarm to the table. It highlights
a number of other similar – previously-unreported-to-my-knowledge claims
queueing up in the High Court. The cases all deal with SIPP
operators' due diligence obligations when accepting customers' investments.
If the SIPP operators bringing these cases go on to lose in the Courts, the
FCA remind us all that it could trigger insolvency, and therefore be
reportable etc. The FCA go on to highlight the steps these mystery
firms need to take now to avoid FCA sanction. We can only speculate
who they are talking about.
The warning is also written by Andrew Bailey. It is unusual for such
a warning to come from so high up. Clearly this case has serious
implications for us all, and not just for SIPP operators.
By issuing the warning, the FCA is telling us all that some firms are
likely to fail based on this ruling. Although the ruling is open to
appeal, why else would the FCA issue the warning?
Beaufort Securities who had a small number of SIPPs under its custody
failed earlier this year and some important lessons can be drawn from that
debacle. Beaufort went into and are in administration and the assets
were largely paid out by transfer to other custodians, but, it seems this
was largely done not because of company law, but because of FCA pressure
and goodwill on the part of PWC to smaller policy-holders. There is
no saying this will happen again. PWC in that case demanded a fee of
£100m, reduced to £50m just to sort the problem out! Where else can this
money be found except from asset holders? In Beaufort’s case a few
very large holders have been left with the bill, and the solvency position
was anyway disputed and it was forced on the company by the FCA. So there
may have been funds available from the company’s own resources – albeit not
If the outcome of any of the High Court SIPP operator cases calls into
question the firm's ability both now and in the future to meet its
financial commitments as they fall due, the SIPP firm must notify the FCA
immediately. But of course they are not going to tell us, are they?
Where relevant, SIPP firms should also notify claims to their
professional indemnity insurers in accordance with their policies.
But how sure can we be that PII will pay up? Your SIPPS might be
about as secure as the pen on the underwriter’s desk ticking signing the
claim form with “approve” / “non approve”.
Pending the outcome of any appeal of the judgment in Berkeley and
considering the other cases, the FCA will be contacting SIPP operators to
discuss their options. Look out for titbits of information such as
“closed to new applications” that almost always indicate the firm is about
So what should you, the IFA do, if your client has mysterious offshore or
NMPI assets held with a SIPP provider?
The answer is transfer them out.
But who to?
Clearly no one else will accept them now!
So not a lot to do there, except tidy up the file because trouble may be
But many people use SIPPS for some fairly straightforward mainstream OEICS.
These will need to be transferred out of higher risk SIPPs or better
still transfer into insured schemes, which are obviously a safer option
If you are using a SIPP firm that you think may be exposed, not well
capitalised, or has a case waiting in the queue at that High Court, then
you’re in trouble. It is time to transfer assets to the well
capitalised SIPP firms or, better still, into insured pension providers.
Transfer the assets out before the SIPP firm fails!
And stop using SIPPs for new biz!
Financial Ombudsman Service expansion
In two recent publications, the FCA has proposed an expansion of the Financial Ombudsman Service's (FOS) jurisdiction and financial limit. This column considers whether the FOS is likely to be able to adequately deal with more complex matters, and if the expansion provides a good reason for an overhaul of the statutory scheme.
FCA policy statement 18/21: SME access to the FOS
The FCA published a policy statement (PS18/21) on 16 October 2018, which sets out the regulator's "near-final" rules in relation to the expansion of the FOS jurisdiction to cover small and medium-sized enterprises (SMEs).
The definition of "complainant" in the FCA's Dispute Resolution: Complaints sourcebook (DISP) is expanding to include firms with turnover of less than £6.5 million and under 50 employees and balance sheet of £5m – quite substantial size, I would say.
The FCA confirmed a proposal to expand FOS's financial limit from £150,000 to £350,000 – and it seems likely that it will also be finalised during the course of 2019. The £350k limit is binding on the firms, but of course the FOS can recommend greater amounts to be paid out – and often does. These cases then often end up in the Courts and put the regulated firms under the FCA microscope (TCF etc)
Consequences of FOS expansion
The result is that FOS will now be able to determine complaints where huge amounts of money are at stake. This will inevitably throw up complex legal questions - far more so than the current situation.
In light of the above, it is almost certain that we will see more cases challenged in the High Court. IFAC can help here, and for an astonishing £154 fee payable to the high Court, a decision can be challenged. https://www.gov.uk/government/publications/form-n461-judicial-review-claim-form-administrative-court
But the flip side is that slightly larger businesses and trusts now will be able to bring cases via FOS. And that means you too may be able to use this system.
In addition when the FCA regulated claims management companies, it is likely that most IFAs will register for this permission, enabling them to help customers with these complaints directly, and to take a cut of the subsequent compensation – which as you can see could be very large indeed.