He has called for reform following a number of SIPP provider failures, many of which have been triggered by adverse determinations by the Financial Ombudsman Service (FOS)

He shared worries that the FOS appears to be ‘making up the rules as they go along’, and that inconsistencies in their requirements mean it is in the interests of both consumers and the market for the Treasury to provide clarity around a provider’s responsibilities in accepting investments.

He said: “The SIPP regulatory framework is a mess and not fit for purpose. It was created in haste in 2007 and has never been properly understood or enforced. In addition new pension propositions are being created and labelled SIPPs which is a misnomer and confusing for customers.

“It is worrying that FOS appear to be making up the rules as they go along relying heavily on historic FSA and FCA guidance which they are interpreting as good practice at the time. They are also applying a court decision on a SIPP scam to a range of other situations and concluding that this is “fair and reasonable”.

“The implications for providers of all types of SIPP, particularly those operating on an execution only basis, are significant and the inconsistencies in determinations reached by FOS are of real concern. For example in a claim against an execution only SIPP provider, which was not upheld, FOS confirmed that as the claimant had signed documents acknowledging that the provider could not be held responsible for the suitability of any investments then the provider could not be held responsible if the investments underperformed or failed. The investments in this case were in the Woodford Patient Capital Trust. 

“Contrast that with another recent FOS determination upheld against a SIPP provider which involved an execution only client investing in bonds listed on a Danish stockmarket and which the provider deemed to be a standard investment. The investment promoter was regulated as was the stockbroker that executed the transaction. The provider warned the investor that he was undertaking a high risk investment and the investor signed a declaration acknowledging this. Most surprisingly FOS said that the provider should have refused to accept this investment unless the investor took “professional advice from a suitably qualified and authorised adviser”. Whilst that may indeed have been a sensible action for the investor to my knowledge there is no obligation on a provider to insist on this.

“It is these and other inconsistencies regarding due diligence requirements that lead me to conclude that it is in everyone’s interests for there to be total clarity around a provider’s responsibilities in accepting investments – particularly on an execution only basis.”

He has called on the Treasury to provide guidance on what is an acceptable or appropriate investment, clarification on what is required of a SIPP operator with regard to due diligence of investments and introducers, and to confirm the extent to which the requirements apply where the SIPP was accepted on an execution-only basis.

He said clarity from the Treasury would provide comfort for providers and Financial Planners against the potential for future claims and increasing regulatory costs.

John Moret is principal of MoretoSIPPs consultancy and one of the UK's most experienced SIPPs experts, commentators and speakers. He has worked for Suffolk Life and several other SIPPs providers. He is chair of advisory business Intelligent Pensions and CX insight business Investor in Customers.

Earlier this month Mr Moret wrote an article for Financial Planning Today on the collapse of Hartley Pensions, and how it brings into question the effectiveness of regulatory control of the SIPP market.