In my last article I questioned just what is “fair and reasonable” when it comes to regulation. This was prompted by a recent FOS determination involving a complaint by a Mr T. against Rowanmoor Pensions.

The ramifications of that decision for Rowanmoor and the 1,387 SIPP investment holders quoted in the determination remain unclear. However more recently in the infamous Adams v Carey Pensions case the application by Careys for permission to appeal the Appeal Court’s judgment was rejected.

Various press comments have suggested that this may be the end of the road for SIPP providers with pending FOS claims or decisions.

However it is worth noting that there were two main issues in the Adams v Carey Pensions case. One involved the argument that an unauthorised introducer undertook a regulated activity in advising and arranging Mr Adams' SIPP. This was upheld by the Appeal Court and the conclusion was that the SIPP should not have been established by Carey Pensions. 

The other, arguably more important, issue was the implications of COBS (FCA conduct of business) rules – in particular the obligation on Carey Pensions to act honestly, fairly and professionally in establishing Mr Adams SIPP.

It was argued on behalf of Mr Adams that Carey Pension should not have allowed the SIPP to be set up and nor should it have allowed investment in a store pod. My understanding is that this claim on behalf of Mr Adams claim was rejected by both the High Court and the Court of Appeal. 

So where does this leave matters? Well as far as the FOS are concerned from the decisions and determinations that I have seen the FOS are more reliant on the judgment in the Berkeley Burke Appeal case. This was an application for a judicial review of a FOS decision involving a fraudulent investment in a Cambodian “green oil” property scheme. The application was based on two grounds:

1. That the FOS determination had in effect created new rules in relation to the responsibility of SIPP operators.
2. The FOS findings had failed to follow previous decisions of the Pensions Ombudsman (PO) and/or to give cogent reasons for declining to do so.

The FCA was a party to this case and argued that, “the meaning and effect of their Principles has remained constant and regard can reasonably be had to subsequent FCA publications” - such as their numerous thematic reviews and associated missives spanning some seven years - “in elucidating their meaning and effect.”

The two grounds were rejected. The judge did not accept that the FOS decision was creating a new rule. In his view the FOS has the widest discretion to decide what is “fair and reasonable” and to apply the FCA Principles in the context of the particular facts of the case. The judge also found that the statutory schemes and decision making process under which FOS and PO operate are different and that it was for FOS to decide what was “fair and reasonable in all the circumstances of a particular case”.

It appears that the FOS is relying heavily on this judgment involving an investment fraud and applying it to other types of legitimate, albeit failed SIPP investments even where introduced by a regulated adviser. The “appropriateness” of an investment is seen as an important consideration for the provider including undertaking undefined (at the time) investment due diligence in line with what is deemed to be good industry practice – albeit that in many of these cases at the time few if any SIPP providers undertook investment due diligence to the extent that the FCA retrospectively defined.

The other issue raised in the Berkely Burke case is the relevance of previous PO decisions. The memorandum of understanding between the FOS & PO signed in December 2017 says that the FOS predominantly deal with matters concerning advice in the sales and marketing of individual pension arrangements but that it can also consider complaints relating to the administration of personal pensions. It acknowledges that there is a jurisdictional overlap between the two organisations given that the PO, “deal with matters concerning the administration (including transfers and conversions) and management of personal pension schemes.”

In my view the “jurisdictional overlap” is extremely unhelpful and gives rise to potential regulatory arbitrage which is exacerbated by the different criteria adopted by the two Ombudsmen in reaching decisions and the different compensation limits. As is acknowledged in the FCA’s recent consumer duty paper CP21/36 the FCA and FOS work closely together to ensure that “where complaints have potentially wider implications, the FOS is aware of our expectations of firms”. This perhaps explains the heavy reliance by the FOS on the Berkeley Burke judgement and the FCA arguments in that case which are outlined above.

So where does that leave the issues around investment due diligence for SIPP providers, particularly where business was accepted from a regulated adviser? The regulatory fog caused by the matters raised above is hugely concerning and should be clarified and arguably corrected.

Otherwise one can simply see a surge in complaint cases to the FOS and potentially yet more claims on the FSCS as more providers and advisers fail. The interpretation of what is “fair and reasonable” should apply to all parties involved – and should be applied consistently. Sadly in my view at the moment that is not the case.

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.

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