John Moret is one of the UK's leading pensions and SIPP experts and commentators. As he enters his 75th year, still working part-time, he continues a series of articles for Financial Planning Today looking back at his long career and key topics which have steered the pensions sector. In this second article he reviews the impact of the 'Dear CEO' letter the FCA sent to SIPP firms recently and what is means for regulation.  

What the 'Dear CEO' letter to SIPP providers from the FCA may presage

It had been my intention to leave the subject of SIPPs - which have dominated my working life - until later in the series but two events in recent weeks have led me to reconsider.

Firstly, I cannot let the passing of Lord Lawson last month pass without comment.

It was through his 1989 budget that the ability to invest personal pension assets in investments other than insurance company funds was first allowed.

Although he didn’t create the SIPP acronym – that came a couple of years later with the founding of the SIPP provider group - without his vision the path of personal pension provision would have been very different.

I wonder what Lord Lawson would have made of the latest “Dear CEO” letter from the FCA to SIPP providers. Reading this letter I cannot understand why any SIPP provider would contemplate allowing any “non-standard” investment given the risks of retrospective regulatory intervention, or worse. 

The letter would appear to have been prompted by the collapse of a number of SIPP providers in the last few years as a result of a growth in unfavourable FOS determinations, often instigated by claims management companies who appear to see SIPPs as the next PPI.

I have written before about the ”fair and reasonable” conclusions reached by FOS on historic SIPP claims, many related to what is seen as, “a failure to conduct appropriate, robust due diligence on those introducing business to their firm or on the assets being accepted.”

Reference is made in the letter to the 2013 guidance for SIPP operators, but many of the investments that have prompted the FOS determinations were made in the 6 years following the advent of SIPPs being regulated for the first time in 2007 when clear and “robust” guidance from the FSA (the FCA's predecessor) on what was expected of SIPP operators was absent.

Furthermore, the onus on SIPP providers with regard to due diligence on introducing advisers now seems to have grown to the point that one can question the role of the FCA in approving regulated firms.     

It appears that FOS have taken one specific legal case in 2018 involving Berkeley Burke’s appeal against a FOS determination and are applying it widely in their interpretation of what is “fair and reasonable”. That case involved a SIPP investment in a “green oil” scheme in Cambodia which it later transpired was a scam.

The judge listed a whole range of due diligence requirements, many of which had never been mentioned by the FCA in its earlier guidance published between 2009 and 2014 following three thematic reviews. That judgement also acknowledged that the approach taken by Berkeley Burke to due diligence may have been common industry practice – as opposed to good industry practice.

FOS has chosen to largely ignore the other well known SIPP legal case of Adams v Carey/Options which went to appeal in 2021. That case left the original High Court decision that COBs rules do not override the contract terms intact.

Instead FOS has chosen to argue that the case did not consider the application of FCA Principles and that therefore they should take into account the obligations assumed to be placed on providers by those principles.

The legal and regulatory framework for SIPPs remains a minefield and wholly unsatisfactory given the size of the SIPP market.

There are also concerns over the extent to which the FCA should be able to influence FOS decisions - as opposed to giving advice on the interpretation of rules and guidance.

However, perhaps the greatest concern for SIPP providers in the latest “Dear CEO” letter is the number of references to “Consumer Duty”.

Up to now the FCA has been very clear that, “the Duty does not have a retrospective effect and does not apply to past actions by firms” (para 3.1 FG22/5).

The existing risk that the FCA expects SIPP operators to consider proactive redress under the current FCA complaints-handling rules appears to be increased by the comments in the letter in relation to redress liabilities under the Consumer Duty rules. The lack of clarity around what constitutes, “robust due diligence” and ongoing monitoring, particularly on intermediaries, is also of concern.

The history of SIPP regulation and the way that it has been interpreted by the FSA, FCA, FOS and the courts can hardly inspire confidence among SIPP providers that the Consumer Duty will not just provide more encouragement for claims management companies and more scope for adverse FOS determinations.

I can’t believe that Lord Lawson envisaged the scale of the issues that would arise with SIPPs when he pushed back the frontiers of personal pension provision more than 30 years ago. I will have more to say on the SIPP landscape and what in my view needs to change in a future article.

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.

This email address is being protected from spambots. You need JavaScript enabled to view it.

www.moretosipps.co.uk