SIPP provider DAC Pensions - which had more than 600 clients and nearly £27m in assets under administration - has been declared in default by the FSCS, opening the door to compensation claims.

The FSCS said it had received 482 claims against DAC Pensions (FRN 774721), all connected to SIPPs.

So far, four of the claims have been unsuccessful but the first one has been upheld which has triggered the default being declared yesterday.

A declaration of default by the FSCS opens the door to compensation claims which the provider cannot pay.

The FCA ordered the Cambridgeshire-based SIPP provider to be placed into insolvency in August 2021 after the firm accepted business from unauthorised introducers without the proper vetting required by the FCA.

The firm had 607 clients and administered assets of £26.7m, according to a supervisory notice published by the regulator.

The FCA said the DAC Pensions, authorised by the FCA since September 2017, failed to carry out adequate due diligence checks on two introducer firms prior to accepting business from them.

This meant that the firm failed to identify whether the introducers had the appropriate FCA permissions to provide non-insurance-based pension advice.

The firm accepted approximately 620 new clients with assets under administration of £20.4m from introducers based in Ireland and Cyprus. The introducers were 'passporting' into the UK at the time.

The FCA added that DAC Pensions also accepted business from one introducer despite being “explicitly informed” that it lacked the appropriate permissions to provide pension advice.

The regulator said that as a result of accepting the business from the introducers, DAC Pensions’ customers were directed to invest their SIPPs in high-risk, illiquid investments through a model portfolio operated by the two introducer firms.

A number of these investments were unregulated collective investment schemes (“UCIS”) based overseas which were unlikely to be suitable for retail clients.

A number of these UCIS have since been unable to meet redemption requests for a significant period without explanation. The redemption issues were also not communicated to customers in a timely manner. The regulator warned in 2021 that it expects customers may lose “some or all of the money” they have invested into these UCIS.

The FCA also reprimanded DAC Pensions for failing to write to customers to fully inform them of the situation and present them with all possible complaint options.

The FSCS apologised to customers of the firm that extensive investigations into the company were taking longer than expected.

In February this year the FSCS completed its investigations into DAC Pensions. Its investigations were mainly focused on introducer due diligence undertaken by DAC, prior to accepting business from Elliot Lloyd International (formerly Walker Murray) based in Ireland, and Woodbrook based in Cyprus.