High Court upholds Financial Ombudsman decision on SIPP investments

06/11/18

R (Berkeley Burke) v Financial Ombudsman Service [2018] EWHC 2878 (Admin)

The High Court has rejected a challenge to the decision of the Financial Ombudsman upholding a complaint against a SIPP operator about a ‘non-standard’ SIPP investment.

The customer, a gardener, was in 2011 introduced by an unregulated introducer to the defendant Berkeley Burke SIPP Administration Ltd (“BBSAL”).  BBSAL is a self-invested personal pension (“SIPP”) provider and administrator.  Following his discussions with the introducer, the customer wished to invest in a ‘green oil’ scheme in Cambodia, and to hold the investment in a SIPP.  The customer applied to transfer his existing personal pension to BBSAL and to use the money for investment in the scheme, which was operated by Sustainable AgroEnergy plc (“SA”).  A large number of other individuals invested in the scheme via SIPPs held with BBSAL. However, it transpired that the scheme was a fraud and that the investment vehicle lacked basic title to the land in question in Cambodia.  SA was subsequently placed into receivership following a Serious Fraud Office investigation, and three of its directors were sent to prison for fraud.

The Ombudsman concluded that BBSAL had not acted fairly and reasonably in its dealings with the customer, and ordered BBSAL to pay compensation to him. In particular, the Ombudsman concluded that whilst BBSAL had no obligation to give advice to the customer, or to ensure the suitability of an investment for him (i.e. suitability in the light of his particular circumstances pursuant to the FCA’s rule COBS 9), BBSAL should have made enquiries into title and other matters and concluded that the investment was not acceptable for his pension scheme. BBSAL had thereby acted contrary to the FCA’s Principle 2 (skill, care and diligence) and 6 (customers’ interests).

BBSAL alleged that the Ombudsman had erred in law on the grounds that:

1. he had applied the FCA’s Principles for Business, which form part of its rules, in a manner that amounted to the creation of new and unexpected specific rules that had not been the subject of statutory consultation and of which SIPP operators were not on notice;
2. the FCA’s rule COBS 11.2.19R, relating to ‘best execution’, had the effect that BBSAL was obliged to carry out the customer’s specific instruction to make the investment; and
3. the Ombudsman had failed to act consistently with other decisions by Pensions Ombudsman Service (“POS”) ombudsmen, who had concluded that SIPP operators operated on an ‘execution only’ basis and had only very restricted duties.

The FCA made submissions as to the true interpretation of the laws and rules which comprised the context for the Ombudsman’s decision under challenge.

Jacobs J held that:

(1) the Ombudsman had not created new rules, but merely applied the pre-existing provisions of the Principles, which had themselves been the subject of consultation and formed (as Ouseley J had explained in R (British Bankers Association) v Financial Services Authority [2011] EWHC 999 (Admin)) the overarching framework for regulation and the fundamental provisions which always govern the actions of firms;

(2) (accepting the FCA’s submissions) COBS 11.2.19 was concerned purely with the mechanics of execution of a customer order if and when accepted, and had no bearing on the prior question of whether the order should be accepted or not; and

(3) given the different statutory regimes and criteria applicable to financial ombudsmen and pensions ombudsmen, they had no duty act consistently with each other, and the Ombudsman in the present case had correctly applied the statutory criteria that governed his decision.

A link to the judgment is here.