FCA accused of ‘not understanding own rules’ during hearing

Hannah Godfrey writes...

The Financial Conduct Authority (FCA) has been accused of “not understanding its own rules” by Berkeley Burke lawyers, after it withdrew a key argument having discovered it might not be applicable in this case.

Lawyers representing the self-invested personal pension (SIPP) administrator yesterday argued that, due to the FCA’s Conduct of Business (COBs) rule 11.2, they are obligated to follow specific instructions from clients.

In this case, in 2011, Wayne Charlton decided to invest his £29,000 pension pot into unregulated investment scheme Sustainable Agro Energy, which sold plots of land in Cambodia on which trees would be planted to create bio fuel, following contact with an unregulated introducer. The scheme was later found to be fraudulent.

Berkeley Burke’s representatives argued the SIPP administrator followed Charlton’s instructions and did all that was required of it at the time. The representatives said Berkeley Burke made it clear it was not advising on the product but, rather, facilitating the investment.

Speaking this morning (11 October) at the judicial review hearing taking place in London, however, lawyers representing the FCA suggested the COBs 11.2 rules do not apply in this case, because those particular rules only apply to financial instruments and not, in this instance, tree plantations.

The FCA had planned to argue against Berkeley Burke on the basis the COBs rule was relevant, and the sudden withdrawal of the argument prompted barrister Jonathan Kirk, who is representing Berkeley Burke, to say: “[It’s] rather a shame the regulator does not understand its own rules.”

At the time of writing, it is unclear whether the hearing will conclude on 12 October as planned, or whether Berkeley Burke’s lawyers will need to send additional written evidence to the judge, or will have an additional hearing at a later date.

Berkeley Burke is fighting a 2014 Financial Ombudsman Service decision in which the ombudsman ruled the SIPP administrator had to compensate a client after it failed to carry out appropriate due diligence on his investment.

The judicial hearing is now into its second day. Yesterday, lawyers representing the SIPP administrator argued Berkeley Burke would have “needed a crystal ball” to understand the obligations the Financial Ombudsman Service judged it on some years later.

The case is ongoing.