Berkeley Burke SIPP ruling risks ‘ambulance-chaser chaos’ – Embark

Hannah Godfrey reports...

The ruling on Berkeley Burke and the possible outcome of the Carey Pensions case will lead to “ambulance chasers causing chaos in the market”, Embark Group CEO Phil Smith has warned.

Last week the High Court rejected self-invested personal pension (SIPP) administrator Berkeley Burke’s claim against a 2014 Financial Ombudsman Service (FOS) decision.

The FOS ruled Berkeley Burke had to compensate a client after it failed to carry out appropriate due diligence on their investment, which was later found to be fraudulent.

Berkeley Burke argued it had carried out the due diligence expected of SIPP providers in 2014 at the time of the investment, and the FOS had placed undue responsibility on it. Justice Jacobs, however, found the FOS followed the guidelines set out by the Financial Conduct Authority (FCA) when making its decisions and so dismissed the claim.

Immediately after the decision, FCA CEO Andrew Bailey sent a letter to the heads of SIPP providers reminding them of their regulatory commitments.

Berkeley Burke has since said it is seeking to appeal the judgement. A representative said: “Until overturned by appeal, the judgment grants a green light for the FOS to decide unilaterally on what is fair and reasonable for all and any actions of a SIPP administrator, or any other FCA regulated financial services provider when offering execution-only services, thus removing any safeguard for a provider to rely on its adherence to the FCA’s own Conduct of Business Sourcebook rules and principles, which should ordinarily take precedence.”

‘Market failure’

Phil Smith from Embark Group, which owns SIPP firms Hornbuckle, EBS and Rowanmoor, has now warned the High Court’s decision, as well as the “likely” outcome of the Carey Pensions v Adams case, would lead to market failure and chaos.

“We are not surprised by the result of the judicial review,” he continued. “It is our view pension providers are increasingly a prime fiduciary in the value chain. Indeed, this has been the case for a long period.

“The result of the ruling and the likely outcome of the Carey case will lead to ambulance chasers causing chaos in the market. That in turn will lead to more small players failing.

“The question that is less clear is whether the larger players will step in to consolidate the failed businesses. We think that is unlikely other than on a highly selective basis.”

Dentons Pensions director of technical services Martin Tilley agreed the Berkeley Burke ruling would have “wide ranging implications for the SIPP market”. The outcome of the case left unanswered questions, he said, such as what level of due diligence would now be suitable for providers.

“This unfolding saga has undoubtedly a long way to run but the impact on the SIPP provider community, particularly those with a high concentration of ‘toxic’ assets, may be severe,” he continued. “Advisers should note though that not all non-standard assets are toxic so their assessment of SIPP providers needs to be in-depth.”

SIPP and small self-adminsitered scheme (SSAS) firm Xafinity’s Andy Bowsher said he had already seen a number of “at-risk” client books exchange hands and expected more to follow.

“The FCA’s subsequent ‘Dear CEO’ letter will cause firms to look even further back than the thematic review publications,” he said. “There might be a banking analogy here in terms of the good and the bad books – the financial crisis in 2008 saw banks look to split the ‘good’ from the ‘risky’ parts of their businesses.”

Xafinity’s head of SIPP and SSAS added: “Protecting the good parts was hugely important to the banks for the longer term and some SIPP providers will be facing a similar challenge.”