What the FOS? Berkeley Burke hits out at ombudsman’s decision-making

Hannah Godfrey reports...

Embattled SIPP provider Berkeley Burke has hit out at the Financial Ombudsman Service’s decision-making process, labelling it capricious and risky to businesses.

In a statement given exclusively to RP’s sister title Professional Adviser, Berkeley Burke argued consumers would lose out on choice in the retirement market because of the unpredictable nature of Financial Ombudsman Service (FOS) decisions.

“The ultimate losers will be the country’s consumers and savers, who will simply have less choice over where and how to invest their money,” it said.

“Not because the market will shrink due to the shedding of firms, but because the current market for well-run, highly regulated, fully compliant financial services – more-than-adequately capitalised FCA-regulated firms – cannot afford to risk their good businesses to the caprices of whatever any of the hundreds of ombudsmen happens to decide on any particular case complaint, on any given day.”

Last October, the High Court rejected Berkeley Burke’s claim against a 2014 FOS decision. In the original decision, the ombudsman ruled the SIPP administrator had to compensate a client after it failed to carry out appropriate due diligence on his investment.

Berkeley Burke, which facilitated the investment, has continued to argue it carried out the due diligence expected of it at the time, according to Conduct of Business Sourcebook (COBS) rules, and that the FOS subsequently placed undue responsibility by applying FCA Principles 2 and 6 in a way that created a new and unexpected duty of care on the part of SIPP operators.

The SIPP administrator is now seeking to overturn the outcome, and has submitted its application for leave to appeal the judicial review decision. The process is arduous, and if the submission is accepted for appeal, it could still take six to nine months for it to be heard in full.

‘Subjective interpretation’ 

The firm went on to highlight anxiety within the SIPP sector over potential opened-ended liabilities, noting: “The legal impact of the judicial review ruling itself needs clarifying to understand how far-reaching, and to an extent how uncertain, an overarching duty of care becomes, when this duty becomes both the starting and end point for all and any decisions relating to fiduciary duties for all execution-only investments.

“The judicial review, if upheld on appeal, reaffirms the primacy of the FCA Principles in financial services regulation and importantly the breadth of FOS discretion to decide what is ‘fair and reasonable’.”

Berkeley Burke added: “That primacy, coupled with the freedom of FOS discretion, means that there is to be in effect no fettering of any subjective interpretation of what is ‘fair and reasonable’ by reference to the COBS rules.”

The FOS said it was unable to comment on legal proceedings.