The background to the case involved Leicester-based SIPP provider Berkeley Burke and its obligations to carry out due diligence on a high-risk SIPP investment for a client. The client raised the matter with the Financial Ombudsman Service (FOS) in 2014 which ordered Berkeley Burke to compensate the client for losses sustained. The matter was appealed by Berkeley Burke and ultimately went to the High Court in England and Wales in October 2018. The Court upheld the original FOS decision and further leave to appeal was granted to Berkeley Burke. The appeal was set for 15/16 October 2019, but this appeal was dropped as a lack of funding for costs prevented the matter progressing. In the interim, Berkeley Burke had in fact been put into administration because of the large number of pending claims in respect of other higher risk investments.
The central issue here which has caused much concern to the SIPP market is the question over the extent of diligence which must be undertaken by both SIPP providers and indeed advisers in relation to investments being placed in SIPPs. The Financial Conduct Authority (FCA) previously issued guidance in this respect however there is still some confusion as to the duties imposed on providers and advisers. The central element of that confusion relates to the defence put forward by Berkeley Burke - namely that the diligence they had carried out on the investment was in accordance with the standards applied at the time and that the FOS had created a new duty of care by applying subsequently issued FCA Principles. There is also a concern that many historic cases pre-dating FCA guidance will be re-opened as a result.
The Berkeley Burke case may well now lead to further cases being raised with the FOS for compensation but the need for clarity will only be fulfilled once a SIPP provider with suitable financial backing mounts a challenge through the Courts and obtains a final conclusive Court ruling. The Association of Member Directed Pension Schemes (AMPS), of which Morton Fraser is the only Scottish independent law firm member, discussed the matter at its technical conference in London earlier this month. In order to achieve clarity for the industry, AMPS was prepared to become involved in the Berkeley Burke case via a process known as an intervention in the High Court Appeal in London. This would have allowed them to submit industry supporting evidence, however again things ground to a halt due to the case not proceeding.
Frustratingly, it appears that we must wait for further Court action here to fully understand the definitive position going forward. Until that time, the Pensions industry is going to encounter difficulties operating with complete certainty and clarity around the levels of diligence required in SIPP investments.