Providers of Self-invested Personal Pensions schemes (SIPPs) are facing an uncertain future following the decision of Berkeley Burke v Financial Ombudsman Service which has led to an increase in the number of targeted visits by the Financial Conduct Authority (FCA). The justification of such visits was to assess whether the business model actually complied with its requirements, with the FCA arguing that it had continually identified “serious and ongoing failings”.

The FCA’s findings reported that, in particular, relating to non-mainstream propositions in which the SIPP providers allowed the pensions to be invested into were typically unregulated, high risk and highly illiquid investments - such transfers or switches were unlikely to be suitable for the vast majority of retail customers. Examples of these propositions include overseas property developments, store pods and forestry. In addition, allegations have been made that advisers’ understanding on non-mainstream propositions were also typically lacking, mainly due to inadequate due diligence on the products and on the product provider.

Nevertheless, the FCA has been seen to be adopting a tough stance on providers of SIPP, based on the argument that there have been several accusations of serious failings found at firms which have placed a substantial number of customers’ retirement savings at risk. Yet at the same time, the FCA has also come under fire with suggestions it has a ‘hidden agenda’ against providers of SIPP and was using capital adequacy rules as a way to allay fears about SIPP providers’ systems and controls.

The FCA has regularly launched thematic reviews against firms who provide SIPPs, going back as far as 2009, with regular reviews proceeding this. Following numerous reviews over the past decade or so, it appears that the SIPP market has experienced a decline directly as a result of the FCA ‘stamping’ on the intermediaries, essentially asking them to carry out more due diligence with their prospective clients that will reduce the amount of business going that particular way. The allegations that the FCA is deliberately doing this also makes it more difficult to digest for SIPP providers, who see such regulation as potentially killing the SIPP market. Furthermore, heightened regulation has given SIPP providers an unnecessarily hard time over the past few years, especially where a lot of the issues it has focused on have been the investments held within them, rather than the SIPP themselves.

The SIPP scheme which was approved by the Government and introduced in 1989, essentially allows an individual the freedom to choose and manage their own investments as opposed to their investments being managed within the pooled fund chosen. However, it appears that many individuals are now realising that they could be about to lose a large proportion of their savings, impacting significantly on their retirement plans.

In a recent high-profile case relating to a SIPP provider Berkeley Burke, the High Court dismissed their application for judicial review following a longstanding battle between themselves and the Financial Ombudsman Service (FOS) relating to one of their clients Mr Wayne Charlton. Berkeley Burke had hoped to reverse the decision which was originally made in 2014, concerning Mr Charlton, who must now be compensated after Berkeley Burke failed to undertake due diligence in respect to an unregulated investment following the transfer of his pension funds into a SIPP scheme. It is widely expected now that a plethora of FOS complaints will be upheld where the complaints are based on similar facts to Mr Charlton’s case, with a potential of 270 complaints in the pipeline.

In early 2018, the FCA were allowed to join the case as an interested party whilst also submitting evidence on SIPP operators’ duties when vetting third parties. Most importantly, it tried to knock down Berkeley Burke’s main argument that it was unable to act contrary to the client’s instructions.

The case against Berkeley Burke now means that other SIPP providers exposed to unregulated investments which have failed will be nervously following developments, as any ruling made against Berkeley Burke could see the floodgates open with many potential claims being made against providers. Additionally, there will surely be several claims management companies who will be looking to pounce on vulnerable providers.

A major SIPP provider Lifetime SIPP entered administration in 2017 as a result of several claims made against them. This clearly shows that SIPP providers are far from immune to the current surge of claims around the miss-selling of SIPP investments, and the recent decision of the Financial Service Compensation Scheme (FSCS) to allow claims against SIPP providers has clearly had an impact on how SIPP providers will consider their position, especially if they provide SIPPs that contain non-mainstream investments.

Clearly some SIPP providers are under immense pressure as a result of the outcome of court cases. The ‘vultures’ also appear to be circulating around the smaller firms, ready to pick off the good, solid investments and leave behind the portfolios comprising of esoteric, illiquid investments. Lifetime SIPP is also unlikely to be the only SIPP provider to fall into administration, with a potential domino effect occurring.

With the FCA adamant that an authorised firm which accepts business from an introducer must meet its regulatory requirements, coinciding with the fact that if customers are given unsustainable advice by the introducer, the authorised firm may be held responsible for this and be subject to regulatory action.

SIPP providers should remain cautious when presented with non-mainstream or unregulated investments and consider whether any heightened due diligence should be undertaken in the circumstances. Similarly, if you are a SIPP provider who is facing any complaints you should look to seek advice as to how to best deal with the potential impact on your business and its capital adequacy provisions.

The FCA has also previously sent out a warning letter to all SIPP operators stating that a significant number were failing to comply with capital requirements or undertaking inadequate due diligence in relation to ‘nonstandard’ SIPP providers. As a result, there will be many cases of SIPP providers not being able to comply with the new requirements, particularly those trading on thin margins. This mainly follows the increase in capital adequacy requirements, which has meant that all SIPP operators have had to increase their minimum capital holding from £5,000 to £20,000. The increase in capital was essentially introduced to cover the costs faced by an operator if it was forced to wind down in the event of any financial difficulties. Following this, it is no surprise to see many smaller companies of SIPP providers leave the market.

Although it is a subject of mixed opinion, the consensus is that the industry’s views towards the new capital adequacy requirements are mainly positive, albeit there are those who perceive the new rules to be flawed, citing that the new rules are too complex, putting even more pressure on companies.

In order to stay solvent, there will be many SIPP providers who will need to dramatically increase scheme fees. It is felt that the industry needs to instil a strong compliance culture to protect clients’ assets and demonstrate that it can regulate in line with FCA expectations.

If you are affected by any of these developments, then PCR can help by conducting a full solvency review and advise on the options the business has in light of its results.

For more information please contact our PCR Head Office on 0208 841 5252 or alternatively, you can email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

Ahmed Ali

Practice Development Executive 

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