Court of Appeal upholds Financial Ombudsman’s decision in “execution only” SIPP challenge

20/05/24

The Court of Appeal (Underhill, Asplin and Popplewell LJJ) has today handed down judgment in Options UK Personal Pensions LLP v Financial Ombudsman Service [2024] EWCA Civ 541. Unusually, when granting permission Carr LJ (as she then was) had retained this judicial review claim to the Court of Appeal.

This was a challenge brought by Options UK (then known as Carey Pensions UK) which operated as what it termed an “execution-only” self-invested personal pension (“SIPP”) operator, whereby it would execute a customer’s investment instructions but not offer any regulated advice on those investments. The Financial Conduct Authority (FCA) had repeatedly expressed its concerns with such arrangements, explaining that its expectation was that all SIPP operators should have adequate procedures and controls to allow them to identify possible instances of financial crime and consumer detriment such as unsuitable investments.

In August 2011, Carey began accepting referrals from an unregulated entity located in Spain. One such customer was Mr Fletcher, who agreed to transfer his entire pension to a SIPP operated by Carey and invest in a product (“store pods”) which were said to have guaranteed returns and involve very little risk. In the event, the investment was unsound and Mr Fletcher lost the entire pension fund. Mr Fletcher complained to the Financial Ombudsman Service who determined that Carey failed to carry out due diligence on both the unregulated introducer and the investment to the standard that was consistent with good industry practice and its regulatory obligations at the time. The Ombudsman further concluded that, had it done so, it would have refused to accept Mr Fletcher’s application.

Carey contended that the Ombudsman’s decision ought to be quashed on three bases: (i) the Ombudsman had failed to give adequate reasons; (ii) the Ombudsman erred in finding that the Claimant owed duties to prospective members of its SIPP to carry out due diligence on those who had introduced them and the investments selected; and (iii) the Ombudsman’s conclusions in relation to particular breaches of duty were unreasonable. 

The Court rejected all three complaints and upheld the Ombudsman’s decision. In so doing, the Court confirmed that the general obligations on authorised persons contained in the twelve principles set out in the FCA Handbook may form the basis for an opinion that it would be fair and reasonable in the circumstances of the case to uphold a complaint and award compensation or redress. In so doing, the Court approved two earlier decisions of the High Court: R (British Bankers Association) v Financial Services Authority [2011] EWHC 999 (Admin) and R (Berkeley Burke SIPP Administration Ltd) v Financial Ombudsman Service [2018] EWHC 2878

The Court also clarified its 2008 guidance in the Heather Moor case which required that where an Ombudsman was departing from the common law position, this ought to be made clear. The Court explained that this guidance was not to be applied in a restrictive way, and in particular, it did not require that “in each and every case, the ombudsman must first, set out all the relevant contractual provisions and tortious duties which apply and state why it is considered appropriate in the particular case to go beyond them”. Similarly, the Court explained that it was not intended “that the same exercise should be carried out in a formulaic manner in relation to regulations which are actionable pursuant to section 138D(2) FSMA 2000, before turning on to non-actionable regulations, guidance and best practice”.  

The decision is here.