The recent judicial review decision in Berkeley Burke Sipp Administration Ltd v Financial Ombudsman Service Limited [2018] EWHC 2878 (Admin) (30 October 2018) has important implications for operators of self-invested personal pension schemes (‘SIPPs’). It confirmed the fundamental importance of the FCA Principles for Business and the very wide discretion given to the Financial Ombudsman Service (‘FOS’) in determining complaints.


Mr Charlton (Mr C) was advised by an unregulated adviser to invest in a scheme of a type which has become all too familiar – involving investment in plots of land intended for planting of Jatropha trees and palm oil production in Cambodia. The adviser introduced Mr C to the SIPP operator, Berkeley Burke (‘BBSAL’), so that Mr C could hold the investment in a SIPP wrapper. Mr C agreed to standard BBSAL documentation with numerous disclaimers, including that he understood the high-risk nature of the investment and that BBSAL had no obligations to ensure suitability or appropriateness of the investment for him.

Predictably, the scheme turned out to be a scam and Mr Charlton lost all his money. The relevant companies had no title to the land and it was entirely unsuitable for palm oil production.

Beyond checking that the investment was capable of being held in a SIPP under HMRC rules and the frequency and nature of valuations (which were limited), BBSAL did no further due diligence on the investment.

FOS determination

Mr C complained to FOS, which found in his favour. The FOS determination was unusually detailed (running to 31 pages) but its main findings can be summarised as follows:

  • Under s.228 Financial Services and Markets Act (‘FSMA’), FOS was obliged to reach a decision which was fair and reasonable in all the circumstances. In doing so, it could take into account relevant law and regulations; the rules, guidance and standards of regulators; codes of practice and good industry practice.
  • BBSAL should have done more due diligence than it did before accepting the investment into a SIPP. This should have included among other things:
    • identifying the investment as high-risk speculative and non-standard (and checking whether it was secure and not a scam);
    • considering whether it was appropriate for a pension scheme;
    • independently verifying that the scheme operators assets were real and secure;
    • ensuring that the investment could be independently valued, both before and after purchase.

In reaching this determination, FOS relied mainly on the application of the FCA Principles for Business, in particular Principles 2 (requiring due skill care and diligence) and 6 (requiring regulated firms to treat customers fairly). It also relied on good industry practice, analysing FCA communications and guidance, including ‘Dear CEO’ letters, reports and guidance – all of which stated the importance of the Principles. It was not fair and reasonable for a firm simply to accept an investment which was technically SIPP’able under HMRC rules while absolving itself from further consequences by disclaimers from the investor. BBSAL’s obligations fell short of assessing the suitability of the investment for Mr C but it was still required to assess whether the investment was suitable for a pension scheme.

The judicial review proceedings

BBSAL challenged the FOS determination. Broadly, the grounds of challenge were that FOS erred in law in applying the Principles in a way that created a new and unexpected duty on the part of SIPP operators to investigate investments before accepting them into a SIPP. Also, the FOS determination was inconsistent with decisions of the Pensions Ombudsman on similar facts.

Jacobs J decisively rejected this and in doing so reaffirmed both the role of the Principles in financial services regulation and the breadth of the FOS discretion to decide what was ‘fair and reasonable’. He relied heavily on the decisions of Ouseley J in the PPI judicial review case (British Bankers’ Association, R (on the application of) v the Financial Services Authority and another [2011] EWHC 999 (Admin)) and R v Financial Ombudsman Service ex p Norwich and Peterborough Building Society [2002] EWHC 2379.

The arguments and the judgment were detailed but can be broadly summarised as follows:

Ground 1 – There was a general error of law in using the Principles to support a new and unexpected duty to investigate on the part of a SIPP operator

The decision of Jacobs J was that the Principles were rules and there was no error of law when they were applied as rules. A court could, in judicial review proceedings, consider their construction by FOS but not their application to the facts of a particular case. He specifically rejected the following arguments:

  • Application of the Principles in this way involved introducing new rules which had not been the subject of statutory consultation under FSMA.
  • The Principles should only be used to clarify or enlarge existing rules. Jacobs J considered that following the BBA case, this was the wrong way round. The Principles were the overarching framework of regulation to which specific rules were added (i.e. they were the starting point). Specific rules could not supplant or contradict the Principles.
  • The FOS decision conflicted with the rule in COBS 11.219R which imposed an obligation on a regulated firm to implement a client’s instructions. On proper analysis, however, Jacobs J held that this rule (which derived from MiFID) related to how a firm should execute a client’s order, not whether it should execute it at all.

Ground 2 – Inconsistency with decisions of the Pensions Ombudsman

Jacobs J considered that different statutory jurisdictions were involved and the Pensions Ombudsman had no equivalent of the ‘fair and reasonable’ test in s.228 FSMA. And so did not need to follow decisions of the Pensions Ombudsman. In any event, the leading cases in public law justified different decisions even under the same statutory jurisdiction where an adjudicator felt unable to follow decisions of predecessors. Also, the facts of Mr C’s case did differ to some extent from the Pensions Ombudsman cases.

What does this mean in practice?

It is certainly anticipated that there will be a significant increase in claims against SIPP operators based on the decision. On 7 November, the FCA wrote a Dear CEO letter to SIPP operators, drawing their attention to the judgment and making clear that they must consider the impact of an increase in claims on their solvency.

It’s still unclear how far the duty of due diligence extends. It obviously requires rejection of fringe investments which are potentially fraudulent. Beyond that, the distinction between assessing suitability for a particular investor and general suitability for a SIPP may be more difficult, particularly where an investment is high risk but not fraudulent. The line seems fairly clear in cases like Mr C’s, but may be more difficult in other cases.

Finally, the scheme seems to have been an unregulated collective investment scheme promoted (and we are told advised on) by an unregulated person. It would seem, therefore, that Mr C may have had potential claims against BBSAL under FSMA s.27 in accepting the business via an unregulated adviser (making the SIPP investment unenforceable and entitling Mr C to return of his money). This is a purely ‘legal’ claim but given the breadth of the FOS discretion, there seems no reason why it could not have relied on it as well. It may be raised in other cases in the future.

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.