Court of Appeal Upholds FOS Ruling in Carey Pensions (Options) Sipp Mishap

The Court of Appeal has delivered a blow to Options Pensions (formerly Carey Pensions) by siding with the Financial Ombudsman Service (FOS) in a recent Sipp-related case. This decision throws out Options’ attempt to challenge a FOS ruling through a judicial review.

Background of the Case

The case centred around Carey Pensions’ (now Options) operation of a Sipp scheme. They claimed to function as an “execution-only” provider, simply carrying out client investment instructions without offering financial advice. However, the FOS disagreed.

FOS Ruling and Options’ Challenge

The FOS determined that Carey Pensions had a responsibility to conduct due diligence on both unregulated introducers and the investments themselves. Options contested this finding, arguing such due diligence wasn’t necessary.

Court’s Reasoning

The Court of Appeal, led by Lady Justice Asplin, disagreed with Options. They pointed out that while Carey may have haphazardly performed pre-contract due diligence, their own documentation implied they understood this to be a requirement. Additionally, their ability to refuse Sipp applications and investment instructions highlighted their discretionary power, further suggesting a need for due diligence.

The court distinguished this case from the unrelated “Carey v Adams” case, where the Court of Appeal previously found unregulated advice had been given. Options’ attempt to appeal this latest ruling to the Supreme Court in 2022 was also unsuccessful.

The Fletcher Case: A Catalyst

This recent case stemmed from a 2011 incident. Carey Pensions accepted a client, Mr Fletcher, introduced by an unregulated introducer. Mr Fletcher transferred his pension to a Carey Sipp and invested in “store pods” promising guaranteed returns with minimal risk. Ultimately, the investment failed, and Mr Fletcher lost his entire pension pot.

Mr Fletcher rightfully complained to the FOS, who found Carey had neglected proper due diligence on both the introducer and the investment. The FOS argued that Carey should not have accepted Mr Fletcher’s application in the first place, considering the nature of the introducer and the investment.

Court’s Agreement with FOS

The Court of Appeal concurred with the FOS. They clarified that the due diligence requirement did not involve offering investment advice (which Carey wasn’t authorised for). Instead, it focused on whether the investment itself was suitable for acceptance within the Sipp scheme, considering all factors.

Options’ Arguments Rejected

Options presented three arguments in defence:

1. The FOS awarded compensation in an instance where a court wouldn’t have.
2. The FOS wrongly concluded Carey owed a duty to prospective Sipp members regarding introducer and investment due diligence.
3. The FOS’s conclusions on specific breaches of duty were unreasonable.

The court, however, dismissed all three arguments, finding no basis for a legal challenge.

The Takeaway

This Court of Appeal decision strengthens the FOS’s authority regarding Sipp provider responsibilities. It underscores the importance of due diligence for Sipp operators, especially when dealing with unregulated entities and potentially risky investments. This case serves as a reminder for investors to carefully research Sipp providers and the investments they offer before making any decisions.