Court of Appeal dismisses SIPP operator's challenge of UK financial ombudsman decision
Published on 2nd Sep 2024
Focus on pre-contractual due diligence may act as a warning to execution-only providers
The UK Court of Appeal has set aside a judicial review request brought by Options UK Personal Pensions, formerly known as Carey Pensions, to challenge a decision by the Financial Ombudsman Service (FOS).
FOS upheld complaint
The FOS upheld a complaint made against Options by a customer who lost his pension fund in a self-invested personal pension (SIPP), having invested in the UK investment venture Store First's "store pods" scheme.
The UK financial ombudsman found that the pension provider had failed in carrying out appropriate due diligence on both the unregulated broker who introduced the customer and the investment itself and should not have accepted the customer's application to invest in the store pods.
Options' challenge fails
When Options sought judicial review of the ombudsman's decision, the Court of Appeal, in Options UK Personal Pensions LLP v Financial Ombudsman Service Ltd, dismissed all three grounds of challenge.
Argument for quashing the FOS decision | Court finding: grounds challenge failed |
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Options' due diligence
The initial steps Options took included the following:
- Obtaining a report on the store pods investment from an independent compliance company
- Conducting checks on two contacts at the introducer using the World-Check risk database then run by Thomson Reuters
- Requiring the introducer to complete its "non-regulated introducer profile", which stated that "as an [FCA] regulated pensions company [Options] are required to carry out due diligence as best practice on unregulated introducer firms"
The ombudsman concluded that Options had sufficient information available to it, or which it could have obtained through a reasonable level of due diligence, which should have led it to reject the customer's referral and application. This included the fact that a director of the introducer was on an FCA list of unauthorised firms and individuals.
Osborne Clarke comment
This is not the first time Options or the Store First store pods have come before the courts – the Adams v Options case involving the same broker and investment also went to the Court of Appeal, but was distinguished by the ombudsman, as the case was concerned with the post-contractual position.
Given the focus of the decision on pre-contractual due diligence, in particular the importance of identifying and acting on red flags regarding unregulated introducers and specific investments, SIPP operators should consider their policies and procedures in this regard, and whether these are robust enough to stand up to scrutiny in the event of a complaint.
The case also serves as a reminder for all authorised firms of the wide discretion of the FOS, whose award limits have increased to £430,000 for complaints referred on or after 1 April 2024, and particularly its ability to uphold a complaint based on a breach of the FCA principles.
This Insight was written with the assistance of Tundun Basorun, Trainee Solicitor at Osborne Clarke.
