In my article for Financial Planning Today earlier in January I questioned just how “fair and reasonable” are the decisions being reached by the Financial Ombudsman Service - particularly in relation to historic events involving SIPPs and SIPP investments.

I did not expect to return to this subject so swiftly but I feel compelled to make some further comments having just read the recent determination involving a complaint by Mr T against Rowanmoor Pensions.

Again I should make it clear that I have no specific information on the particular case other than what I have read in the 63 page determination – that includes the content of the provisional judgment. However there has been wide awareness within the SIPP sector of the investment central to this case, which was a luxury hotel room in Cape Verde.

The details of the determination confirm that during the period from June 2009 until October 2013 Rowanmoor accepted 1,387 SIPP investments via a regulated adviser called CIB which mainly involved investment in Cape Verde hotels.

Of those 1,387 SIPPs, 341 involved one or more transfers from DB schemes.

Much of the Ombudsman’s justification for finding against Rowanmoor is based on the same arguments that have been used in several recent determinations relying heavily on the Berkeley Burke/FOS/Charlton & FCA judgment which - unlike the Rowanmoor case – involved a fraudulent investment.

The ramifications of this latest determination by the Ombudsman, which involved a claims management company representing Mr T, could be profound given the potential number of claims.

CIB, the regulated adviser involved, was dissolved in 2015 and Mr T has already received a payment of £50,000 from the FSCS. This is despite the fact that Rowanmoor argued that the investment has not failed but the value is suppressed due to the pandemic and they believe it is a tradeable investment with potential for future income.

The Ombudsman determined that it was Rowanmoor’s failings that caused Mr T’s entire loss and concluded that Rowanmoor should compensate Mr T for his total loss, on the understanding that the £50,000 would be repaid to the FSCS.

The Ombudsman’s justification for his decision is extensive and well beyond the scope of this article. If it’s of interest then I suggest obtaining a copy of the determination from the FOS website. However there are two particular points that I wish to make in relation to the determination.

The first is that there are copious references throughout the determination to what the Ombudsman understood to be good industry practice at the time of the events. On the assumption that the Ombudsman was not working in the pensions industry at the time of these events – over ten years ago in Mr T’s case – this view on good industry practice appears to be based largely on the views expressed in the FSA’s first thematic review published in October 2009.

That review caused considerable confusion at the time within the SIPP industry to the extent that a year later AMPs - the SIPP trade body – felt it necessary to issue a newsletter to their members which emphasised the need for senior management responsibility and for risk management strategies.

Furthermore five years later the Pensions Ombudsman concluded in a determination that a SIPP operator’s responsibility is limited to “guidance, help and support while appropriateness and suitability are the responsibility of advisers”. Surely that in itself is reason to question the FOS’s interpretation of what was good industry practice at the time.

However, of even more concern in the Rowanmoor case is the fact the SIPPs were introduced to Rowanmoor by a regulated business CIB. At no point during the determination is any reference made to any supervisory action taken by the FSA - and latterly the FCA - with regard to the advisory firm. This has echoes of the “1 Stop Financial” scandal during the period October 2010 to November 2012 when the small advisory firm in South Wales set up almost 2,000 SIPPs invested in esoteric investments - including almost half in Harlequin property. Again their activities apparently went entirely under the regulator’s radar.

Given the damning report on the FCA’s regulation of London, Capital and Finance during the period 2014-2019 I believe there are good grounds for a similar investigation of the FSA’s regulation of the SIPP market and its participants during the period 2007-2013.

Sadly I think that’s unlikely which is a shame because, as is evident from recent FOS determinations, it is all too easy for the Ombudsman to ignore the detrimental impact of an ineffective regulator when deciding what is “fair and reasonable.”                                  

John Moret is principal of MoretoSIPPs consultancy and one of the UK's most experienced SIPPs experts, commentators and speakers. He has worked for Suffolk Life and several other SIPPs providers. He is chair of advisory business Intelligent Pensions and CX insight business Investor in Customers.

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www.moretosipps.co.uk