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Berkeley Burke loses legal appeal against FOS decision

Sipp provider Berkeley Burke has had its claim for a judicial review dismissed against a decision by the Financial Ombudsman Service, which held it responsible for failing to perform the required due diligence in accepting unregulated investments.

Berkeley Burke loses legal appeal against FOS decision

Sipp provider Berkeley Burke has had its claim for a judicial review against a decision by the Financial Ombudsman Service (FOS) dismissed.

In 2014 the FOS found Berkeley Burke was responsible for failing to perform the required due diligence over accepting unregulated investments it accepted.

Berkeley Burke launched a legal challenge against this decision. It claimed that, as a Sipp provider, it did not have a regulatory duty to ensure all investments were suitable. 

However Justice Jacobs found the FOS followed Financial Conduct Authority guidelines when making its decisions. He has therefore dismissed the appeal claim.

'I do not accept that the Ombudsman, in his decision, was creating a new rule at all. His approach was simply to identify the existing rules, specifically the principles which had been consulted upon, and then to decide how those rules applied in the context of the particular facts before him. This is apparent from the decision as a whole,' Justice Jacobs said.

The case itself concerned Wayne Charlton, a client who transferred his personal pension to Berkeley Burke to invest in a Cambodian "green oil" scheme offered by a company called Sustainable AgroEnergy plc (SA). 

A large number of other individuals invested in the scheme, with some 616 investors investing around £12.25 million in Sipps operated by Berkeley Burke, according to the judgement. 

In setting out the verdict, the judge stressed he had not found that Berkeley Burke should have assessed the suitability of the high-risk investment for Charlton.

'I accept Berkeley Burke had no obligation to give advice to Mr C, or to ensure otherwise the suitability of an investment for him. My finding isn't that Berkeley Burke should have concluded that Mr C wasn't a candidate for high-risk investment. It's that Berkeley Burke should have concluded the investment wasn't acceptable for his pension scheme and thereby failed to treat Mr C fairly or act with due skill, care and diligence when accepting the investment.

'I'm satisfied that if Berkeley Burke had acted fairly and reasonably in its dealings with Mr C by carrying out adequate due diligence, it wouldn't have accepted SA as a permitted investment. I therefore don't accept Berkeley Burke's submission that it had no choice but to make the investment, or that the rules allowed it to simply give risk warnings and go ahead.’ 

Martin Tilley (pictured above), director of technical services at Dentons, said the judge’s decision could have wider effects on the Sipp market, although other cases will depend on their individual circumstances.

'This ruling looks at this particular instance only, so while it is not a landmark case, the implications could ripple through the rest of the Sipp market in that assessments made and the references to the requirement of the Sipp provider [to carry out proper due diligence] could have a greater implication.

'It looks as if individual cases need to be assessed separately. So I don’t think it is quite the landmark decision it might have been, because we now need to determine if the Sipp provider’s due dilligence was sufficient in each case.

'The ruling is quite clear in that it relates to this case and accepts the FOS in this case was lawful. The worrying thing is that it hasn’t created a new law or a new requirement.'

A spokesperson for Berkeley Burke said that the company would seek to appeal the decision:

'The company notes the ruling in the judicial review and, on legal advice, will be seeking leave to appeal, while continuing to maintain that it acted in this matter, and in all its other Sipp administration work, in full compliance with its primary duties as set out in the FCA's conduct of business sourcebook (Cobs) and in accordance with the prevailing laws and regulations as set out by Financial Services and Markets Acts 2000 as amended by the Financial Services and Markets Act 2012.

'The company maintains that the ruling of the FOS in this case is based on a fundamental misinterpretation of the duties of a Sipp administrator, as set out in the FCA's Cobs rules, which go beyond both the clearly stated duties and intentions of the Act and the rules and principles prescribed by Cobs, both in relation to this and all similar Sipp administrators, and more broadly to any FCA regulated financial services firm offering execution-only services.

'The company shall take all reasonable steps to pursue this case and defend its position through the appeal process, to ensure that both regulated financial service operators and their customers can continue to conduct business with the certainty that the rules of conduct of the appropriately appointed independent regulator – in this instance the FCA – shall apply to all parties uniformly and with the intended effect in which they were drafted.'

Read the judgement in full below. 


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