A month has now passed since Justice Jacobs gave his judgement in the case between Berkeley Burke and the FOS. But as the dust settles, the overriding sentiment is still one of uncertainty rather than certainty.
There has been some clarity, specifically:
- The high-level ‘Principles of Business’ rules (the “Principles”) always have to be complied with and are an overarching source of obligations;
- It is entirely acceptable for the FOS to apply the Principles to the facts in a way which is not spelt out in specific rules;
The difficulty though is that the principles are wide – “what it amounts to may be ‘very subjective’, with different people holding different views about what a SIPP operator ought to do”.
Moreover, it was not until July 2014 that the FCA publicly set out the key areas in how they assessed due diligence processes (yet it would appear SIPP operators may be challenged on due diligence processes since April 2008).
What remains to be seen, and where clarity is needed, is:
- What will the FOS deem appropriate due diligence (in a context not involving an investment scam) e.g. how closely, or not, will they follow the 2014 FCA guidance;
- The balance to be struck between a SIPP operator discharging their due diligence obligation and the client taking on natural investment risk.
These matters will not be settled overnight. Rather, it would appear case law will gradually shape the conclusions.
But I think it is worth bearing in mind, parallels that can be drawn between challenges facing the adviser community. For example, take transfers from final salary schemes. Uncertainty around regulatory expectations and a fear of being judged by unpublished standards retrospectively would appear common ground.
On the whole, the advisers I come across are determined to do best by their client. I would suggest the same is true of the SIPP operators operating in the advised sector.
If a lesson is to be learned, let’s hope it is that the best, most effective form of regulation comes from a basis of certainty.
Head of Technical Services