The Financial Service Compensation Scheme has recently made decisions against several SIPP providers which have greatly widened the potential for customers to make claims for their lost investments. In declaring three firms to be in default, the FSCS have made their stance clear on firms that operate non- standard assets.
If the company operating the SIPP failed to carry out satisfactory due diligence on the investments their client’s pensions would be invested in, then this could lead to a potential claim against the provider. As a result of this, the FSCS has more than doubled its financial levy for the year for pay-outs for these claims from £10 million to £34 million pounds. The three firms declared in default are Stadia Trustees Limited, Brooklands Trustees Limited, and Montpelier Pension Administration Limited. At least 150 claims will be paid out, with potentially thousands to follow.
This is an interesting change in approach by the FSCS, who previously held the position that it was the advisors who would face the majority of the claims. Claiming this money back would be potentially very difficult for the customer if the advisors were out of business, or hard to track down, and would be capped at £50,000 per person per claim, regardless of the amount invested. By opening the scope of claims to be against the SIPP provider as well, this is another potentially avenue that could be explored if the customer was sold a poor investment. It also lessens the strain the advisors in the industry would feel, as the FSCS payments are funded by levy’s paid by financial advisors, so the “good guys” effectively fund compensation claims against the bad advisors.
A poor investment would usually be what is classed as a non-standard asset. The FSCS stated in a press release on 19th January that the claims relating to the firms noted above “relate to the way in which these firms established, operated and administered SIPPs through which consumers invested in non-standard investments such as storage pods, oil fields, diamonds and overseas property”. These, and many others, have been highlighted as potentially risky, unsafe investments, and significant amounts of compensation have been paid out already.
The FSCS Chief Executive Mark Neal also said as part of the above press release that they expected to receive more claims of a similar nature in the coming months.
This is potentially a huge development in the on-going saga around mis-sold SIPP’s. With the FSCS now considering that the SIPP providers liable for loses of their customers, with the Financial Conduct Authority also previously warning SIPP providers about the importance of thorough due diligence, it is clear that any customers who can show that the proper due diligence was not carried out by their SIPP provider when the policy was started could have a strong case for compensation.
This FSCS has come under heavy criticism from the chairman of the SIPPs providers trading body, the Association of Member- Directed Payment Schemes (Amps). In a letter to the FSCS, Zachary Gallagher said that such an approach could drive several SIPP providers out of business, and also suggested that this release could prejudice on-going judicial legal cases that SIPP providers have. One such provider, Berkeley Burke, faces legal action from 77 investors in a group litigation. If the law courts follow a similar approach to the FSCS this could lead to a number of SIPP providers facing a substantial number of claims.
