Emma RadmoreThe High Court has refused a renewed application for permission to apply for a judicial review of a FOS decision brought by Options UK Personal Pensions LLP (previously Carey Pensions UK LLP).
FOS made a decision after a Mr Fletcher transferred around £30,000 of pensions savings into a business held in a SIPP administered by the firm. He had done so following a cold call from an unregulated business, Commercial Land and Property Brokers (CLP). CLP gave Mr Fletcher £2,000 cash-back from his investment. Mr Fletcher made a significant loss and complained to FOS that the firms had not carried out sufficient due diligence on CLP before accepting business from it.
The firm had accepted instructions from CLP on numerous occasions, starting in 2011. It had carried out basic background checks and requested CLP to complete a “non-regulated introducer profile”. It had queried that an investor was expecting a payment from CLP in return for making an investment in Store First (the company in which Mr Fletcher invested), and stressed to CLP that such an inducement would be prohibited. CLP said it did not give inducements. In 2012, the firm asked for further information to monitor CLP but did not receive it, and received further reports of prohibited inducements being paid. It then carried out a repeat check on a key individual, which revealed he was on the then FSA’s list of unauthorised firms and individuals. It then terminated its agreement with CLP, on the basis of the banned inducements.
Mr Fletcher complained that the firm had not undertaken any or any sufficient due diligence before accepting referrals from CLP, and that this had enabled CLP and Store First to trick him into losing his money. FOS issued a provisional decision, saying it would uphold the complaint, and the firm sought an oral hearing to further explore Mr Fletcher’s understanding and motivation for entering into the transaction. It further said that the due diligence duty was not recognised by law and that if FOS was going beyond legal requirements it had to clearly explain why it was doing so. FOS upheld the complaint anyway. It took into account that the firm is an execution-only firm, but nevertheless said that if it had carried out proper checks on CLP at the outset, it would have found that the relevant individual had received a warning notice from FSA in 2010 – and that if it had asked for CLP’s accounts at the outset it would have been alerted then, rather than 2 years later, by CLP’s failure to provide them. So, FOS said, although the firm had no duty to advise Mr Fletcher, it was not fair or reasonable for it to accept his SIPP application, and therefore it was fair and reasonable for the firm to compensate him for his loss. FOS also refused the firm’s request for an oral hearing, saying it had all the information it needed.
This case is not without precedent, given the Berkeley Burke and Adams cases, the latter being also against the firm.
In this case
- The High Court said that the obligation on FOS to explain a departure from the law has nothing to do with any distinction between actionable and non-actionable rules – simply to explain why, if FOS upholds a complaint against a provider despite them complying with all rules and guidance, the reason for the upholding. However, in this case, FOS upheld the complaint by reference to relevant rules and guidance;
- The High Court rejected the allegation that FOS had erred in law by finding that the firm owed duties to prospective SIPP members to carry out due diligence on introducers and relevant investments;
- The High Court rejected the allegation that the ombudsman failed to give adequate reasons for the decision;
- The High Court rejected the allegation that the decision was irrational and contained logical flaws or conclusions outside the range of what was reasonable – agreeing that the challenge was to the merits of the decision, and did not meet the high bar for a challenge that it was irrational; and
- the High Court said there was no case to argue on the allegation that refusal to convene an oral hearing meant the procedure was unfair