Summary note on the basis of claims for the three SIPP Operators declared in default

On 19 January, FSCS declared the following three Self Invested Personal Pension (SIPP) operators in default pursuant to COMP 6.3.2R on the basis that they are unable or likely to be unable to satisfy protected claims against them:

• Stadia Trustees Ltd;
• Brooklands Trustees Ltd; and
• Montpelier Pension Administration Services Ltd.

FSCS has received a number of claims for compensation in relation to these SIPP operators. In addition to being the SIPP operator, Stadia and Brooklands were also the trustees of the SIPPs. In relation to Montpelier, the FCA cancelled its Part IV permission on 14 October 2011 and the managing director of Montpelier was the subject of enforcement action by the FCA which concluded that he was not a fit and proper person on the basis of failings including in respect of due diligence on introducers and SIPP assets.

FSCS may pay compensation to an eligible claimant if it is satisfied that their application for compensation relates to a protected claim. A protected claim is a valid claim made in respect of a civil liability owed by the firm (or successor) to the claimant (or successor) which is covered by FSCS.

FSCS must make its determination whether to pay compensation in accordance with the COMP Rules. FSCS has carried out a thorough examination of the claims and taken external legal advice.  FSCS is satisfied that there are claims where the conduct of the SIPP operators FSCS has declared in default gives rise to a civil liability to the investors because the SIPP operators failed to exercise reasonable care and skill, breached regulatory requirements  and/or breached trustee duties.

Many of the investments were higher risk such as oil investments, foreign hotel room investments and foreign vineyard investments and made by consumers with little investment experience and modest funds to invest. Often the investor was not actively looking for alternative pension investment opportunities but made the investment following a cold call by an overseas introducer who referred the consumer to the SIPP operator on a non-advised basis. In some instances, investors transferred all or the vast majority of their existing pension from an occupational pension scheme into the SIPP.

Many of the underlying investments held via the SIPPs are illiquid and have little or no current value resulting in consumers having lost a substantial portion of their pension pot.

Instances of SIPP operator failures include:

• Failing to carry out any due diligence on the underlying investment held in the SIPP.
• Receiving information that indicated that the non-advised investor did not understand the SIPP investment and/or that they were not receiving any advice and yet failed to seek clarification of the investor’s understanding.
• Failing to check that advisers who advised investors had the necessary FCA permissions.
• Did not have the necessary authority from the investor to authorise the underlying investment being made via the SIPP.

Subject to the facts of each claim, given the role of the SIPP operator and the requirements of the COMP Rules, FSCS considers that the calculation of compensation on the basis of the value of the investment made into the SIPP is likely to provide the claimant with fair compensation subject to the requirements of COMP12.4.

 19 January 2018