The Financial Services Compensation Scheme’s (FSCS) decision to pay out for claims against three Sipp providers could put more providers at risk of collapse, according to the Association of Member-Directed Pension Schemes (Amps).
In a letter to the FSCS, the trade body for Sipp providers warned the the decision 'increased risk of Sipp operator failure, as operators face the cost of defending claims seemingly encouraged by the FSCS’s action'.
The letter, written by Amps chairman Zachary Gallagher, added the move would create 'an effective transfer to the wider industry of responsibility for prospective losses on investments for which Sipp operators had no regulatory authority to advise in favour of or against, and no proven responsibility for due diligence'.
Last week the FSCS declared Sipp firms Brooklands Trustees, Stadia Trustees, and Montpelier Pension Administration Services in default with £34 million expected to be paid out.
The firms were declared in default after it was ruled due diligence on some of the investments they accepted could be considered inadequate in some circumstances, for example when it came through an unregulated introducer.
Now Amps has challenged the lifeboat fund's decision to accept claims against firms that have gone out of business.
‘The Amps committee has challenged the FSCS’s apparent presumption that claims against named Sipp operators would have succeeded, and the corollary that FSCS should assume responsibility for those claims in its capacity as statutory fund of last resort for customers of authorised financial services firms,' Gallagher wrote.
‘The FSCS would seem to be premature in its presumption that a Sipp operator was responsible in law for “due diligence” on investments chosen by Sipp members, at a time likely to be material in actions resulting in claims seemingly accepted by FSCS.’
Gallagher went on to say the FSCS’s statement could affect the application for judicial review undertaken by one Sipp operator following a Financial Ombudsman Service (FOS) decision on the same basis. That judicial review ‘could affect many Sipp operators’, he added.
‘The action of the FSCS might therefore be seen as potentially prejudicial both in the pending application for judicial review and to the interests of Sipp operators generally,’ Gallagher said.
The name of that Sipp operator seeking judicial review was not named by Amps.
One Sipp firm seeking a judicial over a FOS decision is Berkeley Burke after the FOS upheld a complaint against it in 2014 over due diligence on investments it accepted.
Gallagher, the Amps chairman, is also a director of Berkeley Burke. At the time of publication Amps had not responded to requests for clarification on the name of Sipp provider involved in the judicial review.