In recent years the Financial Conduct Authority (“FCA”) has had significant concerns over operators of Self Invested Personal Pensions (SIPPs) and advisers offering these products or investments in them. In 2013 the FCA issued guidance to SIPP operators and, in 2014, issued a warning letter directly to SIPP operators over continuing failures by them to meet their professional obligations in relation to the sale of certain SIPP investments. The FCA has recently banned and fined SIPP advisors found to be in breach of their obligations. It is timely therefore to look again at the FCA’s concerns and highlight areas in which, if you have a SIPP or invest in a SIPP, your operator and/or adviser maybe open to scrutiny.
One of the specific areas of concern of the FCA is the use of SIPPs to make non–standard or unregulated investments. These investments include, for example, investment in films, overseas property schemes, green energy initiatives and other “out of the ordinary” investments or unregulated collective investment schemes. Where advice or a recommendation is made to invest via a SIPP in a non-standard investment the FCA expects SIPP operators and advisers to have in place and follow strict due diligence procedures. In particular the FCA expects SIPP operators or advisers to be able to demonstrate, as a minimum:
- they have correctly established and understand the nature of the investment;
- that they have undertaken checks to ensure that monies transferred are paid to legitimate businesses and not linked to pensions liberation, money-laundering or other fraudulent activity;
- they have independently verified that the underlying assets of the investment are real and secure i.e. the custody of underlying assets is through a reputable arrangement and any contractual agreements are correctly drawn and enforceable;
- that the investment scheme, if a scheme or initiative, operates as claimed;
- they understand how the investment is to be valued at purchase and periodically and at realisation.
In the event that an operator or advisor has not undertaken the due diligence above, or the due diligence undertaken is insufficient and, they do not have in place enhanced procedures for dealing with non-standard investments then, in short, they should not accept an investment into a SIPP or, otherwise recommend the investment. Any such recommendation or investment is potentially contrary to their professional obligations under the FCA’s Principles for Business which require all firms to conduct their business with due skill, care and diligence.
SIPP Investments and unregulated collective investment schemes continue to be an area of focus for the FCA. If you have a SIPP or are concerned about any investment that you believe is an unregulated collective investment scheme, or want more information on this topic please contact Suzie Done on 01661 844 185 or suzie@clairecollinsonlegal.co.uk.
