It has been a tough couple of weeks for the SIPP industry.

First there was the "Dear CEO" letter from the FCA covering the outcome of their 3rd Thematic Review of SIPP operators. The FCA's biggest criticism was the due diligence procedures SIPP operators applied when assessing non-standard investments. They found that a significant number of SIPP operators were failing to manage these risks, with some firms being asked to restrict their business. The FCA also advised in a separate press announcement a few days earlier that they had initiated enforcement investigation against two individuals from two separate SIPP operators.

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The FCA highlighted 5 key areas they had assessed for due diligence processes but emphasised that the due diligence necessary for individual investments may vary dependent on the circumstances and the five key areas highlighted were not exhaustive. If we look at one of these; "ensuring that an investment is genuine and not a scam, or linked to fraudulent activity, money laundering or pension liberation," this is not necessarily straightforward to ascertain. Within AMPS membership we have seen investments accepted after what appeared to be reasonable due diligence, but at later dates being subject to fraud or suspected fraud, thereby leading to their failure.
AMPS continue to engage with the FCA on what they define as good due diligence and the applicable criteria, as there has to be a limit on what a SIPP operator can reasonably be expected to do.

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The next bit of bad news was the Financial Ombudsman Service (FOS) determination against a SIPP operator over due diligence failings on unregulated biofuel investment scheme Sustainable AgroEnergy in 2011. The SIPP operator initially issued a warning letter to the member advising that the investment was high risk but the member proceeded anyway. The investment duly failed; the member then claimed he did not understand the risk involved and the SIPP provider should not have allowed him to invest. FOS agreed that the SIPP operator had a duty to ensure the investment was suitable for the member. In similar scenarios in the past, FOS and the Pension Ombudsman has found in favour of the SIPP operator, therefore there is great concern in the industry that this ruling will set a precedent and lead to an increase in claims.