UK: High Court Clarifies Extent Of SIPP Administrator's Due Diligence Duties (Pinsent Masons Insurance Briefing: 28 November 2018)

Last Updated: 8 January 2019
Article by Colin Read, Nicholas Bradley and Alexis Roberts

The main topics we're focusing on this week are:

High Court clarifies extent of SIPP administrator's due diligence duties

Regulatory rules require administrators of self-invested personal pensions (SIPPs) to carry out due diligence on their customers' prospective investments, although the High Court has confirmed that they are not providing financial advice. Financial services and SIPP disputes expert Ravi Nayer of Pinsent Masons said that the ruling "has the potential to erase some of the benefits of SIPPs" - a type of personal pension plan which allows individuals to choose how their savings are invested from a range approved by the government and tax authorities. "Requiring SIPP providers to perform due diligence on all investments, albeit without rules to that effect, will inevitably limit the types of investments clients will be able to choose from and consequently remove the investment autonomy that clients have previously enjoyed and which is fundamental to SIPP operators' businesses," he said.

Paper highlights outsourcing risks to regulated firms in Ireland

The Central Bank of Ireland (CBI) has noted an increase in the use of outsourcing arrangements by regulated financial firms in Ireland. "Outsourcing has always been a major focus on the Central Bank and this is even more so the case now in the context of Brexit," said investment funds expert Angus McCarthy of Pinsent Masons. "Impacted firms should consider the content of the Central Bank's discussion paper, conduct a documented review of its risk framework, including outsourcing arrangements and make appropriate changes to their framework, as required. Regulated firms should include risk management, including outsourcing arrangements, as a regular board agenda item to ensure that the matter is given appropriate consideration by the Board, in particular, in light of the evolving financial services landscape."

FCA publishes first-ever financial crime statistics

New figures from the FCA show that suspected money laundering and financial crime continues to be an area of significant concern to the UK financial services industry according to experts at Pinsent Masons. "The figures published in the FCA's analysis of firms' financial crime data makes it clear that financial crime continues to be a material concern for the financial services industry, demonstrated in particular by the number of internal suspicious reports escalated by staff and the significant sums being spent to prevent it. The FCA will no doubt be comforted to some extent that firms are taking their obligations to prevent financial crime seriously. However there continue to be investigations and enforcement by the FCA relating to financial crime indicating that, certainly in the regulator's mind, more can be done by firms to assist with protecting consumers and ensuring market integrity," said contentious regulatory expert Jonathan Cavill of Pinsent Masons.

FOS DB transfer mis-selling complaints on the rise

ANALYSIS: Transfers from defined benefit (DB) pension schemes to less generous defined contribution (DC) schemes have the potential to trigger a mis-selling crisis reminiscent of that of the 1980s and 1990s. The Financial Conduct Authority (FCA) has now issued guidance to improve the quality of pension transfer advice. The Financial Ombudsman Service (FOS) has also recently written about its rising concern with complaints regarding pension advice, and specifically DB to DC transfers. These documents confirm that we're seeing a large increase in customers and firms becoming more aware of the issue, and it is likely that this will only increase in the near future. The cap on FOS compensation may increase in April next year, from £150,000 to £350,000. Given the sums at stake, DB mis-selling exposures are one of those risks to which the new FOS limit will clearly be relevant.

Tribunal upholds FCA bans in Keydata case

Two former senior directors at the now-defunct investment company Keydata Investment Services have failed in their bids to overturn bans preventing them from performing regulated financial services roles. A decision to fine them has been upheld. "The Upper Tribunal decision demonstrates the wide punitive powers of the FCA when the 'approved person' principles are breached, and also indicate how the Upper Tribunal can also exercise its discretion to increase or decrease any penalty imposed by the FCA," said regulatory compliance specialist Tom McDonnell of Pinsent Masons.

Nuisance calls: new UK law provides for director liability

UK law will be updated next month to make it possible to hold company directors personally liable for nuisance calls made by their businesses. The new rules, which will come into force on 17 December, will give the Information Commissioner's Office (ICO) new powers to fine company directors up to £500,000 for breaches of the Privacy and Electronic Communications Regulations (PECR). PECR sets out the legal parameters for electronic direct marketing in the UK. The new Privacy and Electronic Communications (Amendment) Regulations 2018 were laid before the UK parliament on 16 November. 

Cyber incident could trigger next financial crisis, warns CSuré

The next financial crisis could be triggered by a cyber attack, a member of the executive board at the European Central Bank has warned. Benoît CSuré, who also chairs the Committee on Payments and Market Infrastructures of the Bank for International Settlements (BIS), said a "failure to adequately protect against cyber attacks may have far-reaching repercussions". In a speech in Basel last week, CSuré highlighted the "interdependencies" of central clearing systems throughout the world. He said "a default, or an operational outage, of a key node in the network can have significant consequences" across a number of central counterparties.

FCA highlights whistleblowing areas of improvement for FS firms

Financial Services firms have put clear policies and procedures in place to  encourage a 'speak up culture' and ensure that concerns are dealt with robustly and consistently but could improve the way they report on whistleblowing, train staff and highlight the protections available to those who do raise concerns. The FCA has reviewed the way in which firms have engaged with the whistleblowing rules issued in September 2016 in response to the recommendations of the Parliamentary Commission on Banking Standards. "The results of the FCA's review demonstrate that the whistleblowing rules have had a positive impact on the manner in which regulated firms approach whistleblowing within their businesses," said financial services employment law expert Ben Brown of Pinsent Masons "However, the review also highlights a number of areas for improvement which need to be made in order to achieve the significant shift in cultural attitude towards whistleblowing demanded by the FCA."

UK, EU target FS 'equivalence' and regulatory co-operation

Future access for UK-based financial services firms to the EU markets could be based on a position of regulatory "equivalence", aiming for "close and structured co-operation" in regulation and supervision, according to documents published by the UK and European Commission. "Anyone looking for answers to the future of financial services in the draft withdrawal agreement will be disappointed," said insurance and wealth management expert Tobin Ashby of Pinsent Masons, the law firm behind "However, assuming the proposals can survive politically through the coming weeks – or even days – there are commitments beyond financial stability in the political declaration on the framework for the future relationship that echo some of the UK's requests for regulatory and supervisory co-operation and autonomy of decision-making for both sides."

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