Berkeley Burke Sipp Administration Ltd v Financial Ombudsman Service Limited

An ombudsman deciding what is fair and reasonable under Financial Services and Markets Act 2000 may apply broad, consulted regulatory Principles to the facts without thereby creating a new rule requiring prior consultation. The Principles operate as an overarching framework and may apply where specific rules do not address the circumstances. A best-execution rule governing how an accepted order is executed does not create an anterior obligation to accept every client instruction. Different ombudsman schemes need not produce identical outcomes where their statutory tests differ.

Berkeley Burke SIPP Administration Ltd challenged a final decision of the Financial Ombudsman Service requiring it to compensate Mr Wayne Charlton after accepting a fraudulent Cambodian agricultural investment into his self-invested personal pension. The Ombudsman concluded that Principles 2 and 6 of the FCA’s Principles for Businesses required adequate due diligence beyond checking whether the investment was capable of being held in a SIPP.

The challenge alleged that this imposed an unconsulted and unexpected duty, conflicted with COBS 11.2.19R, and departed unlawfully from decisions of the Pensions Ombudsman. The central issues concerned the scope of the Ombudsman’s fair-and-reasonable jurisdiction, the relationship between general Principles and specific rules, the meaning of best-execution provisions, and consistency across different statutory schemes.

1. Judicial review approach. Under section 228(2) of the Financial Services and Markets Act 2000, the Ombudsman must determine what is fair and reasonable in all the circumstances. The court may construe the rules, but their application to the facts is for the Ombudsman. In the absence of irrationality or perversity, the court must not substitute its own view.
2. Consultation and augmentation. The Ombudsman did not create a new rule. He applied consulted Principles 2 and 6 to the facts, concluding that due skill, care and diligence and fair treatment required adequate due diligence before accepting the investment. The Principles are overarching and may augment specific rules or address circumstances not specifically covered.
3. Best execution. COBS 11.2 concerns the manner of executing an order once accepted, not whether the order should be accepted. COBS 11.2.19R requires a specific instruction to be followed in executing an accepted order, but does not mandate execution come what may. It did not conflict with the Principles.
4. Consistency. The FOS and Pensions Ombudsman operated under different statutory schemes and applied different criteria. The FOS Ombudsman was entitled to form his own view under section 228(2), having regard to relevant matters including good industry practice.
5. Disposition. The claim for judicial review was dismissed.

First-instance judicial review decision. The claim challenging the Financial Ombudsman’s final decision was dismissed.