Adams v Options UK Personal Pensions LLP

An unregulated intermediary may give regulated investment advice by promoting an unregulated asset as part of a single transaction requiring the sale of an existing pension and acquisition of a particular SIPP. The communication must be assessed realistically and as a whole.

Arrangements bring about an investment transaction where they have significant causal potency. Neither inevitability, a direct causal connection nor simple but-for causation is the governing test.

Under section 27 of the Financial Services and Markets Act 2000, an authorised provider accepting business resulting from such unlawful activity risks unenforceability and restitution. For section 28 relief, actual knowledge is the statutory consideration, but its absence does not compel relief. Constructive knowledge and consumer protection may remain material.

The claimant transferred a modest personal pension into an execution-only SIPP operated by the defendant and invested almost all the proceeds in high-risk storepods. He acted after an unauthorised intermediary promoted the investment, recommended the defendant as the SIPP provider and assisted with the application. The investment suffered substantial losses.

The High Court dismissed claims under sections 27 and 138D of the Financial Services and Markets Act 2000: [2020] EWHC 1229 (Ch). The claimant appealed. The central issues were whether the intermediary had advised on or arranged transactions in regulated investments, whether the SIPP agreement was made in consequence of those contraventions, whether section 28 relief should be granted, and whether the claimant could advance a substantially reformulated client-best-interests case on appeal.

1. Appeal allowed in respect of the section 27 claim and dismissed in respect of the COBS claim. Newey LJ gave the principal judgment. Rose LJ and Andrews LJ agreed.

2. A change in the assets held within a SIPP does not, without more, sell, dispose of or convert the member’s rights under the SIPP. The member retains the same pension rights, although their value may depend on different assets. Advice merely to exchange two underlying assets which are not specified investments is therefore not regulated on that basis. The contrary view in the FCA’s perimeter guidance was incorrect.

3. Advice concerning an unregulated investment may nevertheless involve regulated advice. The intermediary’s conduct must be assessed holistically. Promoting storepods as an investment to be acquired through the sale of an existing personal pension and purchase of a Carey SIPP conveyed advice on both regulated transactions. A recommendation can be advice on the merits without detailed product information. Advice may also concern particular investments even though it encompasses more than one product.

4. For article 25(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, arrangements bring about a transaction where they have causal potency and play a significant role. But-for causation is insufficient. The transaction need not follow inevitably, and a direct causal connection is not indispensable. The intermediary’s completion of substantial parts of the application and its assistance with authority and anti-money-laundering documents were significantly instrumental in the pension transfers.

5. The intermediary accordingly contravened the general prohibition by advising on investments and arranging deals in investments. Its advice and arrangements caused the transfer into the SIPP. Section 27 therefore rendered the provider’s agreement unenforceable and entitled the claimant to the statutory recovery, subject to section 28.

6. Section 28(6) concerns the provider’s actual knowledge, not what it ought reasonably to have known. Absence of actual knowledge does not, however, require relief under section 28(3). Constructive knowledge may be considered in the overall just-and-equitable assessment. Relief was refused because section 27 allocates the risk of unauthorised introductions to authorised providers, the volume and character of the business should have caused concern, and the provider permitted the transaction to continue after serious warning signs had emerged.

7. The reformulated COBS claim could not be advanced for the first time on appeal. It differed radically from the pleaded case and would have required further factual and expert evidence. The precise financial order was left for agreement or short written submissions.

1. Court of Appeal (Civil Division): By [2021] EWCA Civ 474 , unanimously allowed the appeal on the section 27 claim but dismissed it on the COBS claim.
2. High Court, Chancery Division: By [2020] EWHC 1229 (Ch), dismissed all claims, including those under sections 27 and 138D of the Financial Services and Markets Act 2000.