Options UK Personal Pensions LLP v Financial Ombudsman Service Limited

A financial ombudsman determines a complaint by reference to what is fair and reasonable in all the circumstances. The ombudsman may award compensation for failures to observe regulatory Principles, guidance or good industry practice even where those standards would not support an action for damages.

The ombudsman must take account of the matters prescribed by the regulatory scheme and give reasons sufficient to make the decision intelligible and reviewable. A SIPP operator’s execution-only role does not exclude pre-contractual duties to conduct due diligence when deciding whether to accept an introducer, applicant or investment. Rules governing execution of an accepted order apply at a later stage and do not require the operator to accept the order initially.

A regulated provider and administrator of self-invested personal pensions operated on an execution-only basis. It accepted a prospective member introduced by an unregulated overseas business and invested most of his transferred pension fund in unregulated storage units. The investment failed and the member lost the fund.

The Financial Ombudsman Service upheld the member’s complaint. It concluded that adequate due diligence on the introducer and investment would have caused the provider to reject the application, and awarded compensation. After the High Court refused permission to seek judicial review in [2022] EWHC 3325 (Admin), the Court of Appeal granted permission, retained the judicial review claim and considered it.

The issues were whether the ombudsman adequately explained any departure from actionable legal standards, misdirected himself about a SIPP operator’s obligations, or reached irrational findings about due diligence.

1. Claim for judicial review dismissed. Under section 228 of the Financial Services and Markets Act 2000, an ombudsman determines a complaint by reference to what is fair and reasonable in all the circumstances. The jurisdiction is wider than adjudication of common-law or statutory causes of action. The ombudsman must take account of the matters specified in DISP 3.6.4R but is not confined to standards enforceable in court proceedings.

2. The FCA Principles form part of the relevant regulatory framework. Their lack of a private right of action does not prevent them from creating regulatory obligations or from contributing to a determination that compensation is fair. Sections 228 and 229 permit a money award where the decisive circumstances include non-actionable regulation, guidance or good industry practice. The Ombudsman was therefore entitled to rely principally on Principle 6 without founding his decision on COBS 2.1.1R.

3. An ombudsman must explain the matters taken into account and their relevance sufficiently to make the decision understandable and amenable to review for irrationality. The ombudsman need not begin every decision with a formulaic survey of all contractual, tortious and actionable regulatory duties. Here, he adequately explained that the execution-only contract did not govern the earlier decision whether to accept the application, introducer and investment. He also explained why the Adams decisions concerned materially different issues.

4. The Ombudsman did not create an unlawful new duty. A SIPP operator’s execution-only status and lack of authority to advise on suitability do not displace pre-contractual regulatory obligations. Due diligence may address whether an introducer, prospective member or type of investment should be accepted at all, without assessing personal suitability or recommending an investment. Carey’s own procedures and documents recognised that due diligence was required and that applications and investment instructions could be refused.

5. COBS 11.2.19R governs the execution of an order which has properly been accepted. It does not govern the anterior question whether the order should be accepted. The Principles are not displaced or exhausted by that specific rule.

6. The findings that Carey should have checked the FCA warning list directly and should have treated the available information about the introducer and investment as warning signs were within the range of rational conclusions. Ambiguities in material supplied to the FCA and discrepancies concerning county court judgments did not render the decision irrational.

• Court of Appeal (Civil Division): Having previously granted permission and retained the judicial review claim, the court unanimously dismissed the claim: [2024] EWCA Civ 541.
• High Court, Administrative Court: Bourne J refused permission to apply for judicial review following a renewed oral hearing: [2022] EWHC 3325 (Admin).
• High Court, Administrative Court: Cockerill J had previously refused permission on the papers.