London & Colonial Services Limited · DRN-5644544

The complaint London & Colonial Services Limited ('L&C') recently changed its name to Pathlines Pensions UK Limited but for ease of reference I'll simply be referring to L&C throughout this decision. Mr M complains that L&C didn’t meet its regulatory obligations and failed to undertake sufficient due diligence on the firm that introduced his business and on a White Sands Country Club (‘White Sands’) investment he made through his L&C Self-Invested Personal Pension (‘SIPP’). Further, that as a result of L&C’s failings he has suffered losses. What happened Both parties to this complaint have, at times, made submissions through representatives and, for simplicity, I refer to Mr M and/or L&C throughout this decision even where the submissions I’m referring to were, in fact, made on their behalf by one of their representatives. I've outlined the key parties involved in Mr M’s complaint below. Involved parties L&C L&C is a regulated pension provider and administrator. It’s authorised to arrange deals in investments, deal in investments as principal, establish, operate or wind up a personal pension scheme and to make arrangements with a view to transactions in investments. Sorensen Financial Services (‘Sorensen’) Sorensen was authorised by the regulator – the Financial Services Authority (‘FSA’), which later became the Financial Conduct Authority (‘FCA’) – to advise on products and services including giving investment advice and arranging deals in investments. The Financial Services Compensation Scheme’s (‘FSCS’) website records that Sorensen failed on 1 September 2017 and the FCA Register shows that it ceased to be authorised after 27 November 2018. A representative of Sorensen signed an L&C Intermediary application form on 22 September 2011. This confirmed, amongst other things, that Sorensen had read and agreed to be bound by the terms of the Intermediary Agreement for Non-Insured Contracts and the Intermediary Agreement for Insured Contracts. Henderson Carter Associates Limited (‘HCA’) HCA was a different advisory firm that was authorised by the regulator. In 2017 HCA went into liquidation and is now dissolved. Green Planet Investment Limited (‘GPIL’)

-- 1 of 70 --

GPIL was incorporated in Gibraltar. GPIL marketed a property investment scheme in Brazil to investors. GPIL wasn’t regulated by the financial services regulator. This case involves investments in GPIL’s White Sands Country Club. As I understand it, GPIL granted a mandate to Capital Alternatives Sales And Marketing Limited to sell, on GPIL’s behalf, land owned by GPIL’s Brazilian subsidiary. Capital Alternatives Sales and Marketing Limited (‘CASML’) CASML was incorporated in April 2009 in the name Brett UK Limited by a Mr J. In January 2010 the company changed its name to GPIL as well. Later, in April 2012 it changed its name to CASML. By January 2013 (when Mr M signed paperwork to invest in White Sands), Mr J had been appointed director of over 70 companies named “White Sands Country Club [a number] Limited”. This included being director of the company, White Sands Country Club WS3709 Limited, (incorporated in January 2013) that Mr M’s pension monies would be invested in. Both GPIL and CASML were ordered into liquidation on grounds of public interest on 20 November 2013, this followed an investigation by the Insolvency Service. Carbon Neutral Investments Limited (‘CNI’) Based in the UK, CNI provided clearing and settlement for transactions involving VER Spot Carbon Credits. CNI is a previous name of Opus Capital Limited (currently showing as in liquidation on Companies House), Mr S has been a director of that company since November 2010. The FCA issued a Final Notice to Mr S that’s dated 14 January 2022 and it’s noted, amongst other things, in this document that: “…the Authority has decided to make an order, pursuant to section 56 of the Act, prohibiting [Mr S] from performing any function in relation to any regulated activity carried on by any authorised person, exempt person or exempt professional firm. The prohibition order takes effect from the date of this Notice. … On 12 May 2021, at Southwark Crown Court, [Mr S] was tried and convicted of one count of fraudulent trading and four counts of converting criminal property. … Between 2011 and 2014, [Mr S] used OCL (trading as Carbon Neutral Investments Ltd) as a vehicle to create and operate a fraudulent clearing business. This enabled a system in which carbon credits were sourced and supplied to [Mr S] and OCL which were ultimately sold to investors by third party brokers. The judge who passed sentence on [Mr S] stated that investors who gave money to [Mr S’] clearing business were reliant on information which [Mr S] knew to be untrue and misleading. The carbon credits were worthless and did not offer investors any prospect of making a profit or recovering their investment. [Mr S’] business cleared approximately £36 million of investor monies, of which over £600,000 comprised expenses put through the business, a large part of which was of benefit to [Mr S]. [Mr S] also sent £3.2 million of investor monies to unknown overseas accounts and has failed to disclose the beneficiaries of those accounts.

-- 2 of 70 --

The sentencing judge stated that the total amount involved in the overall fraud was approximately £36 million. The investors included elderly people who suffered a negative impact on their health and retirement, and others had to re-mortgage or sell their homes.” What happened I’ve briefly summarised what’s happened below. Mr M says that he was cold called and offered a free pension review. Mr M says he then spoke to an individual (Mr R) who explained that lots of people were using pensions to finance investments and it was a great way of getting pensions to work harder. Mr M says he was shown a brochure that promised great returns and was told that frozen pensions weren’t performing well and what was being proposed would be better for him. Further, Mr R had explained he wasn’t able to give advice on the suitability of using Mr M’s pensions for proposed transactions, but he could refer Mr M to an adviser. Mr M says that he only ever spoke with Mr R. As I understand it, following the discussions Mr M has referred to, Sorensen became involved with transferring monies from Mr M’s existing pension arrangements into a newly established L&C SIPP. We’ve been provided with a copy of a report dated 10 March 2012 in Mr C’s name (Mr C was a Sorensen adviser), about Mr M’s defined benefit (‘DB’) scheme, that’s recorded as having been prepared for Mr M. The report appears to have been signed by Mr M on 24 May 2012. Amongst other things, the report says that: • The top of the front page states “Please sign and return.” • The report was being compiled at the request of Mr H of HCA. • The report dealt solely with benefits held under Mr M’s DB arrangement and HCA was responsible for advising Mr M on any other areas of need and any ongoing investment strategy. • Mr M had discussed his existing pension provision with HCA and the fact that he would like to use part of his pension monies to invest into Carbon Credits. • In order to have input into the investment strategy, and if he wished to invest into alternative investments like Carbon Credits, Mr M would need to transfer away from his DB scheme. • By transferring away from the DB scheme Mr M would have access to a wide range of funds however he would lose any guarantees which the DB scheme provided. • If a transfer was to proceed the transferred monies would initially be invested into cash. Sorensen would be responsible for advising on the pension transfer and it would then be the responsibility of HCA to advise Mr M to invest his money in line with his risk profile and personal objectives. • The critical yield needed to be achieved by a personal pension to mirror the benefits being offered by Mr M’s DB scheme was 9.2% a year. • The critical yield may only be achieved at that level if an aggressive investment approach was taken with the pension monies. • HCA had confirmed that Mr M’s appetite for risk was scored at eight out of ten, suggesting a high-risk approach to investment and there was a 27-year term for investment. • There was no guarantee of future growth if the monies were transferred, and it was possible that Mr M’s eventual pension may be reduced. • It was likely that the type of investments that would suit Mr M’s attitude to risk would not consistently achieve a return of 9.2% a year and, as such, the benefits from a personal pension were likely to be less than those the existing scheme would provide.

-- 3 of 70 --

• The pension commencement lump sum the DB scheme would provide was also likely to be better. • The size of fund available to Mr M was small and, because of this, it wouldn’t be suitable for investment into a SIPP or high-risk investments like Carbon Credits due to the charges involved. • The potential death benefits prior to retirement were more suitable under a personal pension arrangement than they were under the DB scheme due to Mr M’s marital status. • Overall, it would recommend against the transfer at that time. • The report also included a brief bullet-pointed summary of some risks that were specific to Carbon Credits investments. We’ve been provided with a letter addressed to Mr C of Sorensen which Mr M has signed and dated on 24 May 2012. It’s noted in this typed letter that: “Following consideration of the information detailed within the Pension Transfer Report provided by you on 10th May 2012, I can confirm that I wish to proceed against the advice provided and transfer my [name of DB scheme]. Please accept this letter as my authority and approval to proceed with the transfer of the [name of pension scheme] to a London & Colonial Self Invested Personal Pension (SIPP) so that I can fulfil my investment objective of investing into Carbon Credits. I am aware and understand all the risks associated with the transfer as have been detailed within the report of 10th May, but still wish to proceed against the advice you have given me. Please submit the L&C Application Form as soon as possible.” Around 19 June 2012, Sorensen sent L&C a completed application form for Mr M to open a new SIPP. The Independent Financial Adviser (‘IFA’) details section of the application form records the introducing firm as Sorensen, and Sorensen’s FSA authorisation number was recorded. A box is ticked to confirm that Mr M was given advice at the point of sale and it’s recorded that initial remuneration of 3% (of the funds initially received), and ongoing remuneration of 1% (of the fund value at the time of each annual anniversary), would be paid to the IFA. It’s also stated in the form that Mr M didn’t want to manage the fund himself and didn’t want to appoint a financial adviser but was happy for L&C to act on instructions received from his IFA. The form was signed by Mr M on 24 May 2012 and it was noted that a little over £25,000 was to be transferred in from an existing pension arrangement. A White Sands SIPP instruction form was later sent to L&C, this was signed by Mr M on 24 January 2013. It was noted that £27,500 was to be invested in plot WS 37-09 and a further £2,400 was payable in various legal and administrative costs bringing the total to £29,900. There were three options available to the SIPP holder “36 month capped”, “60 month capped” or “uncapped, 100% of capital growth”, Mr M selected the last of these. A White Sands Country Club Green Planet disclaimer was also signed for the investments by Mr M on 24 January 2013, it’s noted amongst other things in the disclaimer that: • The Zoning/Planning certificate supplied was genuine, up to date and legally valid for the development purchased. • The property was legally and financially unencumbered. • Green Planet were the vendors of the property and no financial advice had been provided by Green Planet.

-- 4 of 70 --

• If required, the investor had obtained all and any financial services advice from their own IFA. • The investor’s relationship with Green Planet was just that they had purchased a property from it after receiving financial advice from a third party to do so. • The investor hadn’t been coerced or bribed into entering into the agreement. We’ve been provided with an L&C Investment Purchase Request form that Mr M signed on 24 January 2013. It was noted, amongst other things, in this form that: • The investment was White Sands Country Club WS37-09. • The investment amount was £29,900. • A box had been ticked to confirm that Mr M had received advice from HCA on the suitability of the investment and that the investment wasn’t being made in accordance with the advice but, nevertheless, Mr M wanted to proceed with the investment. • Mr M signed the typed member declaration section towards the end of the form to confirm, amongst other things, that L&C hadn’t provided advice on the investment, that the consumer had carried out their own due diligence into the investment and that the investment may be high-risk and that there may not be an established market for selling the proposed holding. It was also stated that L&C wasn’t responsible for assessing the risks and merits of the investment and that the consumer indemnified L&C against any liabilities arising from the investment (bold my emphasis). Mr M also completed L&C Investment Request forms on 24 January 2013, this was to acquire 100% of the issued share capital in “White Sands Country Club WS3709 Limited”. It was explained in the forms that: • L&C wasn’t authorised to, and hadn’t, given investment advice. • L&C had obtained legal advice in its capacity as trustee, so as to assess the risks of ownership of the company, and its title to the underlying plots and so as to ensure the acquisition of the appropriate title. • The advice L&C had obtained didn’t cover the investment merits, marketability, or value of the plot(s). • “The Company” – which in Mr M’s case was the company White Sands Country Club WS3709 Limited – would hold the plot(s) identified in the corresponding White Sands SIPP instruction forms Mr M had signed and the Trustee, here L&C, would acquire 100% of the shares in the Company, subject to the Share Purchase Agreement. • The plot(s) would not be held directly by L&C but would be held indirectly via “the Company”. • The investor had reviewed information supplied by Green Planet, the Share Purchase Agreement and the Management Agreement. • The investor understood the speculative nature of the investment and had obtained any advice they required. • Investing in unquoted shares is high-risk and there’s no established market for selling unquoted shares. Unquoted shares are unregulated investments and the protection of the FSCS wouldn’t apply. • The investor would indemnify L&C in respect of liabilities that arose in relation to the investment. We’ve not been provided with a full copy of the White Sands sale and purchase share agreement in this case by Mr M or L&C. However, L&C has previously provided us with a full copy of a sale and purchase share agreement on a different case in which a SIPP investor also invested in White Sands (that case was the subject of a previous final decision). I’m

-- 5 of 70 --

satisfied it’s more likely than not that, subject to a few exceptions such as reference to the individual SIPP member and/or the specific White Sands company/plot number, the agreement in that other case would have been largely identical to the agreement in Mr M’s case. It was noted, amongst other things, in the copy of a White Sands sale and purchase share agreement that was previously provided to us on an earlier complaint that the agreement was between GPIL (the ‘Seller’), Green Planet Investimentos Imobiliarios Ltda (the ‘Guarantor’) and L&C (‘the ‘Buyer’). Clause 4 of the agreement reads as follows: “4. Completion 4.1 Completion shall take place at the offices of the Buyer’s Solicitors…or at such other place as the parties may agree immediately after the signing and exchange of this Agreement when all (but not part only unless the Buyer shall so agree) of the business referred to in Schedule 3 shall be transacted.” And Schedule 3 of the agreement (titled “Completion arrangements”) said that: “On Completion ("Completion" is defined in the document as completion of the sale and purchase of the Sale Share by the performance by the parties of their respective obligations under clause 4 and Schedule 3): 1. The Seller shall deliver to the Buyer: 1.1 executed transfer in respect of the Sale Share in favour of the Buyer, together with the share certificate for the Sale Share; 1.2 certified copies of the minutes recording the resolution of the board of directors of the Seller authorising the sale of the Sale Share and the execution of the transfers in respect of them; 1.3 such other documents as may be required to give a good title to the Sale Share and to enable the Buyer to become the registered holders of it; 1.4 (as agents for the Company all its statutory and minute books and registers (written up to the business day immediately preceding the date of this Agreement), its common seal (if any), certificate of incorporation, any certificate or certificates of incorporation on change of name, details of all user names, passwords and codes used by the Company ("Company" is defined in the document as White Sands Country Club WS (a number) Limited (details of which are set out in Schedule 1)) for online filing of corporate documents, all books of account and other documents and records including copies of its memorandum and articles of association of the Company; 1.5 the deeds and documents of title to the Property (Property is defined in the document as Plot WS (a number) White Sands Country Club, Murive, Natal, Rio Grande do Norte, Brazil, details of which are set out in Schedule 2) and all ancillary documents) (bold my emphasis). 2. When the Sellers have complied with the provisions of paragraph 1, the Buyer shall pay the Purchase Price by electronic funds transfer to the Nominated

-- 6 of 70 --

Account and payment of the Purchase Price into such account shall constitute a good discharge to the Buyer in respect of it.” And in the other case Schedule 4 of the agreement (titled “General Warranties”) said, amongst other things, that: “ 7. Title 7.1 The Company, is solely legally and beneficially entitled, and has a good and marketable title, to the Property. 8. Encumbrances 8.1 The Property (and the proceeds of sale from it) are free from: 8.1.1 any mortgage, debenture, charge (whether legal or equitable and whether fixed or floating), rent charge, lien or other right in the nature of security; and 8.1.2 any agreement for sale, estate contract, option, right of pre-emption or right of first refusal, and there is no agreement or commitment to give or create any of them. 9. Condition 9.1 The Property is in a good condition free from any contamination or pollution. 9.2 There are no development works, remediation works or fitting-out works outstanding in respect of the Property. 9.3 The Company has not received any adverse report from any engineer, surveyor or other professional relating to the Property and it is not aware of any predecessor in title having done so. 10. Ownership of assets 10.1 Apart from the Property, the Company has no, and has never had, any other asset of whatever nature.” The agreement then also had a section to be signed and dated by all of L&C, GPIL and Green Planet Investimentos Imobiliarios Ltda (Mr J signed for both Green Planet firms in the agreement we’ve seen on the other case). I’m aware from other complaints we’ve received involving L&C and White Sands investments that the liquidator for GPIL wrote to L&C about the White Sands investment on 12 October 2015. Amongst other things, it said that: • It’s also the liquidator of CASML, which was the sole selling agent for the plots in the UK. • GPIL was incorporated in Gibraltar and operated as part of a wider group of companies which were involved in the sale of plots of land in Brazil to investors. The current and sole director of the company is the wife of the former managing director Mr J.

-- 7 of 70 --

• The land is owned by a Brazilian company (Terras de Extremoz Investimentos Imobiliarios Ltds (Brazil) – (‘Terras Brazil’)), that holds 99% of the shares in Brazil. The Company granted CASML the right to be the sole selling agent of the land in Brazil. • The liquidator visited Brazil in February 2015 to conduct further investigations into the land. • The land is over 10km from the beach and there’s no sign of any infrastructure having been put in place. • Following enquiries with the local land registry and agents in the area, the liquidator understands that the planning permission obtained wasn’t appropriate for the proposed development and has since lapsed. • Title to all of the individual plots of land is still held in the name of Terras Brazil and a number of local creditors had taken, or were taking, steps to register their liabilities against the land. • The liquidator had met with various local and international agents when visiting the land, none of the agents had been willing to provide a formal valuation of the land. However, they had advised that the land was in an undesirable location and that it’s probably worth no more than approximately £200,000. This is far less than both the price paid for the land and also the cumulative amount the investors paid for their plots of land. • Investors paid funds to GPIL and to CASML in exchange for plots at the White Sands Country Club. These funds were subsequently transferred to Mr J before being paid to Terras Brazil in order to finance the purchase of the land. • As the land was purchased by Terras Brazil the proceeds of any sale would be payable to that company. And the funds paid to Terras Brazil for the purchase of the land are recorded in the books of Terras Brazil as a director’s loan due to Mr J. • It had been in contact with L&C to obtain information about investments that had been made through SIPPs, which it had been told L&C facilitated. While I’ve not seen evidence of L&C having sent a copy of the letter from the liquidator on to Mr M. I’m aware from a number of other complaints we’ve received involving L&C and White Sands that, typically, L&C was writing out to consumers invested in White Sands to provide them with a copy of the liquidator’s letter. In my provisional decision I stated that if L&C did provide a copy of this letter to Mr M, it should provide me with evidence of this alongside its response to my provisional decision. We weren’t sent evidence of L&C having provided a copy of this letter to Mr M alongside L&C’s response to my provisional decision. On 23 August 2016, L&C wrote to Mr M and said, amongst other things, that: • The investment Mr M chose to make in White Sands had encountered serious trading difficulties. In the absence of any recognised market there appeared to be no reference from which to establish a value, or any market or means to achieve a sale. • The investment in White Sands has to be regarded as having no current value and there appears to be no realistic prospects for a sale in the foreseeable future. • Due to this, L&C considered that it would be appropriate to write off the asset and this would mean that Mr M’s SIPP would no longer incur additional charges for holding the asset. • L&C could transfer ownership of the White Sands investment to Mr M so that he would benefit “in case any value should eventually materialize”. We’ve been provided with a transaction history for Mr M’s L&C SIPP. This records, amongst other things, that: • There was a transfer in of £27,908.35 on 3 July 2012.

-- 8 of 70 --

• There was a transfer in of £8,348.41 on 2 October 2012. • £29,900 was invested into White Sands on 5 April 2013. As I understand it, in or around November 2017, Mr M submitted a claim to the FSCS about Sorensen. In the claim form to the FSCS Mr M noted, amongst other things, that: • The advice he had received from Sorensen was unsuitable for his circumstances, attitude to risk and capacity for loss. • Sorensen had accepted the business from its introducer without any regard for him. • Sorensen had accepted information from a third party without verifying with him that the information was accurate and a true reflection of his circumstances and needs. • He hadn’t been informed of the high-risk nature of the investment that was made. And said that had “I been told about the high risk nature of the investment I would never have got involved.” • As the pension arrangements he had at the time were his only financial asset for retirement then he would not have put them at risk. • “If I had not proceeded with the investment I would not have needed to transfer my pensions to the SIPP. I would happily have left them where they were if that meant security.” • He had no concerns about leaving his pensions as they were and was told that by transferring and investing his pensions that his pensions would be working much harder. • His only reason for transferring was the advice he had been given. • The name of the individual at the firm who had given advice was Mr C of Sorensen. • Elsewhere in the form the name of the firm who had given the advice is recorded as HCA. • A little under £30,000 had been invested into White Sands. • He had also received advice from another firm in respect of the pension product and/or investment(s) that his claim concerned, and the other firm was Sovereign Caledonia. • He had first spoken to an individual at Sovereign Caledonia (Mr R) who had introduced the idea of the investment. As he didn’t have any money, he didn’t see how making the investment was possible. Sovereign Caledonia had explained that lots of people were using pensions to finance investments and that it was a great way of getting pensions to work harder. • Mr R had explained that he wasn’t able to give advice on the suitability of using Mr M’s pensions for the endeavour, but that he was able to refer Mr M to an IFA for review and advice. • He has no idea who everything was referred to as he never met or spoke with anyone (other than Sovereign Caledonia) about the matter. • He remembers receiving forms for signature and that all the paperwork was completed and marked where he had to sign. • His attitude to risk at the time had been low risk. • He had transferred his pension monies based on the information given to him and the advice he had received from those involved. • He wasn’t offered any incentives. • He had realised he had a claim against Sorensen in November 2016. The FSCS investigated Mr M’s claim and it wrote to Mr M on 12 March 2018 stating that it agreed he had a valid claim and explaining that it had calculated Mr M’s total losses as a little over £114,600. The FSCS said that it would pay Mr M £50,000 compensation and that this was the maximum sum it was able to pay under its compensation limits.

-- 9 of 70 --

As I understand it, in or around December 2017, Mr M also submitted a claim to the FSCS about HCA. In the claim form to the FSCS Mr M noted, amongst other things, that: • The claim was linked to a separate claim he had submitted to the FSCS about Sorensen. This part of the claim was because HCA had facilitated the transfer of an existing personal pension plan into the L&C SIPP. Mr H of HCA had given the advice and HCA hadn’t paid regard to Mr M’s best interests. • His attitude to risk at the time had been low risk. • He had realised he had a claim against HCA in November 2016. The FSCS did investigate a claim against HCA in respect of the transfer of Mr M’s personal pension to L&C and the investment into White Sands. And the FSCS wrote to Mr M on 5 February 2018 concluding that he had a valid claim against HCA, that it had calculated his losses in respect of that claim as being a little over £35,000 and that it would pay him that sum. The FSCS subsequently gave Mr M a reassignment of rights pursuant to both of his claims in which, amongst other things, the FSCS explained it was transferring back to Mr M any legal rights it held against L&C. What’s happened with this complaint so far? On 17 July 2018, Mr M wrote to L&C and said, amongst other things, that: • L&C had failed in its statutory requirements. • L&C failed to meet its obligations to him as a retail client, it permitted a transfer to an unsuitable pension which facilitated the purchase of an unsuitable, high-risk and illiquid investment. • He wasn’t a sophisticated investor and had a low risk profile with little or no investment experience. • L&C had played a fundamental role in him suffering the financial loss of his pension. Had L&C complied with the mandatory requirements laid down by the regulator then it should have declined the business. Had L&C declined the business then his pension transfer couldn’t have gone ahead and the subsequent investment of monies into an unregulated investment couldn’t have proceeded. In response to Mr M’s complaint L&C has said, amongst other things, that: • L&C is the sole trustee and administrator of the SIPP, which is written under trust. Under the rules of the trust, it is only the member or their nominated representative who, following advice from their adviser, has the power to select the investments to be held within the SIPP. • L&C doesn’t (and isn’t permitted to) provide advice to any clients in relation to the establishment of a SIPP or the transfer of any previously held arrangements into the SIPP. • The suitability of the SIPP and/or investment are the responsibility of the financial adviser. • L&C satisfies itself that investments are allowed within the trust rules and that investments don’t breach HM Revenue & Customs (‘HMRC’) regulations. • Mr C of Sorensen was Mr M’s regulated adviser at the time he applied for an L&C SIPP. • Following the transfer of monies into Mr M’s SIPP from one pension arrangement, L&C received a signed and dated authorisation document from Mr M changing his adviser from Sorensen to Mr H of HCA.

-- 10 of 70 --

• Following this, at HCA’s recommendation, L&C received a request to arrange the transfer of pension monies from a second pension arrangement into the SIPP. And, further to this, L&C received £8,348.41 into the SIPP on 2 October 2012. • Both Sorensen and HCA were authorised and regulated by the regulator at the relevant dates. • L&C has always been aware of, and adhered to, its obligations. • L&C only accepts retail clients. • On 7 January 2013, Mr M emailed L&C indicating that he had been trying without success to invest his SIPP monies into a Malgretoute development in Freedom Bay, St Lucia. Mr M had been keen to get to the bottom of the delay and wouldn’t have been happy if a higher price was charged. L&C responded to Mr M on 9 January 2013 and indicated that it couldn’t, at that time, allow that particular investment. • L&C declining to permit the Malgretoute development investment had been prompted by its due diligence concerns. • L&C assumes that, following discussions with HCA, Mr M decided to cancel his application to invest in the Malgretoute development and instead submitted an application for investment in the White Sands Country Club. • Given that the White Sands investment was Mr M’s “second investment application of the same type of hotel complex development and that [he] had been recently pressing for progress on the Malgretoute development” it would be reasonable to assume that Mr M was confident of the risks involved. • L&C has controls in place to monitor business being introduced, including in respect of the source and the volume of that business. All such business is under constant review. • The Open Pension Brochure explained the duties L&C was to perform. The duties imposed by the retainer didn’t extend to L&C assessing the suitability of the investment decisions made by a SIPP member, or to L&C completing financial adviser level due diligence. • L&C’s duty was limited to making investments as instructed by the member, and ensuring that investments were compatible with HMRC rules. • Forms Mr M had signed confirmed that he had taken investment advice, but he still wanted to proceed and agreed to be bound by the SIPP rules. Mr M has said to us, amongst other things, that: • The conversation with Mr R had come about following a cold call he had received offering a free pension review. • The brochure he was given had looked very professional and it had promised great returns. He doesn’t have the brochure as nothing was left with him. He can’t remember the returns promised, he just remembers that he was told it would be better than what he had. • He was told frozen pensions weren’t really performing well and that what was being proposed would be better for him. • There is reference in the documentation to investing in Carbon Credits and he vaguely recalls this, his recollection is that Mr R said Carbon Credits weren’t for him and that the White Sands investment was better for him. • Mr R facilitated everything that was done. • He was assured that the investment, while different, was safe. • He didn’t change adviser, rather there was clearly an arrangement set up between HCA and Sorensen, none of which was communicated to him. • He had very little paperwork and he only recalls dealing with Mr R.

-- 11 of 70 --

• Paperwork was usually brought for signing and wasn’t left for reading or checking. He therefore wasn’t aware that some of the paperwork being signed was advising him not to proceed. • The paperwork, which had been obtained so as to evidence the firms involved, was obtained by Mr M’s professional representative through data subject access requests. • He went by what he was told by Mr R and as he had no financial services experience then he didn’t know that the process adopted by all concerned was wrong. He trusted that those advising him were there to look after his best interests. • Sorensen’s recommendation not to proceed was never highlighted to him. • A form he signed on 24 May 2012 was highlighted where he had to sign and date. • There is an insistent client letter but this was penned by Sorensen. To be a true insistent client letter, this should be penned by the client after the recommendation has been made and shouldn’t be signed on the same date on which the client is signing a pension report to confirm receipt of the document. • The SIPP application was also signed on 24 May 2012 and, again, it’s apparent that parts he had to sign or complete in the form were highlighted. • The documents were presented for signature only and he can’t remember if the SIPP application form was pre-completed or not. But he can remember that Mr R brought the paperwork for him to sign at a meeting at a restaurant and that paperwork wasn’t left with him. Signatures were gathered and then the paperwork was taken away, nothing was left for reading and checking. • He isn’t a risk taker, had anyone said that he shouldn’t go ahead, or that it was a high-risk investment strategy, he wouldn’t have proceeded. He would never have put his pension monies at risk. • Neither Sorensen nor HCA had followed a proper regulated sales process, and both relied on paperwork completed by a non-regulated introducer – Mr R. • Had L&C spoken to him, it would have established that a “proper regulated sales process had not been conducted” by the adviser. • He had no meeting or financial discussion directly with the adviser and everything was done through an introducer. It was the introducer who he had met with and completed paperwork with not the adviser, and the introducer wasn’t authorised by the FCA at the time. • L&C has failed to meet its obligations under the Conduct of Business Sourcebook (‘COBS’). • L&C failed to carry out satisfactory due diligence checks on the investment and failed to protect him. • L&C failed to complete due diligence checks on the introducer and failed to verify the integrity of the firm it was accepting business from. • The risks of the investment weren’t explained to him. • He wasn’t a sophisticated investor and he had no experience of investing in high-risk illiquid assets. • He had first appointed his professional representative in November 2016. • The exact events only became clear to him once his professional representative had received files from HCA/Sorensen and explained the events to him. • Before he submitted a complaint to L&C, he had a claim against his adviser with the FSCS. The FSCS didn’t reach its decision on the claim until 23 March 2018, and it was only at this date he knew what his overall losses were and that not all of his losses were covered by the FSCS claim. • The complaint against L&C was made in July 2018 once it was clear that not all of his financial losses had been redressed.

-- 12 of 70 --

• Before a complaint could be pursued against L&C, he had to get a reassignment of rights from the FSCS, which he received on 23 May 2018. And, following this, he had prepared his complaint against L&C, which was issued on the 17 July 2018. • Had his financial loss been below the FSCS award limit then no complaint about L&C would have been necessary. • Also, he was unable to pursue a claim for the same losses with the FSCS and the Financial Ombudsman Service at the same time. One of our investigators reviewed Mr M’s complaint and concluded that the complaint should be upheld. The investigator said that L&C shouldn’t have accepted the White Sands investment into Mr M’s SIPP. And that L&C should redress Mr M for the losses he had suffered as a result of its failings. L&C didn’t agree and said, amongst other things, that: • The application for the SIPP was made in June 2012 and monies were transferred into the SIPP in July 2012. The original complaint was received by L&C on 17 July 2018, this is more than six years after the SIPP application was received. • The six year time limit has expired. Mr M also ought to have been aware of cause for complaint prior to July 2015. By that time Green Planet had been wound up (in December 2013) and it would have been obvious that a total loss had been suffered. Such that any issues regarding the suitability of the transactions entered into, or any alleged failure to complete adequate due diligence, would have been apparent. • By November 2013, the national press was running articles discussing the high pressure sales tactics used by Green Planet and highlighting concerns that the investment was a scam. This information would have been easily ascertainable by an investor. • By the end of 2013 at the latest, Mr M would have been aware that the total sum invested had been lost. And he also ought to have been aware of concerns with the investment, which would have given him cause to assess the suitability of the SIPP and the merits of having transferred pension monies into it. • The investigator’s assessment on the complaint doesn’t consider what would have happened if L&C had rejected Mr M’s application to invest into White Sands. • Mr M had been trying, without success, to invest in the Malgretoute development and despite being told that L&C wouldn’t accept that investment he remained keen to invest in an overseas hotel complex, leading to the investment in White Sands. • The application for the White Sands investment indicates that Mr M may have made the investment against the advice of HCA. • Mr M had a clear intention to make an investment like White Sands and was willing to do so against advice, even after a similar investment had been rejected by L&C. • Had L&C rejected the investment then Mr M would have proceeded regardless. And L&C’s conduct wasn’t causative of any loss that had been suffered, no redress should be payable as a result. • The facts in this complaint are broadly similar to those in the Adams v Options case, but the investigator’s view doesn’t explain why we’ve reached a different conclusion to that arrived at in Adams. • The investigator’s view imposes a duty on L&C to decide whether to accept or reject business brought to it by a customer requesting an execution-only service. • The investigator’s view extends the scope of the duty owed by L&C beyond what was envisaged by the parties. • A breach of the Principles cannot, of itself, give rise to any cause of action at law. • The ambit and application of the Principles, and such duties as may be imposed on L&C by these, fall to be construed in light of the COBS rules applicable to L&C, L&C’s regulatory permissions, L&C’s contractual arrangements and the statutory

-- 13 of 70 --

objective that consumers should take responsibility for their decisions. • It was said in Adams that reports, guidance and correspondence issued after the events at issue couldn’t be applied to Options’ conduct at the time. So, publications issued after the transactions in this case shouldn’t have a bearing on the complaint. • Even if the 2009 Thematic Review Report had been statutory guidance made under FSMA S.139A (which it wasn’t), the breach of such statutory guidance wouldn’t give rise to a claim for damages under FSMA S.138D. • The FCA's Enforcement Guide says that "Guidance is not binding on those to whom the FCA’s rules apply. Nor are the variety of materials (such as case studies showing good or bad practice, FCA speeches and generic letters written by the FCA to Chief Executives in particular sectors) published to support the rules and guidance in the Handbook. Rather, such materials are intended to illustrate ways (but not the only ways) in which a person can comply with the relevant rules." • Regulatory publications can’t alter the meaning, or the scope, of the obligations imposed by the Principles. • Adams held that duties imposed by COBS can’t all apply to all firms in all circumstances. • Neither the obligations under COBS 14.2.3R and COBS 14.3 to provide clients with product information, nor the obligation under COBS 19.1.2R to provide clients with pension product information, apply to execution-only SIPP providers. • Mr M was aware that L&C would act on an execution-only basis and wouldn’t accept responsibility for the quality of the investment business. • If L&C really had the obligations of due diligence set out in the investigator’s view and had acted in accordance with them then it would have been required to advise on investments, which was contrary to its regulatory permissions. • The relationships in this case are similar to those in Adams, the distinguishing factor is that Mr M took advice from two separate regulated advisers. • With an execution-only service, it would be unfair if the SIPP provider couldn’t rely on representations made by the consumer when signing the contractual documentation. • Amongst other things, the judge in Adams held that in order to identify the extent of the regulatory duties imposed on Carey, "one has to identify the relevant factual context” and that "the key fact ... in the context is the agreement into which the parties entered, which defined their roles in the transaction". • The judge also said that “there is a very plain inconsistency between the contract which was entered into between it and the claimant and the duties [under COBS 2.1.1R] which the claimant now suggests that the defendant owed to him.” • And that “there was… [no] duty on [Carey]… to consider the suitability or appropriateness of a SIPP or the underlying investment. The contract between [the parties] makes that clear.” • Further, that "a duty to act honestly, fairly and professionally in the best interests of the client, who is to take responsibility for his own decisions, cannot be construed...as meaning that the terms of the contract should be overlooked, that the client is not to be treated as able to reach and take responsibility for his own decisions and that his instructions are not to be followed.” • In Adams the FCA agreed that the function of a firm, as determined by contract, would govern what it had to do to comply with its duties under the FCA Handbook. • Insufficient weight has been given to contractual arrangements and the demarcation of roles and responsibilities. The documents setting out the contractual relationship between the parties make it clear that L&C was acting on an execution-only basis. • The investigator’s view runs contrary to Adams by suggesting that, notwithstanding the clear contractual terms, L&C owed due diligence obligations under the Principles. • The Financial Ombudsman Service is attempting to use the Principles to circumvent the Adams decision. • The Financial Ombudsman Service must take into account the relevant case law

-- 14 of 70 --

and, if this is deviated from, must set out why – R. (on the application of Aviva Life and Pensions (UK) Ltd) v Financial Ombudsman Service [2017] EWHC 352 (Admin) and Jay J’s comments at paragraph 73 of that judgment were referenced. • Had proper regard been given to the contractual arrangements between the parties then the investigator’s view should have found that L&C’s duties to Mr M extended no further than those owed to the claimant in Adams. • It’s not fair or reasonable to determine the complaint by reference to the FCA publications and to do so only exacerbates the problem referred to by Jay J in Aviva. • At the time of the transaction complained of there was no obligation on a customer to take advice on the transfer of a pension. • It’s not fair or reasonable to use the Principles to impose a duty that goes beyond that accepted and agreed by the parties. • The Principles can’t give rise to a cause of action if breached, and consideration of the Principles must be via the appropriate COBS rules applying to the transaction. • The investigator’s view fails to have regard to the general principle that consumers should take responsibility for their decisions, the fundamental principle of freedom of contract and to the authority of Adams and Kerrigan v Elevate Credit International Ltd [2020] C.T.L.C. 161. • The investigator’s view enables Mr M to recover against L&C for losses flowing from non-contractual obligations which were inconsistent with, and contrary to, the express obligations in the parties' contractual arrangements. • Mr M signed disclaimers confirming that he knew of the high-risk nature of the investment and that it was illiquid and may be difficult to sell. He was also aware that L&C would take no responsibility for his decision to purchase the investment. • In Adams the Store First investment being high-risk didn’t make it manifestly unsuitable. • The level of due diligence imposed by the Financial Ombudsman Service goes far beyond what was agreed between the parties. • The suitability of a high-risk investment depends on the particular financial circumstances of the particular customer and their attitude to risk. • It’s not fair or reasonable to hold that an execution-only SIPP provider should investigate an investment with the same level of scrutiny as an accountant completing a forensic report after the investment had failed. And it’s not reasonable to conclude that L&C should have completed due diligence in respect of the commercial viability of the investment or how returns would be generated – that was a role for Mr M’s adviser. • It’s also not fair to hold L&C responsible for not having identified that the planning permission obtained was not appropriate. And L&C was under no obligation to commission a report into the value of the land. • A number of other SIPP providers at the time were accepting such investments and it’s most likely that if L&C had rejected the application the transaction would still have been effected with a different provider. • Mr M transferred into a SIPP in order to invest in an overseas hotel complex well before the application for investment in White Sands was actually made. Mr M’s clear stated intention was that he wished to invest his funds speculatively. • It can’t comment on the advice Mr M received but this would presumably have been a causative factor in his decision to invest (borne out by the fact the FSCS has made a payment in respect of the advice given by Sorensen – from which L&C assumes that Sorensen advised Mr M to make the investment and that he acted on that advice). • If L&C had refused the investment it couldn’t have explained why, as this would have constituted investment advice. • Regarding the FSCS decision on the claim against HCA; Mr M received £35,088.59 in respect of the advice given to him by HCA. In similar cases, the Financial

-- 15 of 70 --

Ombudsman Service has said that if the FSCS has paid out for a full loss that doesn’t exceed its limit then the Financial Ombudsman Service wouldn’t expect L&C to make any further payments. Given that the full value of Mr M’s White Sands investment was £29,900 it’s likely that Mr M has been compensated in full. Having subsequently been provided with a copy of Sorensen’s report of 10 March 2012, L&C made some further submissions which included, amongst other things, that: • The report further demonstrates that Mr M was seeking high returns on what was a relatively small pension; he was willing to take risks to achieve high returns and nothing L&C could have done within the confines of its permissions would have prevented this. • Mr M was happy to take risks and in the knowledge that there was a real chance the risks would leave him worse off in retirement. • Mr M transferring demonstrates that he was comfortable acting against advice. • Mr M would have transferred his pension with a view to investing the monies even if the White Sands investment was rejected. And any losses flowing from the surrender of guaranteed benefits are not something that L&C can be held responsible for. • At most, the loss should be limited to the capital sum invested and these losses are the responsibility of HCA and/or Mr M. L&C has also previously explained to us that: • Sorensen first became an introducer of business to it on 22 September 2011. • An agreement was in effect between L&C and Sorensen from 22 September 2011 to 10 December 2014. • As an execution-only SIPP provider, L&C’s expectation was that Sorensen would provide a client with advice on the intended transactions. Further, that Sorensen would submit any applications and instructions to L&C, thereby endorsing the client's decisions following its advice to them. • After the initial agreement it didn’t have any further discussions with Sorensen about the client process/the business it was referring. However, it did check the FCA Register regularly to ensure that Sorensen was still authorised. • Adviser charges were paid in accordance with the fee agreement signed by the client and their appointed adviser. • As an execution-only SIPP provider, it has no permissions or experience to advise or comment on the suitability of the transaction. • It didn’t request copies of suitability reports/pension transfer reports from Sorensen or clients. • Mr M appointed a FCA regulated introducer to provide holistic advice, which included the establishment of the SIPP, the pension transfers and the investment. • Mr M also appointed a FCA regulated introducer to select and purchase underlying investments within the trading platform chosen, as is shown from his investment instructions within the application form. • Sorensen introduced 70 clients and Mr M was number 23 of these. • From a sample of 10% of the Sorensen-introduced clients, 28.57% of applications involved transfers in from occupational pension schemes. From the same sample 28.57% of the Sorensen-introduced clients invested into non-mainstream investments. • From the total clients introduced by Sorensen, 76% of the clients changed the adviser on their L&C SIPP from Sorensen to HCA shortly after monies were first transferred into their SIPP. • From the total clients introduced by Sorensen, 76% invested into non-mainstream investments.

-- 16 of 70 --

• It carried out due diligence on White Sands. It didn’t rely on any other third party’s due diligence review and it conducted its own review to determine whether the investment could be held within a UK registered pension scheme. However, following a system migration and despite a substantial interrogation of its records, it’s been unable to retrieve the searches carried out. • It satisfied itself that the property was able to be fairly valued as the investment was a development of commercial property in the form of a country club/hotel rooms/apartments. And, as such, a qualified surveyor would be able to be appointed to provide an opinion on market value. • The usual searches carried out on an investment prior to acceptance for investment within its SIPPs include: a search of Companies House including the directors and majority shareholders, complete internet searches of the Company, the directors and majority shareholders, a search of the FCA website to check whether there are any adverse publications, and a check of the Company’s website if applicable. • Product literature is routinely requested in advance of an investment review progressing, however, following the system migration it can’t locate any White Sands investment product literature that it obtained. L&C has been able to provide us with a due diligence report dated 16 March 2012, titled “Regarding the acquisition of real estate from Green Planet Investimentos Imobiliarios Ltda” both L&C’s name and the name of Peixoto & Cury (‘P&C’), who appear to be a firm of solicitors, appears on the report. It’s noted, amongst other things, in the report that: • P&C had been retained by L&C to assist in the acquisition of residential plots within a residential condominium named Terras de Extremoz I to be entered into with Green Planet Investimentos Imobiliarios Ltda, a Brazilian limited liability company in the real estate business. • The scope of P&C’s work was two-fold – due diligence and legal advice for closing the transaction with the transfer of title of the residential plots from Green Planet Investimentos Imobiliarios Ltda to L&C, or else to entities designated by L&C. • The due diligence report was based on information P&C had obtained from Green Planet Investimentos Imobiliarios Ltda’s counsel. P&C hadn’t checked any original documentation or visited the area where the plots are located. • As such, “for great part of the conclusions drawn herein, we had to rely solely on information whose accuracy we have been unable to confirm.” • P&C had managed to obtain some documentation from public records and its report was also based on this information. • The due diligence report was based solely on P&C’s analysis of Brazilian law and shouldn’t be considered to be an opinion on Green Planet Investimentos Imobiliarios Ltda. • P&C relied on information made available by third-parties, or available public records, and part of this information may have to be later confirmed by means of independent review. • Documents suggested a public deed of purchase and sale had been executed between Green Planet Investimentos Imobiliarios Ltda and Glade Empreendimentos Imobiliários Ltda. (‘Glade’), further that a chattel mortgage had been entered into in favour of Glade which would be released once all payment obligations had been fulfilled by Green Planet Investimentos Imobiliarios Ltda. • A certificate issued by a real estate registry office recorded Green Planet Investimentos Imobiliarios Ltda as the registered owner of the land subdivision Terras de Extremoz, this consisted of in excess of 700 plots of land. It had been agreed that 158 plots of land would be excluded from the chattel mortgage.

-- 17 of 70 --

• P&C recommended that L&C (or the entities indicated by L&C) purchase plots that weren’t pledged by the chattel mortgage, or else that were already released from the chattel mortgage. • P&C recommended that, prior to the acquisition, each and every plot to be acquired by L&C, or by entities indicated by L&C, is dismembered from the whole real estate, so that each plot to be acquired has its own enrolment with the real estate registry office. This was so that each plot can be individualised for purposes of having a single registered owner following acquisition. • P&C didn’t know whether a project for providing the land subdivision with infrastructure was on schedule but had received an affidavit from Green Planet Investimentos Imobiliarios Ltda about this. • Some payments from Green Planet Investimentos Imobiliarios Ltda to Glade had been made in arrears. • GPIL held a 99% equity interest in Green Planet Investimentos Imobiliarios Ltda, Mr J held the other 1%. As agreement couldn’t be reached following the investigator’s assessment, the complaint was passed to me for review. I issued a provisional decision on this complaint, and I concluded Mr M’s complaint should be upheld. In brief, I concluded that: • The complaint had been referred in time and was one we could consider. • L&C should have been conducting checks – due diligence – on introducers and investments to make informed decisions about accepting business. This obligation was a continuing one. • On the basis of the available evidence, L&C didn’t undertake sufficient due diligence before it accepted Mr M’s business and before it accepted Mr M’s application to invest in White Sands. Its failure to do so was unfair to Mr M. • L&C didn’t take appropriate steps or draw reasonable conclusions from information that would have been available to it if it had undertaken sufficient due diligence. • L&C ought to have concluded there was a significant risk of consumer detriment if it accepted the White Sands investment into its SIPPs and that the White Sands investment wasn’t acceptable for its SIPPs. • L&C should have identified there was a significant risk of consumer detriment associated with the Carbon Credit investment(s) Sorensen-introduced consumers were making and it shouldn’t have permitted the investments to be held in its SIPPs. • If L&C had undertaken adequate initial and ongoing due diligence into Sorensen and the business being received from it, it should have concluded, and before it accepted Mr M’s business from Sorensen, that it shouldn’t continue to accept introductions from Sorensen. • L&C didn’t meet its regulatory obligations and it allowed Mr M’s pension monies to be put at significant risk. • It was fair and reasonable for L&C to compensate Mr M to the full extent of the financial losses he’s suffered due to its failings. L&C didn’t accept my provisional findings and I’ve set out below a summary of what I consider to be the main points made in its response to my provisional decision. However, the list isn’t exhaustive and before making this final decision I carefully considered the response in full: • In the provisional decision it was found that, but for L&C’s alleged breach, Mr M’s application would have been rejected and he wouldn’t have invested in White Sands. This conclusion is entirely inconsistent with the terms of the contract between the parties, the relevant COBS rules and the restrictions on L&C’s permissions.

-- 18 of 70 --

• No fair or reasonable reading of the Principles could require L&C to conduct due diligence of the nature suggested in the provisional decision. • There are a number of points set out in previous submissions that haven’t been addressed or given sufficient weight. • The Ombudsman has failed to take account of the law (as is required under DISP 3.6.4) and has departed from legal precedent setting out (a) the importance of the contract between the SIPP provider and the customer; and (b) the scope of an execution-only SIPP provider's due diligence obligations. • The Ombudsman is creating new due diligence obligations in a way that’s contrary to the FCA's own publications at the time. • From the perspective of an execution-only SIPP provider, there is a real unfairness if it’s liable for the poor investment choices of consumers, and the failures of other regulated entities over which it put in place contractual controls that the regulated entity breached. • Where a consumer chooses an execution-only service, it would be unfair if the SIPP provider weren’t able to rely on express representations made by the consumer when signing the contractual documentation and to hold L&C responsible in circumstances where the failure is that of Sorensen. • It invited the Financial Ombudsman Service to revisit the provisional decision and dismiss the complaint. Mr M also replied to the provisional decision and noted, amongst other things, that: • He expects to be a basic rate taxpayer in retirement. • Whilst the claim to the FSCS about Sorensen wasn’t made until November 2017, this wasn’t the beginning of the complaint process about that firm. As Sorensen was still trading at the time, a complaint was made to Sorensen on 23 January 2017. And it was only after Sorensen cancelled its permissions that the claim then had to be made to the FSCS. What I’ve decided – and why jurisdiction I’ve considered all the evidence and arguments in order to decide whether we can consider Mr M’s complaint. The rules I must follow in determining whether we can consider this complaint are set out in the Dispute Resolution (‘DISP’) rules, published as part of the FCA’s Handbook. Has the complaint been brought in time? The respondent in this complaint is L&C. As I understand it, L&C first received Mr M’s complaint on 17 July 2018 and, as he hadn’t received a final response letter from L&C within eight weeks of this, Mr M then referred his complaint to us in December 2018. DISP 2.8.2R sets out that: “The Ombudsman cannot consider a complaint if the complainant refers it to the Financial Ombudsman Service: … (2) more than: (a) six years after the event complained of; or (if later)

-- 19 of 70 --

(b) three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint; unless the complainant referred the complaint to the respondent or to the Ombudsman within that period and has a written acknowledgement or some other record of the complaint having been received; unless: (3) in the view of the Ombudsman, the failure to comply with the time limits in DISP 2.8.2 R or DISP 2.8.7 R was as a result of exceptional circumstances; or… (5) the respondent has consented to the Ombudsman considering the complaint where the time limits in DISP 2.8.2 R or DISP 2.8.7 R have expired…” L&C says that Mr M’s complaint was raised outwith these time limits. As I understand it, there are various strands to Mr M’s complaint but, overall, the crux of the complaint is that L&C didn’t undertake sufficient due diligence on the introduction of his business and the White Sands investment he made through his L&C SIPP and that, as a result of this, he’s suffered losses that L&C should compensate him for. Mr M has also said that had L&C declined the business the pension transfer wouldn’t have gone ahead and the subsequent investment of monies into an unregulated investment couldn’t have proceeded. With regards to the portion of Mr M’s complaint that relates to the due diligence L&C undertook into the White Sands investment and L&C permitting him to invest monies in that holding; £29,900 was invested into White Sands on 5 April 2013 and that’s within six years of Mr M first raising his complaint with L&C in July 2018. As such, I’m satisfied this portion of the complaint has been referred within the time limits. However, a portion of Mr M’s complaint also relates to L&C’s initial acceptance of his business and I’m satisfied that Mr M’s SIPP was established on or before 3 July 2012, with £27,908.35 being transferred into the SIPP on 3 July 2012. This was more than six years before Mr M first referred his complaint to L&C. So, I’m satisfied that this portion of the complaint wasn’t made within six years of L&C first accepting Mr M’s business. As such, I’ve also gone on to consider whether Mr M referred this portion of his complaint more than three years from the date on which he either became aware, or ought reasonably to have become aware, he had cause for complaint. And when I say here cause for complaint, I mean cause to make this complaint about this respondent firm, L&C, not just knowledge of cause to complain about anyone at all. In thinking about when Mr M was aware, or ought reasonably to have become aware, that he had cause for complaint, I’ve considered how ‘cause for complaint’ should be interpreted in the context of the FCA Handbook. On interpreting the Handbook generally Singh LJ said the following in The Official Receiver v Shop Direct Finance Company Limited [EWCA] Civ 367: “44. The FCA Handbook is similar in its drafting style to the Financial Services Authority's Client Assets Sourcebook (CASS), which was considered by this Court in Re Lehman Brothers International (Europe) (No 2) [2010] EWCA Civ 917; [2011] 2 BCLC 184… …

-- 20 of 70 --

46. For present purposes I derive the following propositions from the judgments in Re Lehman Brothers: (1) Ultimately it is the actual wording of a provision that must govern any decision as to its effect. (2) The Handbook should be read as a whole, taking an holistic and iterative approach, so that a preliminary view on one provision can be tested by reference to the rest of the relevant provisions. (3) The provision should be construed in the light of its overall purpose. (4) It should be construed on the basis that it is intended to produce a practical and commercially sensible result. The rules should be taken to be grounded in reality. The court should keep in proportion any drafting infelicities.” And in relation to DISP 2.8.2R Nugee LJ said the following: “155. The resemblance to the ordinary limitation periods for claims in negligence where there is also a primary period of 6 years (under s. 2 of the Limitation Act 1980 ("LA 1980")) and a secondary period of 3 years from the date of the claimant's actual or constructive knowledge (under s. 14A LA 1980) is striking. We have in fact been shown evidence that this is not a coincidence, but even without this material (which is of doubtful admissibility) it would have been a reasonable assumption that the general structure was modelled on the LA 1980 provisions and was designed to do the same thing in general terms. 156. What then is the purpose of having these two time-limits? The purpose of an ordinary limitation period is to prevent stale claims from being litigated, the period of 6 years being fixed as a generally reasonable period to bring a claim. This explains the primary period. But as is well-known that could and did lead to some claimants who had suffered latent injury or damage finding that they had lost their rights to sue before they even knew, or could reasonably be expected to know, that they had been injured or suffered loss. Provision was therefore made, first in ss. 11 and 14 LA 1980 (applicable to claims for personal injury) and subsequently in s. 14A LA 1980 (applicable to other claims in negligence), for the claimant to have 3 years from his date of knowledge to bring a claim. The purpose of this is obvious. It was to remedy the injustice of a claimant's claim being time-barred before they knew, or could reasonably be expected to know, that they had a claim. On the other hand the selection of a (relatively short) 3 year time period shows that another purpose was to provide that once they did, or should, have that knowledge they should get on with the claim and bring proceedings reasonably promptly. Precisely the same in my view applies to the secondary time-limit in DISP 2.8.2R(2)(b). The purpose of the rule is to prevent a complainant from losing the right to complain before they are, or ought reasonably to be, aware that they have cause for complaint, but to require them to pursue the complaint with reasonable promptness once they are, or should be, so aware.” The Handbook includes the following rule (GEN 2.2.1R): “Every provision in the Handbook must be interpreted in the light of its purpose.” And guidance in the same section says the purpose of any provision in the Handbook is to be gathered first and foremost from the text of the provision in question and its context amongst other relevant provisions (GEN 2.2.2(G)). The Handbook also says (GEN 2.2.7(R)):

-- 21 of 70 --

“In the Handbook … (1) an expression in italics which is defined in the Glossary has the meaning given there; and (2) an expression in italics which relates to an expression defined in the Glossary must be interpreted accordingly.’ The term ‘cause for complaint’ is not defined in the FCA’s glossary. But where DISP says the Ombudsman cannot consider a complaint if it is out of time, the word ‘complaint’ is in italics. So it is a defined term in the FCA Glossary and must be treated accordingly. And where the Handbook says it sets out how complaints are to be dealt with by respondents, ‘complaint’ is again in italics. So again it is a defined term. So although the term ‘cause for complaint’ isn’t in italics in the FCA Handbook, it appears as part of the rule that sets out what ‘complaints’ (in italics) the Ombudsman cannot consider. And it’s reasonable to infer in light of the above rules and guidance on interpreting the Handbook that the Handbook’s definition of the word ‘complaint’ was intended to apply to that phrase. For the purposes of DISP the FCA Handbook defines ‘complaint’ as follows: “…any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of, a person about the provision of, or failure to provide, a financial service…which: (a) Alleges that the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience; and (b) Relates to an activity of that respondent, or any other respondent with whom that respondent has some connection in marketing or providing financial services or products …which comes under the jurisdiction of the Financial Ombudsman Service…” And ‘respondent’ (which is italicised) means a regulated firm covered by the jurisdiction of the Financial Ombudsman Service. So the Glossary definition of complaint requires that the act or omission complained of must relate to an activity of that respondent, or any other respondent with whom that respondent has some connection in marketing or providing financial services or products. And so the material points required for Mr M to have awareness of a cause for complaint include: • awareness of a problem • awareness that the problem had or may have caused him material loss, and • awareness that the problem was or may have been caused by an act or omission of L&C (the respondent in this complaint). It’s therefore my view that it’s necessary for Mr M to have had an awareness (within the meaning of the rule) that related to L&C, not just awareness of a problem that had caused a loss. Knowledge of a loss alone is not enough. It can’t be assumed that upon obtaining knowledge of a loss a consumer had knowledge of its cause. And I don’t accept that the three year time limit necessarily means knowledge of a loss means the consumer has three years to make enquiries to discover all parties who might be responsible, failing which they run out of time to make a complaint. As Nugee LJ said in The Official Receiver case ‘the

-- 22 of 70 --

purpose of the rule is to prevent a complainant from losing the right to complain before they are, or ought reasonably to be, aware that they have cause for complaint, but to require them to pursue the complaint with reasonable promptness once they are, or should be, so aware.’ There are a number of points that I think are relevant to this discussion: • In order to be aware of cause for complaint the complainant should reasonably know there’s a problem, that they have or may suffer loss, and that someone else is responsible for the problem – and who that someone is. So, to have knowledge of cause for complaint about L&C, Mr M needs to be aware, or should reasonably be aware, that there’s a problem which has caused, or may cause, him loss and that L&C might be responsible. • There was a transfer into the SIPP of £27,908.35 on 3 July 2012 and a later transfer of £8,348.41 on 2 October 2012. Mr M said in his submissions to the FSCS that the monies he transferred to L&C were his only financial asset for retirement and he wouldn’t have put them at risk. • Mr M has said that he first appointed his professional representative in November 2016 and that he had also realised he could claim against HCA and Sorensen in November 2016. Further, that it was only after he had pursued and received compensation for the claims he made to HCA and Sorensen that he realised there were outstanding losses and he then pursued a complaint against L&C in July 2018. • I’ve not been provided with a copy of any document that was sent to Mr M more than three years before he complained to L&C in July 2018 that demonstrates that Mr M was aware, or ought reasonably to have become aware, that there was a problem which had caused, or may cause him loss. • I’m aware from some other complaints we’ve received involving L&C and White Sands that there were some instances where L&C wrote to consumers in 2014 stating that GPIL had been placed into liquidation. And that, as trustee, it would notify its interest to the liquidator when requested and would pass on updates from the liquidator. In addition to this I’ve also seen an example in at least one complaint of L&C having written to a consumer before 17 July 2015 (so more than three years before Mr M referred his complaint to L&C), to explain that the consumer’s White Sands investment was illiquid. However, I’ve not seen evidence of such correspondence having been sent to Mr M by L&C prior to 17 July 2015 and, on balance, I’m not satisfied that such correspondence was sent to Mr M before that date. • In addition to not being satisfied, on the basis of the evidence provided, that Mr M was aware, or ought reasonably to have become aware, more than three years before he complained to L&C, that there was a problem that had caused him some loss or damage. I’m also not satisfied from the evidence provided Mr M was aware, or ought reasonably to have become aware, that L&C might have some responsibility for the position he was in more than three years before he complained to L&C. • By July 2015, the regulator had published reports on the results of two thematic reviews on SIPP operators in 2009 and 2012, issued guidance for SIPP operators in 2013 and had written to the CEOs of SIPP operators in 2014. A common theme of those communications is that the regulator considered SIPP operators had

-- 23 of 70 --

obligations in relation to their customers even where they didn’t give advice, and that many SIPP operators had a poor understanding of those obligations. • On balance, I don’t consider that Mr M was, or ought reasonably to have been, aware of the contents of the regulatory publications more than three years before he complained to L&C. I also don’t consider these publications mean that Mr M, or a reasonable investor in his position, should have had an understanding, and more than three years before his complaint was made to L&C in July 2018, that L&C might have responsibility for the position he was in. • I think it’s worth highlighting that Mr M wasn’t advised by L&C about setting up the SIPP or the suitability of investments. And I think the obvious first thought at the point in time when he became aware, or ought reasonably to have become aware, that there was a problem that had caused him some loss or damage, would have been that his financial advisers might have given poor advice or that the people who ran the White Sands investment might have caused the loss. • I’m not aware of anything L&C said or did at the outset of its relationship with Mr M that would have caused him to think it might be responsible if such a problem occurred. Nor am I aware of anything L&C said or did that ought reasonably to have caused Mr M to think it was responsible once the problem had occurred. • To be clear, I don’t think Mr M would need to have understood the details of L&C’s obligations to have been aware (or in a position whereby he ought reasonably to have become aware) of his cause for complaint. But I think Mr M would have needed to have actual or constructive awareness that an act or omission by L&C had a causative role in the loss. And I don’t think Mr M, or a reasonable investor in his position, ought reasonably to have attributed his problems to acts or omissions by L&C more than three years before he complained to L&C. • In my view there’s nothing in any correspondence we’ve seen, that was sent to Mr M more than three years before his complaint was referred to L&C, that would indicate to a reasonable retail investor in Mr M’s position that L&C had responsibility for the position he was in – the position of having a SIPP with investments in it that were performing badly. • I’ve seen no evidence that Mr M had been told by any party, and more than three years prior to his representative raising a complaint with L&C in July 2018, that L&C may have done something wrong and might be wholly or partly responsible for the position he was in. • In the circumstances I don’t consider that Mr M had in broad terms knowledge of the facts on which his complaint is based. So in all the circumstances I don’t accept that Mr M had actual awareness of cause for complaint against L&C more than three years before he referred his complaint to L&C. • Based on the evidence provided to us, I also don’t consider that a reasonable SIPP investor in Mr M’s position would have had any greater awareness of cause for complaint against L&C than Mr M did. And I don’t think Mr M, or a reasonable investor in his position, ought reasonably to have attributed the problems he has complained about to acts or omissions by L&C more than three years before Mr M complained to L&C.

-- 24 of 70 --

On balance, having carefully considered all of the evidence, I don’t think Mr M was aware, or ought reasonably to have become aware, that he had cause for complaint against L&C more than three years before his complaint was referred to L&C. Accordingly, I’m satisfied this complaint has been brought in time and that it’s one we can consider. dismissal In response to my provisional decision L&C has said, amongst other things, that “We invite FOS to revisit the Provisional Decision and dismiss the complaint.” L&C didn’t provide detailed submissions about why it believes I should dismiss this complaint. But, having carefully considered all of the submissions that have been made, I’m satisfied that I don’t need to exercise my discretion to dismiss the complaint under DISP 3.3.4A R on the basis it would significantly impair our effective operation, as it is more suitable to be dealt with by a Court or a comparable ADR entity. I’m satisfied the complaint is well suited to the work of the Financial Ombudsman Service. We have significant experience of dealing with complaints of this type and are well-placed to consider them. Considering Mr M’s complaint would not in my view seriously impair our effective operation. And I’m also satisfied that I don’t need to exercise my discretion to dismiss the complaint under DISP 3.3.4A R for any other reason. So, overall: • I’m not required to dismiss this complaint, and for the reasons I’ve given, I’m not exercising my discretion to dismiss it. As such, I’ve gone on to consider the merits of this complaint below. merits I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. In considering what’s fair and reasonable in all the circumstances of this complaint, I need to take account of relevant law and regulations, regulator’s rules, guidance and standards, codes of practice and, where appropriate, what I consider to have been good industry practice at the relevant time. As a preliminary point, the purpose of this final decision is to set out my findings on what’s fair and reasonable, and explain my reasons for reaching those findings, not to offer a point by point response to every submission made by the parties to the complaint. And so whilst I’ve carefully considered all the submissions made by both parties, I’ve focussed here on the points I believe to be key to my decision on what’s fair and reasonable in the circumstances. Relevant considerations I’ve carefully taken account of the relevant considerations to decide what’s fair and reasonable in the circumstances of this complaint. In my view, the FCA’s Principles for Businesses are of particular relevance. The Principles for Businesses, which are set out in the FCA’s Handbook “are a general statement of the fundamental obligations of firms under the regulatory system” (PRIN 1.1.2G – at the relevant date). Principles 2, 3 and 6 provide:

-- 25 of 70 --

“Principle 2 – Skill, care and diligence – A firm must conduct its business with due skill, care and diligence. Principle 3 – Management and control – A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. Principle 6 – Customers’ interests – A firm must pay due regard to the interests of its customers and treat them fairly.” I’ve carefully considered the relevant law and what this says about the application of the FCA’s Principles. In R (British Bankers Association) v Financial Services Authority [2011] EWHC 999 (Admin) (‘BBA’) Ouseley J said at paragraph 162: “The Principles are best understood as the ever present substrata to which the specific rules are added. The Principles always have to be complied with. The Specific rules do not supplant them and cannot be used to contradict them. They are but specific applications of them to the particular requirements they cover. The general notion that the specific rules can exhaust the application of the Principles is inappropriate. It cannot be an error of law for the Principles to augment specific rules.” And at paragraph 77 of BBA Ouseley J said: “Indeed, it is my view that it would be a breach of statutory duty for the Ombudsman to reach a view on a case without taking the Principles into account in deciding what would be fair and reasonable and what redress to afford. Even if no Principles had been produced by the FSA, the FOS would find it hard to fulfil its particular statutory duty without having regard to the sort of high level Principles which find expression in the Principles, whoever formulated them. They are of the essence of what is fair and reasonable, subject to the argument about their relationship to specific rules.” In R (Berkeley Burke SIPP Administration Ltd) v Financial Ombudsman Service [2018] EWHC 2878 (‘BBSAL’), Berkeley Burke brought a judicial review claim challenging the decision of an Ombudsman who had upheld a consumer’s complaint against it. The Ombudsman considered the FCA Principles and good industry practice at the relevant time. He concluded that it was fair and reasonable for Berkeley Burke to have undertaken due diligence in respect of the investment before allowing it into the SIPP wrapper, and that if it had done so, it would have refused to accept the investment. The Ombudsman found Berkeley Burke had therefore not complied with its regulatory obligations and hadn’t treated its client fairly. Jacobs J, having set out some paragraphs of BBA including paragraph 162 set out above, said (at paragraph 104 of BBSAL): “These passages explain the overarching nature of the Principles. As the FCA correctly submitted in their written argument, the role of the Principles is not merely to cater for new or unforeseen circumstances. The judgment in BBA shows that they are, and indeed were always intended to be, of general application. The aim of the Principles-based regulation described by Ouseley J. was precisely not to attempt to formulate a code covering all possible circumstances, but instead to impose general duties such as those set out in Principles 2 and 6.” The BBSAL judgment also considers section 228 of the FSMA and the approach an Ombudsman is to take when deciding a complaint. The judgment of Jacobs J in BBSAL

-- 26 of 70 --

upheld the lawfulness of the approach taken by the Ombudsman in that complaint, which I’ve described above, and included the Principles and good industry practice at the relevant time as relevant considerations that were required to be taken into account. As outlined above, Ouseley J in the BBA case held that it would be a breach of statutory duty if I were to reach a view on a complaint without taking the Principles into account in deciding what’s fair and reasonable in all the circumstances of a case. And, Jacobs J adopted a similar approach to the application of the Principles in BBSAL. I’m therefore still satisfied that the Principles are a relevant consideration that I must take into account when deciding this complaint. On 18 May 2020, the High Court handed down its judgment in the case of Adams v Options SIPP [2020] EWHC 1229 (Ch). Mr Adams subsequently appealed the decision of the High Court and, on 1 April 2021, the Court of Appeal handed down its judgment in Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474. I’ve taken account of both these judgments and the judgment in Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 1188 when making this decision on Mr M’s case. I’ve considered whether Adams means that the Principles shouldn’t be taken into account in deciding this case. And, I’m of the view that it doesn’t. I note that the Principles for Businesses didn’t form part of Mr Adams’ pleadings in his initial case against Options SIPP. And, HHJ Dight didn’t consider the application of the Principles to SIPP operators in his judgment. The Court of Appeal also gave no consideration to the application of the Principles to SIPP operators. So, neither of the judgments say anything about how the Principles apply to an Ombudsman’s consideration of a complaint. But, to be clear, I don’t say this means Adams isn’t a relevant consideration at all. As noted above, I’ve taken account of the Adams judgments when making this decision on Mr M’s case. I acknowledge that COBS 2.1.1R (A firm must act honestly, fairly and professionally in accordance with the best interests of its client) overlaps with certain of the Principles, and that this rule was considered by HHJ Dight in the High Court case. Mr Adams pleaded that Options SIPP owed him a duty to comply with COBS 2.1.1R, a breach of which, he argued, was actionable pursuant to section 138(D) of the FSMA (‘the COBS claim’). HHJ Dight rejected this claim and found that Options SIPP had complied with the best interests rule on the facts of Mr Adams’ case. The Court of Appeal rejected Mr Adams’ appeal against HHJ Dight’s dismissal of the COBS claim, on the basis that Mr Adams was seeking to advance a case that was radically different to that found in his initial pleadings. The Court found that this part of Mr Adams’ appeal didn’t so much represent a challenge to the grounds on which HHJ Dight had dismissed the COBS claim, but rather was an attempt to put forward an entirely new case. I note that in Adams v Options SIPP, HHJ Dight found that the factual context of a case would inform the extent of the duty imposed by COBS 2.1.1R. HHJ Dight said at paragraph 148: “In my judgment in order to identify the extent of the duty imposed by Rule 2.1.1 one has to identify the relevant factual context, because it is apparent from the submissions of each of the parties that the context has an impact on the ascertainment of the extent of the duty. The key fact, perhaps composite fact, in the context is the agreement into which the parties entered, which defined their roles and functions in the transaction.” I note that there are significant differences between the breaches of COBS 2.1.1R alleged by Mr Adams and the issues in Mr M’s complaint. The breaches were summarised in paragraph 120 of the Court of Appeal judgment. In particular, HHJ Dight considered the contractual

-- 27 of 70 --

relationship between the parties in the context of Mr Adams’ pleaded breaches of COBS 2.1.1R that happened after the contract was entered into. And he wasn’t asked to consider the question of due diligence before Options SIPP agreed to accept the store pods investment into its SIPP. And in Mr M’s complaint, amongst other things, I’m considering whether L&C ought to have identified that the business being introduced by Sorensen and/or the White Sands investment involved a significant risk of consumer detriment and, if so, whether it ought to have declined to accept business from Sorensen and/or applications to invest in White Sands before it accepted Mr M’s business. The facts of Mr Adams’ and Mr M’s cases are also different. I make that point to highlight that there are factual differences between Adams v Options SIPP and Mr M’s case. And I need to construe the duties L&C owed to Mr M under COBS 2.1.1R in light of the specific facts of Mr M’s case. So I’ve considered COBS 2.1.1R – alongside the remainder of the relevant considerations, and within the factual context of Mr M’s case, including L&C’s role in the transaction. However, I think it’s important to emphasise that I must determine this complaint by reference to what is, in my opinion, fair and reasonable in all the circumstances of the case. And, in doing that, I’m required to take into account relevant considerations which include: law and regulations; regulators’ rules, guidance and standards; codes of practice; and, where appropriate, what I consider to have been good industry practice at the relevant time. This is a clear and relevant point of difference between this complaint and the judgments in Adams v Options SIPP. That was a legal claim which was defined by the formal pleadings in Mr Adams’ statement of case. I also want to emphasise that I don’t say that L&C was under any obligation to advise Mr M on the SIPP and/or the underlying investments. Refusing to accept an investment in a SIPP and/or rejecting an application isn’t the same thing as advising Mr M on the merits of the investment and/or the SIPP. Overall, I’m satisfied that COBS 2.1.1R is a relevant consideration – but that it needs to be considered alongside the remainder of the relevant considerations, and within the factual context of Mr M’s case. The regulatory publications The FCA (and its predecessor, the FSA) issued a number of publications which reminded SIPP operators of their obligations and which set out how they might achieve the outcomes envisaged by the Principles, namely: • The 2009 and 2012 Thematic Review Reports. • The October 2013 finalised SIPP operator guidance. • The July 2014 “Dear CEO” letter. I’ve considered the relevance of these publications. And I’ve set out material parts of the publications here, although I’ve considered them in their entirety. The 2009 Thematic Review Report The 2009 Report included the following statement:

-- 28 of 70 --

“We are very clear that SIPP operators, regardless of whether they provide advice, are bound by Principle 6 of the Principles for Businesses (‘a firm must pay due regard to the interests of its clients and treat them fairly’) insofar as they are obliged to ensure the fair treatment of their customers. COBS 3.2.3(2) states that a member of a pension scheme is a ‘client’ for COBS purposes, and ‘Customer’ in terms of Principle 6 includes clients. It is the responsibility of SIPP operators to continuously analyse the individual risks to themselves and their clients, with reference to the six TCF consumer outcomes. … We agree that firms acting purely as SIPP operators are not responsible for the SIPP advice given by third parties such as IFAs. However, we are also clear that SIPP operators cannot absolve themselves of any responsibility, and we would expect them to have procedures and controls, and to be gathering and analysing management information, enabling them to identify possible instances of financial crime and consumer detriment such as unsuitable SIPPs. Such instances could then be addressed in an appropriate way, for example by contacting the members to confirm the position, or by contacting the firm giving advice and asking for clarification. Moreover, while they are not responsible for the advice, there is a reputational risk to SIPP operators that facilitate SIPPs that are unsuitable or detrimental to clients. Of particular concern were firms whose systems and controls were weak and inadequate to the extent that they had not identified obvious potential instances of poor advice and/or potential financial crime. Depending on the facts and circumstances of individual cases, we may take enforcement action against SIPP operators who do not safeguard their customers’ interests in this respect, with reference to Principle 3 of the Principles for Businesses (‘a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems’). The following are examples of measures that SIPP operators could consider, taken from examples of good practice that we observed and suggestions we have made to firms: • Confirming, both initially and on an ongoing basis, that intermediaries that advise clients are authorised and regulated by the FSA, that they have the appropriate permissions to give the advice they are providing to the firm’s clients, and that they do not appear on the FSA website listing warning notices. • Having Terms of Business agreements governing relationships, and clarifying respective responsibilities, with intermediaries introducing SIPP business. • Routinely recording and reviewing the type (i.e. the nature of the SIPP investment) and size of investments recommended by intermediaries that give advice and introduce clients to the firm, so that potentially unsuitable SIPPs can be identified. • Being able to identify anomalous investments, e.g. unusually small or large transactions or more ‘esoteric’ investments such as unquoted shares, together with the intermediary that introduced the business. This would enable the firm to seek appropriate clarification, e.g. from the client or their adviser, if it is concerned about the suitability of what was recommended. • Requesting copies of the suitability reports provided to clients by the intermediary giving advice. While SIPP operators are not responsible for advice, having this information would enhance the firm’s understanding of its clients, making the facilitation of unsuitable SIPPs less likely.

-- 29 of 70 --

• Routinely identifying instances of execution-only clients who have signed disclaimers taking responsibility for their investment decisions, and gathering and analysing data regarding the aggregate volume of such business. • Identifying instances of clients waiving their cancellation rights, and the reasons for this.” The later publications In the October 2013 finalised SIPP operator guidance, the FCA stated: “This guide, originally published in September 2009, has been updated to give firms further guidance to help meet the regulatory requirements. These are not new or amended requirements, but a reminder of regulatory responsibilities that became a requirement in April 2007. All firms, regardless of whether they do or do not provide advice must meet Principle 6 and treat customers fairly. COBS 3.2.3(2) is clear that a member of a pension scheme is a ‘client’ for SIPP operators and so is a customer under Principle 6. It is a SIPP operator’s responsibility to assess its business with reference to our six TCF consumer outcomes.” The October 2013 finalised SIPP operator guidance also set out the following: “Relationships between firms that advise and introduce prospective members and SIPP operators Examples of good practice we observed during our work with SIPP operators include the following: • Confirming, both initially and on an ongoing basis, that: introducers that advise clients are authorised and regulated by the FCA; that they have the appropriate permissions to give the advice they are providing; neither the firm, nor its approved persons are on the list of prohibited individuals or cancelled firms and have a clear disciplinary history; and that the firm does not appear on the FCA website listings for un- authorised business warnings. • Having terms of business agreements that govern relationships and clarify the responsibilities of those introducers providing SIPP business to a firm. • Understanding the nature of the introducers’ work to establish the nature of the firm, what their business objectives are, the types of clients they deal with, the levels of business they conduct and expect to introduce, the types of investments they recommend and whether they use other SIPP operators. Being satisfied that they are appropriate to deal with. • Being able to identify irregular investments, often indicated by unusually small or large transactions; or higher risk investments such as unquoted shares which may be illiquid. This would enable the firm to seek appropriate clarification, for example from the prospective member or their adviser, if it has any concerns. • Identifying instances when prospective members waive their cancellation rights and the reasons for this.

-- 30 of 70 --

Although the members’ advisers are responsible for the SIPP investment advice given, as a SIPP operator the firm has a responsibility for the quality of the SIPP business it administers. Examples of good practice we have identified include: • conducting independent verification checks on members to ensure the information they are being supplied with, or that they are providing the firm with, is authentic and meets the firm’s procedures and are not being used to launder money • having clear terms of business agreements in place which govern relationships and clarify responsibilities for relationships with other professional bodies such as solicitors and accountants, and • using non-regulated introducer checklists which demonstrate the SIPP operators have considered the additional risks involved in accepting business from non- regulated introducers In relation to due diligence, the October 2013 finalised SIPP operator guidance said: “Due diligence Principle 2 of the FCA’s Principles for Businesses requires all firms to conduct their business with due skill, care and diligence. All firms should ensure that they conduct and retain appropriate and sufficient due diligence (for example, checking and monitoring introducers as well as assessing that investments are appropriate for personal pension schemes) to help them justify their business decisions. In doing this SIPP operators should consider: • ensuring that all investments permitted by the scheme are permitted by HMRC, or where a tax charge is incurred, that charge is identifiable, HMRC is informed and the tax charge paid • periodically reviewing the due diligence the firm undertakes in respect of the introducers that use their scheme and, where appropriate enhancing the processes that are in place in order to identify and mitigate any risks to the members and the scheme • having checks which may include, but are not limited to: o ensuring that introducers have the appropriate permissions, qualifications and skills to introduce different types of business to the firm, and o undertaking additional checks such as viewing Companies House records, identifying connected parties and visiting introducers • ensuring all third-party due diligence that the firm uses or relies on has been indepen