The following three years until the end of 2012 was the period in which most damage was done to the reputation of the Sipp industry through the activities of unregulated introducers, a small number of incompetent and unscrupulous advisers and a few complicit Sipp providers coupled with some inertia by the FSA. It seems extraordinary that given the number of high-profile investment failings at this time the FSA did not initiate a second thematic review until April 2011, which then took 18 months to complete.
The case of 1 Stop Financial Services, about which the FCA finally published a notice in April 2014, is a prime example. 1 Stop was a small advisory firm in South Wales authorised in 2004. During the period from October 2010 to November 2012 it set up almost 2,000 Sipps. That was more than 1 per cent of all Sipps set up in the UK during that period. A substantial proportion of that business was introduced to 1 Stop by unregulated advisers.
By October 2012, 97 per cent of the business’s revenue was derived from Sipps. Indeed, during the two-year period up to the end of October it had earnt more than £4m in revenues from Sipps. The average Sipp investment was less than £60,000 and 49 per cent of the customers involved invested in overseas property developments operated by Harlequin Property. How that was allowed to happen without prompt regulatory intervention continues to baffle me.
1 Stop Financial partners were banned in 2014 by the FCA and the firm has ceased trading.
In its second thematic review the FSA highlighted that there was evidence the relatively widespread misunderstanding among Sipp operators discovered in its first review, “that they bear little or no responsibility for the quality of the Sipp business that they administer,” remained prevalent three years later. It also commented that some Sipp operators were unable to demonstrate that they were conducting adequate due diligence on the investments held and, in some cases, there was over-reliance on third parties to conduct due diligence on behalf of the operator.
The publication of the FSA’s second thematic review in late 2012 was a watershed in the regulatory oversight of Sipps with far-reaching consequences for Sipp operators. The second thematic review effectively introduced a new set of standards for Sipp operators in the area of due diligence of investments and associated responsibilities. Whether those standards are reasonable given the nature of Sipps remains a matter of debate – even more so following the recent Financial Services Compensation Scheme (FSCS) decision to declare three Sipp operators in default. The FSCS also said it has received 150 claims against these companies over due diligence failings, "but we expect to receive many more claims in 2018/2019". Bear in mind that all three Sipp providers were operating well before my watershed date of November 2012.
