FCA goes to court to protect scheme member outcomes

The UK Financial Conduct Authority (FCA) has succeeded in its claim against Avacade Limited (Avacade) and others for providing pensions investment advice without the correct permissions. The case of Financial Conduct Authority v. Avacade Ltd (in liquidation) and others [2020] EWHC 1673 (Ch) highlights the dangers for pension scheme members of following unregulated advice. From this case and a number of other FCA initiatives, it is clear that pensions continue to be an area of focus for the regulator.

Avacade’s business model involved contacting consumers with existing pensions and providing them with a report outlining alternative investment options which they may wish to pursue. This resulted in a number of consumers investing in self-invested personal pensions (SIPPs). While Avacade referred consumers to an independent financial adviser (IFA), investments were often made without consulting an IFA. Around £92 million was invested in the SIPPs and Avacade made a commission of approximately £11 million. Many of the underlying assets of the SIPPs are now in liquidation, rendering the consumers’ pensions essentially worthless.

The FCA brought a claim against Avacade, its directors and a separate company operating under a similar business model with two of the same directors. The FCA alleged that the defendants had: (i) carried out regulated investment activities (including advice) without permission; (ii) made unapproved financial promotions; and (iii) made false and misleading statements. Adam Johnson QC, acting as High Court Judge, found in the FCA’s favour on all three counts. The FCA’s press release on the case confirms that it will be seeking court orders preventing the defendants from carrying out authorised activities in the UK and determining the sums those parties should have to pay by way of restitution.

This case demonstrates the attention the FCA is placing on pensions, in particular on transfer advice and pensions scams. The cross-over between what the FCA and the UK Pensions Regulator (tPR) are doing in this space is particularly interesting. Protecting member outcomes is a clear focus for tPR and can be seen in a number of its current workstreams (not least the guidance it has issued for trustees to follow when members request a transfer).

It is clear that regulators across the board are taking these issues seriously and expect trustees, employers and other stakeholders to act positively to protect pension scheme members. Regulatory action will only increase as defined contribution pension schemes become more important going forwards. As a result of this, there will be a need for continuing cooperation between the FCA and tPR. To their credit, the two regulators launched a joint regulatory strategy in 2018 and have carried out a number of initiatives together already, including the successful TV, radio and online campaign about pensions scams. It is hoped the regulators will continue in a similar vein going forwards.

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Eleanor Hart

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