Upheld: Investment mis-selling complaint against Morgan Lloyd SIPP Services Limited

Decision detail

Summary

Mr M, a retired 57-year-old with £221,867 in pension savings, sought to transfer his existing SIPP to Morgan Lloyd SIPP Services Limited (ML) and invest £85,000 in Dolphin loan notes, a high-risk German property investment scheme offering 10-15% annual returns. ML accepted the application in December 2018 and the investment was made in May 2019. Dolphin subsequently filed for bankruptcy in July 2020, resulting in significant losses to Mr M. Mr M complained that ML failed to conduct adequate due diligence on both the Dolphin investment and TCFP (the regulated adviser introducing the business) before accepting his application, thereby breaching its regulatory obligations to act fairly and with due skill, care and diligence. The Ombudsman upheld the complaint, finding that ML should have identified Dolphin as a high-risk, speculative, non-standard investment requiring independent verification of its genuineness, operation, and valuation capability. ML's due diligence was inadequate as it relied on representations without conducting independent checks and did not verify critical aspects such as the escrow process, financial accounts, and security arrangements. The Ombudsman rejected ML's arguments that its execution-only role, Mr M's sophisticated investor status, and the regulated advice from TCFP absolved it of its due diligence obligations. ML was ordered to compensate Mr M for his financial loss and pay £500 for distress and inconvenience.

The Ombudsman's reasoning

The Ombudsman found that ML, as a SIPP operator, had regulatory obligations under the FCA Principles (particularly Principles 2, 3, and 6) and COBS 2.1.1R to act with due skill, care and diligence, to manage its affairs responsibly with adequate risk management, and to treat customers fairly. These obligations applied regardless of whether ML provided advice. The FCA's regulatory publications (2009 and 2012 Thematic Review Reports, 2013 SIPP operator guidance, and 2014 'Dear CEO' letter) established good industry practice standards requiring SIPP operators to conduct thorough due diligence on investments and introducers to identify risks of consumer detriment. ML should have identified Dolphin as a high-risk, speculative, non-standard investment requiring independent verification that it was genuine, operated as claimed, and could be independently valued. ML's due diligence was inadequate: it relied on representations from Dolphin and third parties without conducting independent checks; it did not verify the escrow process actually worked as described; it did not obtain financial accounts; it did not verify security arrangements; and it proceeded despite knowing another Dolphin investor's interest payments were delayed. The Ombudsman rejected ML's reliance on Mr M's sophisticated investor status, execution-only disclaimers, and regulated advice from TCFP as substitutes for ML's own due diligence obligations. The Ombudsman distinguished Adams v Options SIPP on the basis that Adams did not consider due diligence obligations before accepting applications, and that the Principles and good industry practice standards are relevant to determining what is fair and reasonable in an ombudsman complaint, even if not directly actionable in law. ML's failure to conduct adequate due diligence meant it should have declined Mr M's application, thereby preventing his loss.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website