In an important decision with significant implications the Court of Appeal (CoA) has allowed the claimant's appeal in the long-running “Carey” case (Adams v Options UK Personal Pensions LLP, formerly Carey Pensions UK LLP) and has overturned the much criticised decision in favour of the SIPP provider (which followed a trial in 2018 and a disgraceful two year wait for judgment for which the Judge was rightly criticised). In summary, the CoA held that the agreement in 2012 between the claimant and the provider to establish a SIPP from which investments were then made was unenforceable by virtue of section 27 FSMA 2000. This resulted from the involvement of an unregulated overseas-based third party introducer, CLP, who had persuaded the claimant (one of 580 investors in total) to transfer money out of an existing personal pension into a SIPP in order to invest in high risk “storepods”. The CoA decided that the activities of CLP amounted to “advising on investments” and also “arranging deals in arrangements” within the meaning of Articles 53 and 25 of the Regulated Activities Order (RAO) and so were carried out in breach of the general prohibition.

The Court held that on the facts there was no basis for exercising its direction in favour of enforcing the agreement.  Carey had attempted to present its role as non-advisory, execution only and thus distinct from that of CLP, even though most investments had been made via SIPPs established by it. It did not help Carey's case that CLP was operated by an individual who had been the subject of warnings from the FSA in 2010 for targeting UK pension holders. The CoA took the view that the purpose of section 27 is to transfer the risk of dealing with an unregulated entity to the provider in the interests of consumer protection and noted that it was “hard to suppose that 580 people [with an average investment of £50,000] would spontaneously decide to invest in Blackburn storepods”. The claimant was entitled to be repaid the money invested in the SIPP plus compensation to be assessed for having paid that money over.  

The use of SIPPs as a mechanism for high risk, speculative or even fraudulent investments has been an unintended consequence of the liberalisation of the pensions regime, albeit one that was perhaps predictable.  That led to some caustic comments from the Court regarding the targeting of “the gullible, greedy or desperate” by “unscrupulous entities”. The decision has significant implications given the number of SIPP providers who have facilitated such investments, even where their role has simply been to provide the structure through which the investment can be undertaken and where no advice is given in relation to the merits or otherwise of the underlying investments.  

The case is also of wider importance in view of the finding that, for the purposes of the RAO, whether the activity of an unregulated party amounts to the “making of arrangements” involves a "holistic" assessment of the role carried out by that entity. If the role is "significant" (a question of fact and degree) then the threshold is likely to be met, even in the absence of a direct causal connection between the activity and the investment. As a result, for any FCA regulated firm, investment activity which involves dealing with an unregulated entity carries a clear risk of liability which cannot be excluded simply through legal disclaimers and warnings as to investment risk.