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Understanding those big cases. Part 3: Avacade

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Glyn Taylor summarises the last three big cases and reflects on what they will mean for our industry.

What is the pensions dashboard? On 30 June 2020, Adam Johnson QC (sitting as a Deputy Judge) handed down judgment in Financial Conduct Authority v Avacade Limited (In Liquidation) & Others [2020] EWHC 1673 (Ch). This was the FCA’s enforcement action against Avacade Ltd and others. The decision sets out the meaning of “making arrangements” under RAO Article 25 and “advising” under article 53, as well as considering “financial promotions” under FSMA.

The FCA alleged breaches of Article 25 RAO by Avacade and by reference to:  transferring out of existing pensions, transferring into a SIPP, divesting of cash in the SIPP and purchasing one or more of the promoted investments. In relation to the full scope of article 25 (1) & (2), the Deputy Judge considered that sub-article (2) was intended to be wider than (1). While the latter required the act in question to be directly causative of the transaction, sub-article (2) captured “a more inchoate form of activity, which is not necessarily causative of the transaction… but which nonetheless helps it to happen”.

Therefore, any volume business introduced by an unregulated party will be caught by Article 25 whereas in Adams the actions of the introducer did not necessarily bring about the transaction.

Were there was any doubt after the Adams judgement as to the FCA interpretation of Article 25, this judgment leaves very little room for doubt as to the FCA’s intentions regarding unregulated introducers who operated in relation to pension transfers to SIPPs.

What does the future hold?

Where the introducer has offered a pension review service and promoted a high risk investment, then in any further litigation involving a SIPP Operator the court is likely to find that the unregulated broker was engaged in criminal activity (under section 19 of FSMA) in conducting investment business in the UK. The obvious inference should be that there was a recommendation, or at the very least arrangements where the Claimant transferred a pension in to a SIPP. The Court can still exercise discretion and enforce the SIPP however it is more unlikely where the introducers activities went way beyond a mere introduction to the SIPP Operator.

The FOS has an obligation to reach decisions that are ‘fair and reasonable in all the circumstances’. Therefore it is likely the FOS will follow the judgement of FCA v Avacade and infer that an introducer was engaged in regulated activity by introducing volume business to a SIPP operator and the SIPP Operator should not have accepted business and by doing so treated the customer unfairly.