• The Claims Bureau

FSCS Receives 213 Claims Following SIPP Firm Being Declared Default.

Updated: Jun 4, 2020

The Financial Services Compensation Scheme put Avalon Investment Services into default last month after establishing that the Self-Invested Personal Pension administrator could not afford to pay out all of the claims made against them.

Claimants are set to receive £264,000, it is understood that the FSCS has received a grand total of 213 applications for compensation against Avalon.

Back in February 2016 the firm was placed into special administration and then in August 2018 was dissolved.

In March 2016, Hornbuckle parent company, Embark Group bought Avalon for an undisclosed fee but did not take on the liabilities from an earlier court case against the SIPP.

Embark Group set up a new firm, Embark Investment Services to take control of Avalon's £300m of assets and 50,000 clients - of which 1,200 had SIPP's.

A declaration of default means FSCS is satisfied a firm is unable to pay claims for compensation made against it.

This then paves the way for clients of that firm to make a claim for compensation.

The FSCS made an investigation into the SIPP administrator and focused on the levels of due diligence carried out before allowing clients to make certain investments using their pensions.

The FSCS also found that some clients of Avalon were advised by authorised advisers to transfer their existing pensions into the Avalon SIPP.

After these transfers, the pensions funds were put into high risk, non-standard investments, some of which became illiquid meaning they cannot be sold or traded.

Other SIPP providers have been hauled up over due diligence failings on clients investments in the past couple of years.

One of the most significant legal cases was dropped back in October. The administrators of the collapsed Berkeley Burke SIPP dropped its appeal after failing to get sufficient backing to cover the potential legal costs.

The appeal was in relation to a High Court Judgement which was handed down last October in which Mr Justice Jacobs held a SIPP provider could not rely on a perceived duty to carry out business as requested by the client without considering the outcome for the client in like with FCA client protection rules.

He said there were instances when a SIPP operator should intervene before accepting business, including when the SIPP provider has learnt of problems which affect the proposed investment, or those promoting the investment.

Berkeley Burke had contested the decision but dropped its action on the 4th October 2019.

The information in this article was sourced from: https://www.ftadviser.com/pensions/2020/02/03/fscs-puts-collapsed-sipp-administrator-in-default

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