About a month ago the Financial Services Compensation Scheme declared Independent Portfolio Managers in default, shortly after its liquidation.
The FSCS is now inviting claims from investors in Secured Energy Bonds and Providence Bonds.
There are potentially 2,000 UK customers that may be affected by the failure of IPM but the value of potential claims is still unknown. Many customers invested into one of two failed mini bonds which IPM had approved. We are aware that many former customers of IPM have outstanding complaints with the firm / Financial Ombudsman Service (FOS) prior to it failing.
I am not 100% clear on whether this means the FSCS will cover investors’ losses in full. The Financial Ombudsman certainly instructed IPM to cover investors’ losses in full (an empty order as IPM didn’t have any money) but whether the FSCS will pay out on the same basis has not been confirmed for certain. The phrase “the value of potential claims is still unknown” seems to leave this deliberately ambiguous.
It will probably become clear when claims have been processed and the FSCS has disclosed how much they have paid out.
While it would be great if investors recovered their losses in full, I stand by my earlier opinion that this is an absurd position. The FSCS was never designed to cover losses in unregulated investments. And if the FSCS pays out over IPM’s misleading literature, effectively this means that any unregulated investment can be covered by the FSCS if they find or create an obscure outfit with FCA authorisation to approve the literature – something that any outfit that has secured FCA-authorised status can do.
As we’ve seen with the adviser phoenixing scandal and numerous other dodgy entities which were given FCA authorisation, the FCA will authorise literally anybody.
Where does this end?
I believe the FOS determination was primarily on the basis of IPM’s failings in their role as security trustee, not solely no the basis of their s.21 sign off.
IPM were security trustee, corporate director and the s.21 sign off firm for these mini-bonds, so were central to the scheme, although it appears it was the security trustee role where the FOS found them liable.
I don’t know of damages being paid on a s.21 sign off alone, in fact, theFCA handbook gives firms wriggle-room if the materials are demonstrably NOT ‘fair, clear and not misleading’ – providing they did what was reasonably expected to check the contents.
If a firm provides s.21 and other services or there are other relationships between the people/firms devising the schemes and promoting them it’s potentially a red flag.
As far what the FSCS’s position will be, we’ll have to wait and see. Although given the 3 years the investor action group put in (and recruited MPs to their cause) it would be surprising for the FSCS to rule the other way?
I agree with Mike O. It wasn’t just on the basis of s.21 sign off.
The ruling http://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=188786 said: “IPM approved the promotion for the SEB bonds but a number of factors take IPM’s acts beyond just approving and amount to the regulated activity of making arrangements under Article 25(2) of the Regulated Activities Order 2000.” and “The Invitation Document not only received approval from IPM, it used the expertise of IPM to help sell the investment.”
I don’t think this is going to lead to your “absurd position”.
Excellent point. But the bar for a company to be authorised to “make arrangements in investments” is still much lower than for traditional routes to the FSCS (deposit-taking, advice, and over the last few years, non-advised investment via SIPPs).
And note that the misleading promotions are still the crux of investors’ claims against IPM. Without the misleading promotion there is no claim. IPM didn’t pretend to be arranging investments in Secured Energy Bonds but then run off with the money.
Brev, I agree, ‘make arrangements in investments” is a permission which is usually at arm’s length to the customer.
And agree too, the FOS stance is that the materials were not ‘fair, clear and not mis-leading’ and this is the headline breach.
I think the devil is in the detail, in that, the reason they were deemed in breach was related to another role IPM played in the scheme. They were security trustee and the materials stated the security arrangements provided a degree of protection to the investors, the term ‘secured bonds’ and similar being liberally sprinkled in the promotions.
In fact, the security arrangements were not fit for purpose and demonstrably so. So when IPM approved the contents, which included statements along the lines of ‘if it all goes t#!ts up, the security trustee will step in and take control of the assets’, in reality, the Security Trust Deed, Bond Instrument, and Fixed Charge were drafted in a way which meant (under certain situations) this could not be achieved.
In this case, it was that the ‘event of default’ in the Bond Instrument did not list specifically ‘not to dispose of charged property otherwise than in the course of business’, or wording to that effect.
I think the real test will be where an authorised firm approves a financial promotion under s.21 and a separate non-FCA authorised company plays the security trustee role? I don’t think actionable damages could be claimed in this case due to the ‘wriggle-room’ point I made earlier.