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Freshfields Risk & Compliance

| 6 minutes read

Not operating by the length of his foot: UK Court of Appeal further considers the role and remit of the Financial Ombudsman Service (FOS)

The Court of Appeal has again considered the judicial review of a FOS decision, following its recent decision in R (Assurant General Insurance Limited) v the Financial Services Ombudsman & Ors [2023] EWCA Civ 1049 (see our previous blog, here).

In Options UK Personal Pensions LLP (Carey) v Financial Ombudsman Service Ltd [2024] EWCA Civ 541, the Court of Appeal has upheld the dismissal of a judicial review application from Carey (as it was then known), a regulated self-invested personal pension (SIPP) provider and administrator, to quash the decision of the Ombudsman to uphold a complaint relating to the customer’s loss of his pension fund.

In reaching that decision, Asplin LJ (with whom Underhill LJ and Popplewell LJ agreed) provided guidance on: (1) the standards to be applied by the FOS; and (2) how those standards were applied in this case. This guidance may be of interest both specifically to SIPP operators and retail firms conducting execution-only services as well as, more broadly, to those considering the role and remit of the Ombudsmen of the FOS. 


  • The complainant was introduced to Carey in 2011, via an unregulated introducer, CL&P, who reportedly told the complainant that he would receive a greater, guaranteed and very low risk retirement income if he transferred his pension to a SIPP operated by Carey and invested in Store First ‘Store Pods’, an investment involving the buying and sub-letting of leases of storage units.
  • Carey obtained a compliance report on Store Pods; conducted a ‘World Check’ on a risk database on CL&P and certain of its individuals; and received representations from CL&P. These suggested nothing of particular concern, despite one of CL&P’s directors in fact being the subject of an FSA alert as to his lack of authorisation and possible targeting of UK customers.
  • The complainant proceeded to establish his SIPP with Carey, signing documentation which included declarations that he had (inter alia): (1) understood that it was his sole responsibility to make decisions relating to the purchase, retention or sale of any investment; (2) understood that Carey was not providing him with advice; and (3) acknowledged that he was establishing his Carey pension scheme on an execution-only basis. His SIPP was opened, and the investment in Store Pods was completed.
  • Ultimately: (1) various suspicions came to light as to CL&P, and its relationship with Carey was terminated; and (2) the complainant’s Store Pod investment failed, causing the complainant to lose his pension fund.

Procedural history

  • Carey rejected the complainant’s resulting complaint, which was then upheld by the FOS at the provisional and final stages. 
  • Cockerill J refused Carey permission on the papers, and Bourne J refused permission at a hearing, to judicially review the final decision. 
  • Carr LJ (as she then was) then granted permission to appeal Bourne J’s decision and to apply for judicial review (to be retained in the Court of Appeal), and this is the resulting judgment.

The appeal

  • Carey advanced three grounds, namely that:
    • Ground 1: The relevant Ombudsman had failed to satisfy the requirements set out in R (Heather Moor & Edgecomb) v FOS [2008] Bus LR 1486 (CA), by: (1) failing to address whether Carey would be liable under a duty which a Court would recognise as founding a claim; and, if holding Carey liable in the absence of a breach of an actionable regulation or other actionable legal duty, (2) failing to give reasons for taking that course. 
    • Ground 2: The Ombudsman had erred in law in finding that Carey owed duties to a prospective SIPP member to carry out due diligence on those who introduced them and on the investments which they had selected, despite the execution-only basis for the agreement between Carey and the complainant and the fact that Carey was not authorised to advise in relation to investments.
    • Ground 3: Even if the duties of due diligence on which the Ombudsman had relied, in fact, exist, it was irrational of the Ombudsman to decide that they had been breached, and his decision included significant logical flaws and/or the conclusions reached were outside the range of reasonable responses open to him.

The judgment

Each ground was dismissed, with the following points of interest arising in relation to: (1) the standards to be applied by the FOS; and (2) how those standards were applied in this case.

Standards to be applied

Having summarised the main authorities, Asplin LJ found that:

  • Standards to be applied
    • There can be no doubt that the Ombudsman in question, and the FOS in general, is not required to determine a complaint in accordance with common law, but to form his/her opinion, for the purposes of providing a quick and informal means of resolving a dispute (s.225(1) FSMA) as to what is fair and reasonable in the circumstances under DISP 3.6.4R – those circumstances being: (1) relevant: (a) law and regulations; (b) regulators’ rules, guidance and standards; and (c) codes of practice (DISP 3.6.4R(1)); and (2) what he/she considers to have been good industry practice, at the relevant time (DISP 3.6.4R(2)).
    • An Ombudsman must therefore: (1) as Ouseley J made clear in R (British Bankers Association) v Financial Services Authority [2011] EWHC 999 (Admin) (and see also R (Berkeley Burke SIPP Administration Ltd) v Financial Ombudsman Service [2018] EWHC 2878), take the FCA’s Principles into account when reaching such an opinion, albeit that the Principles are not actionable under s.138D FSMA; and (2) then, as necessary, form a view on what fair compensation might be under s.229(2)(a) FSMA (even if damages would not be available under s.138D).
  • Explanation of reasoning
    • The Ombudsman must explain his/her reasoning, such that the decision can be understood and is amenable to judicial review on the grounds of perversity and/or irrationality: “As Rix LJ described it in the Heather Moor case at [80], despite the fact that the ombudsman is required to arrive at an opinion as to what is fair and reasonable in all the circumstances, he is not operating by the length of his foot”. 
    • Where an Ombudsman is departing from the common law position, this ought to be made clear (per Heather Moor). The Ombudsman is not required, however, formulaically to “set out all the relevant contractual provisions and tortious duties which apply and state why it is considered appropriate in the particular case to go beyond them”, or to examine those regulations actionable pursuant to s.138D, before turning to non-actionable regulations, guidance and best practice.

How those standards were applied

Against that backdrop, Asplin LJ found that the Ombudsman in question had:

  • Been entitled to conclude, as he had, that Carey should have: (1) carried out pre-contractual due diligence on CL&P and the Store First investment to the sort of standard which was consistent with: (a) good industry practice; and (b) its regulatory obligations at the time (despite those relevant being Principles, rather than actionable standards); and (2) used the knowledge it gained from that due diligence to decide whether or not to accept or reject a referral of business or a particular investment.
  • Been entitled (and for (3), certainly not irrational, as alleged), to reach this conclusion despite Carey’s reliance on: (1) case law rejecting that Carey owed duties of the kind relied upon by reference to (actionable) COBS rules; (2) the contractual terms, particularly as the Ombudsman was concerned with pre-contractual due diligence failings; (3) the potential unavailability of information (the FSA notice) at the time of the due diligence, as Carey should in principle have checked the FSA’s list; (4) the cumulative result of the Ombudsman’s approach in these circumstances, which was said effectively to impose a duty on Carey to undertake a qualitative assessment and to pass it on to the complainant, which would amount to a recommendation in an execution-only transaction. Instead, Asplin LJ found that Carey’s “haphazard” conduct of the due diligence should have related not to the suitability of the investment, but to “whether the type of investment should have been accepted per se, in the light of all the circumstances, including the nature of the introducer”; and (5) the lack of causation (as the complainant would have invested in Store First in any event). 
  • Sufficiently set out his reasons, given adequate reasons, explained the relevant law and explained why he was relying on the Principles.

Key takeaways

The judgment: (1) clarifies specifically for SIPP operators and retail firms conducting execution-only services that FOS complaints relating to pre-contractual due diligence may in principle be upheld on a Principles-only basis; and (2) is a comprehensive general reminder of the flexible approach and wide discretion of the Ombudsmen of the FOS, who are not required to determine complaints solely in accordance with common law (but who also, as the High Court recently made clear in R (Shawbrook Bank Ltd) v Financial Ombudsman Service Ltd [2023] EWHC 1069 (Admin), should not: (a) cross the line from interpreting law to creating law, particularly through “sheer vagueness”; or (b) seek to “break new ground for the whole industry” with their decisions).

It may have been ambitious for Carey to challenge the exercise of the Ombudsman’s discretion in this case - particularly in circumstances where the Ombudsman was clearly conscious that the individual complainant had lost his (as Asplin LJ noted) “entire” pension fund due to the actions of CL&P - although firms may take comfort that the Court of Appeal’s willingness to grant the permission twice refused by the High Court at least signals: (1) a recognition that Carey was raising properly arguable points; and (2) a continuing willingness of the Courts closely to scrutinise the sometimes fine line trodden by an Ombudsman, between the interpretation and the creation of relevant standards.


fca, financial services litigation , financial institutions, uk, financial services