FSCS’s approach to Section 27 claims against SIPP operators 

This note is intended to provide information to customers on how FSCS will deal with claims made against SIPP operators under section 27 of the Financial Services and Markets Act 2000 (“FSMA”). It is correct at the time of publication. FSCS’s approach is under continuing review and we will provide updates in due course in light of further developments.


13 December 2023

FSCS has started to assess and issue decisions on individual claims which were brought against SIPP operators in default that also qualify for compensation as a result of the Court of Appeal’s decision in Adams v Options. 

Our focus is claims that concern the activities of an unauthorised firm called Avacade Limited. We will consider claims concerning other introducers in due course.

We have identified over 500 claims that concern the activities of Avacade to date which may or may not have a valid claim for compensation under s.27 FSMA 2000. Once your claim is being assessed, you can check the status of your claim by logging onto the online claims portal.  Please be aware that once a claim is moved to assessment, we may need to collect information from third parties to progress the claim.  This can take a number of weeks.

To enable us to focus resources on getting answers to customers and representatives as efficiently as possible, we ask that customers and their representatives monitor the status and progress of their claim via the online claims portal, and avoid raising individual queries concerning claim progress.  If you experience a change in circumstances, please let us know. 

We expect to provide an update on our progress again in October 2023.

Following on from our update in October, having reviewed a sample of 200 claims, FSCS is now beginning to assess and process the first group of claims which may be entitled to compensation in accordance with s.27 FSMA 2000.

As the majority of claims concern a transfer from an existing pension scheme where we decide that an individual customer is eligible for additional compensation, FSCS will need to get updated notional transfer values from the ceding pension scheme to calculate the amount payable. On average it takes up to six weeks to get this information from third parties. We will begin collecting this information as soon as possible and therefore anticipate that decision letters will be sent to the relevant customers in March 2023.

We are continuing to identify further groups of claims that we will be moving forward in the coming weeks and months. Further updates will be provided on this webpage. There is no need to contact us directly. We will inform customers and their representatives concerning the decision on their claim in the usual way.

Since the FSCS Board’s decision that FSCS should proceed to consider potential liabilities under section 27 FSMA, we have been working on putting that decision into effect. This has meant:

  • Reviewing our records
  • Considering the legal position, including how the COMP rules apply to claims under section 27 FSMA
  • Establishing what evidence we might need
  • Considering how best to approach the processing of claims under section 27 FSMA.

We have now begun the process of reviewing individual claims. We are taking forward a sample of around 200 claims. These claims have been chosen because they should help to draw out some of the issues which FSCS needs to consider when we come to reviewing the rest of the claims.

Once we have completed our review of the sample of 200 claims, we will consider how best to approach processing all of the claims under section 27 FSMA which we have received.

For now, while FSCS continues to build and refine its new processes, we will continue to issue interim decisions in cases where customers raise claims under section 27 FSMA and for due diligence failings by a SIPP operator.  As before, this is so that customers do not need to wait for the outcome of their due diligence claim while we finalise the process for considering claims under section 27 FSMA.

As outlined in our previous update we will contact customers individually as and when we begin work on assessing their claims.  There is no need for you to contact FSCS at this stage.  

We expect to provide an update again towards the end of December 2022.  

The FSCS Board has considered this matter and has decided that FSCS is able to proceed to assess relevant claims against SIPP Operators (involving an unregulated introducer) by considering potential liability owed under section 27 FSMA. 

Because of the decision of the Court of Appeal in Adams v Options and the decision of the High Court in a claim for judicial review brought against FSCS, we will now review SIPP claims that we have to date decided on an interim decision basis since 1 April 2021 and we will start to make final decisions on those claims.

Where customers are eligible for further compensation as a result of a valid claim under section 27 FSMA, we will write to affected customers to inform them of our final decision on this matter and pay them any additional compensation they are due.

Customers who received an interim decision do not at this stage need to take any further action. We will contact you with our final decision in due course. If we do need anything further from you we will let you know.

We are now designing a process to operationalise this decision. We will provide updates on which interim decisions are being reviewed on a regular basis. We do not expect to provide an update before the end of October 2022.

Court decisions relevant to s.27 FSMA claims and FSCS

The Court of Appeal’s decision in Adams, insofar as it concerned Section 27 claims, overturned the High Court’s judgment (decided in May 2020) and therefore changed what was understood to be the correct legal position on the applicability of Section 27 claims on or after 1 April 2021.

Since the Court of Appeal’s judgment was handed down on 1st April 2021, FSCS has been investigating the extent to which certain customers may have eligible protected claims as a result of a Section 27 claim which has been raised with FSCS and why in certain circumstances we are paying compensation on SIPP operator claims on an interim basis. 

Of note in 2021, a claim for Judicial Review was brought against FSCS which sought to challenge a decision by FSCS not to pay compensation in relation to a Section 27 claim brought concurrently with an investment due diligence claim against a SIPP operator. 

That claim for compensation was decided by FSCS in late 2020.  We upheld the claim on the basis of investment due diligence failings by the SIPP operator only. The compensation due to the customer was therefore calculated by reference to our approach to investment due diligence claims.

Permission for that claim for judicial review was refused, both on the papers and at an oral reconsideration hearing. In doing so, Peter Marquand (sitting as a Deputy High Court Judge) considered the impact of the Court of Appeal’s judgment in Adams, which had overturned the High Court’s judgment in so far as Section 27 Claims are concerned. 

The reasons given by the judge for refusing permission to bring the legal challenge included the fact that FSCS had properly had regard to the relevant law at the time it decided the claim for compensation, including the first instance judgment of the High Court in Adams v Options SIPP UK LLP [2020] EWHC 1229 (Ch), which was handed down on 18 May 2020.

This means that s.27 FSMA as a valid basis of claim is relevant for claims decided by FSCS (whether on appeal or not) on or after 01 April 2021. Accordingly, when making its most recent decision, the FSCS Board decided that FSCS should not accept appeals from customers who FSCS had paid compensation to prior to 1 April 2021 in relation to due diligence failings of a SIPP operator, where the primary purpose of the appeal would be to assert additional liability under section 27 FSMA.

Download a copy of the approved judgment in R (New) v Financial Services Compensation Scheme [2021] EWHC 2203 (Admin) - pdf 0.1MB.

The Supreme Court has announced that it will not consider the SIPP Operator's appeal in the Adams v Options case, and so there will be no further consideration of this case by the courts.

Due to the uncertainty that followed the Court of Appeal decision in April 2021, FSCS has been adopting an interim approach to paying relevant claims, namely those against SIPP operators involving an unregulated introducer where there could potentially be an additional liability under section 27 of the Financial Services and Markets Act 2000 (FSMA).

Now that the Supreme Court has decided that it will not hear an appeal in the Adams case, we are able to consider FSCS's approach in order to make final decisions on claims that were paid on an interim basis. As well as considering the court’s decisions to date, we must also consider the COMP Rules that govern how FSCS must determine claims. We will provide a timeline for this process on this webpage in due course. Please subscribe to this page (scroll down to the box at the bottom) for further updates.

We understand that the Supreme Court has now considered Options' application and refused permission for Options (formerly Carey Pensions) to bring an appeal. We will provide a more detailed update as soon as we can.

Frequently asked questions

1.1 In January 2018 FSCS first declared three Self-invested Personal Pension (“SIPP”) Operators in default. Since then FSCS has been receiving and assessing claims and, where eligible under the rules which FSCS must follow, paying compensation to customers in connection with due diligence failures by a number of failed SIPP Operators.

1.2 However, the law in relation to when SIPP Operators may be liable to their clients is still developing, and recently in particular the courts have been considering the circumstances when a SIPP Operator may be liable to its clients for claims made under section 27 of FSMA in a case called Adams v Carey, which later became Adams v Options. Further detail on this case and its impact on FSCS’s approach to claims is set out in part 3 below.

2.1 FSCS was established under Part 15 FSMA to provide compensation to clients of authorised financial services firms who are unable, or are likely to be unable, to meet the claims against them themselves. We describe these firms as being “in default”. The Financial Conduct Authority (the “FCA”), the regulator of financial services in the UK, set rules for FSCS.  They are known as the COMP Rules and are contained within the FCA Handbook. The COMP Rules are accessible here: FCA Handbook - FCA Handbook

2.2 Under these rules, FSCS may only pay compensation where the firm in default is a person that was authorised by the FCA to carry on certain regulated activities (such as advising on investments, or making arrangements to bring about an investment). FSCS can only pay compensation to customers where it is satisfied that they have an eligible claim against an authorised person. More about FSCS eligibility is available at www.fscs.org.uk/making-a-claim/claims-process/eligibility-rules/

2.3 People and firms who are not authorised by the FCA are not permitted to carry on regulated activities. This rule is set out in section 19, FSMA and is referred to as the “General Prohibition”. Where a person carries on a regulated activity in breach of the General Prohibition, that person may be committing a criminal offence.

2.4 Authorised firms, such as SIPP Operators, occasionally work with third-parties that are not authorised. Where the unauthorised third-party is not carrying on a regulated activity there will not be a breach of the General Prohibition. Activities the unauthorised third party may carry out could include simply providing information or making an introduction between authorised firms and potential clients. These arrangements have been seen, for example, where a person wishes to transfer their pension into a SIPP and the unauthorised third-party provides them with information and/or introduces them to a SIPP Operator, and this would not breach the General Prohibition.

2.5 However, sometimes the actions of an unauthorised third-party might go further than that if they advise clients and provide a personal recommendation in relation to which SIPP Operator they should transfer their pension to, and/or which investments they should purchase within their SIPP. Alternatively, the unauthorised third-party might arrange the transfer of the client’s pension, or make arrangements to bring about the pension transfer. These are regulated activities and so when performed by an unauthorised third party it would be a breach of the General Prohibition.

2.6 Under section 27, FSMA an agreement which a consumer enters into with an authorised firm ‘in consequence of something said or done’ by an unauthorised third-party ‘in the course of a regulated activity carried on by the [unauthorised] third-party in contravention of the General Prohibition’ is not enforceable against the consumer unless, in the particular circumstances, the court considers that it would be just and equitable to allow the agreement to be enforced.

2.7 This means that where section 27, FSMA applies, the consumer may also be able to bring a claim against the authorised SIPP Operator firm they have entered into an agreement with to: i) recover any money paid or transferred by them under the agreement; and ii) seek compensation for losses they have suffered. This is referred to as a “Section 27 Claim”.

3.1 In May 2020 the High Court dismissed a Section 27 Claim made against a SIPP Operator on the basis that it was not satisfied that the actions of the unauthorised third-party involved amounted to a breach of the General Prohibition (Adams v Options SIPP UK LLP [2020] EWHC 1229 (Ch)). The High Court also held that even if the unauthorised third-party had acted in breach of the General Prohibition, it would have exercised a discretion available to it under section 28, FSMA to not grant relief in any event.

3.2 However, in April 2021 the Court of Appeal reached a different decision in the same case (Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474) and upheld the Section 27 Claim. The Court of Appeal decided not to exercise its discretion under section 28, FSMA to not grant relief, despite accepting the fact that the SIPP Operator did not know that the unauthorised third-party had acted in breach of the General Prohibition. This was because, amongst other reasons, the Court of Appeal decided that FSMA imposed the risk of accepting client introductions from an unauthorised third-party imposed on authorised firms.

3.3 An application to the Supreme Court for permission to appeal the Court of Appeal’s decision has been made in the Adams The Supreme Court is the final court of appeal for civil cases in the UK. If the Supreme Court grants permission and decides to hear the case, they will provide the final judgment in this matter.  However, until the Supreme Court has decided whether it will hear the appeal, the law is not sufficiently certain for FSCS to be satisfied that a civil liability is owed by SIPP Operators under the COMP Rules.

4.1 What is clear is that determining that a Section 27 Claim can be established is a complex exercise and depends on the particular facts of each case. For example, a court – or FSCS – would need to consider in each case: i) whether an identifiable unauthorised third-party was involved; ii) whether there is evidence that the third-party acted in breach of the General Prohibition in relation to the particular transaction and, if so; iii) whether the customer entered into an agreement with an authorised firm in consequence of the unauthorised third-party’s actions; and finally iv) whether it is just and equitable for the agreement between the customer and the authorised firm to be enforced in any event.

4.2 FSCS does not consider that it would be fair to delay paying compensation to customers in relation to their investment due diligence claims until it is also able to determine whether a Section 27 Claim is also established.

4.3 Therefore, where FSCS is satisfied that a customer is eligible for compensation for due diligence failures by their SIPP Operator, in connection with the investments purchased via their SIPP, but they might also be eligible for a Section 27 Claim, FSCS will pay compensation to customers on an interim basis. This compensation will be calculated with reference to the loss that customers have suffered (if any) from their failed investments, due to the identified due diligence failures by their SIPP Operator.

4.4 In these cases, FSCS will make it clear in the decision letter whether any compensation offered is on a full and final settlement or interim payment basis because there may be a Section 27 claim for FSCS to consider in future. In addition, where FSCS is unable to value a particular investment which is the subject of a due diligence failure, we may also apply an interim valuation to assess the compensation FSCS will pay in relation to that investment at this time. This will also be explained in the decision letter, where applicable.

4.5 In cases where FSCS cannot be satisfied that a customer is eligible for compensation for due diligence failures, but is aware that there might also be a Section 27 Claim to consider in future, FSCS will place the claim on hold. FSCS will reopen these cases and write to customers once it is able to determine whether or not these customers may be eligible for compensation as a result of a Section 27 Claim.

4.6 For the avoidance of doubt, where a customer’s claim does not involve an unauthorised third-party the question of a Section 27 Claim does not arise. FSCS will therefore continue to assess those claims and make offers of compensation, where it is satisfied eligible claims exist, in full and final settlement and discharge of customers’ entitlement to compensation.

4.7 Once FSCS is able to determine whether or not customers may be eligible for further compensation as a result of a Section 27 Claim, FSCS will write to affected customers to inform them of its final decision on this matter, and ultimately its final decision as to their Section 27 claim.

5.1 Given that the High Court and the Court of Appeal took opposing approaches to the application of a Section 27 Claim to the same set out facts, and an appeal remains outstanding to the Supreme Court in the same case FSCS does not consider that it would be acting efficiently, effectively, or economically if it were to invest significant resource now in circumstances where the law as it applies to Section 27 Claims is currently unsettled. FSCS also notes that taking this approach mitigates against the risk of compensation being wrongly paid, and therefore FSCS having to consider taking action to recover compensation.

5.2 This approach is consistent with our responsibilities under FSMA to have regard to the need to ensure efficiency and effectiveness in the discharge of its functions.

6.1 FSCS’ power to make interim payments on account in these circumstances derives from COMP 11.2.4R. This provides that if FSCS is satisfied that, in principle, compensation is payable in connection with a protected claim, but considers that immediate payment in full would not be prudent because of uncertainty as to the amount of the customer’s overall claim, it may decide to make an interim payment on account.

7.1 FSCS is closely monitoring developments in relation to Section 27 Claims against SIPP Operators, including the progress of the Supreme Court appeal in the Adams case and when FSCS is in a position to update customers about developments it will do so.

7.2 Once a final decision is issued by the Supreme Court, either by refusing permission to appeal or, if permission is granted, by handing down a final judgment, FSCS will consider that decision and its implications in the context of FSCS’ statutory powers, discretions, and responsibilities.

7.3 FSCS will then write to customers who have received interim payments on account to notify them of FSCS’s final decision as to whether it will make a further payment of compensation to customers who can prove an eligible Section 27 claim, or whether FSCS will treat the interim payment already made as the full and final settlement of their claim(s) against the SIPP Operator. For those customers who were not eligible for an interim payment in respect of due diligence failures, and may only have a Section 27 claim, FSCS will reopen the claim and provide a final decision.

8.1 Should you have any questions upon receiving a decision letter from FSCS making an offer of compensation as an interim payment on account, you should discuss the letter in the first instance with your adviser or representative (if you have one).

8.2 Otherwise, you can contact FSCS’ Customer Contact Centre on the details set out at the top of the decision letter that has been sent to you.