SIPP Operator Due Diligence: Lessons from Adams v Options UK and the FCA Due Diligence Framework

The death of the “execution-only” shield: auditing SIPP operator due diligence after Adams v Options UK

For years, many Self-Invested Personal Pension (SIPP) operators operated under a comforting legal fiction: if a retail client signed an “execution-only” disclaimer confirming they took full responsibility for their underlying investment choice, the operator was insulated from regulatory liability. Not our problem, execution only. Your decision.

However, the landmark Court of Appeal judgment in Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474 (and subsequent FCA Dear CEO supervisory mandates) shattered that premise for good. The judiciary and the regulator reaffirmed that contractual indemnity clauses and indemnity waivers cannot contract out of statutory duties under Section 27 of the Financial Services and Markets Act 2000 (FSMA), nor do they relieve operators of their obligations under FCA Principle 2 (skill, care and diligence) and SYSC 6.1.1R (systems and controls).

When compliance auditors, Section 166 Skilled Persons, and the Financial Ombudsman Service (FOS) review high-risk SIPP books, they do not ask whether the member chose the investment. They ask: did the operator fulfil its positive regulatory duty to vet the asset, audit the distribution channel, and reject the investment before admitting it into the trust? In plain English, did the SIPP operator perform appropriate due diligence?

The File Review Failure: The “Execution-Only” Rubber Stamp

Below are some of the routinely found failings of basic due diligence standards.

Passive intermediary acceptance

Onboarding business introduced by unregulated third-party “introducers” or overseas marketing conduits without running forensic provenance checks on how the retail client was sourced.

An excellent example of this is the military personnel transferred out of their DB pensions by Caledonian Associates.

The “investment checklist” illusion

Ticking off a superficial checklist (for example, verifying that a corporate registration exists on Companies House) while failing to interrogate the underlying asset’s valuation basis, legal enforceability, liquidity structure, or operator conflicts of interest.

Burying behind member declarations

Forcing retail investors to sign aggressive waiver letters (“I acknowledge this asset is high-risk, illiquid, and unregulated, and I hold the SIPP provider harmless”) instead of operating an effective investment committee with clear refusal criteria.

Under regulatory scrutiny, an execution-only disclaimer does not demonstrate client understanding; it proves the operator was on notice of the investment’s inherent danger and proceeded anyway.

Auditing the Due Diligence Process: The Operator’s Gatekeeping Duty

A legally defensible SIPP operator file must show an active, multi-stage gatekeeping process.

The Section 27 FSMA liability trap

Under Section 27 of FSMA, if a SIPP operator enters into an agreement with a consumer as a consequence of acts done by an unregulated third party in breach of the general prohibition (for example, providing unlawful advice or arranging), the agreement is unenforceable against the consumer, and the consumer is entitled to recover all transferred monies plus interest. The job is to examine whether the operator monitored the introducer’s actual activities on the ground.

Interrogating the substance, not just the form

How did the operator’s new-product approval packs look? Did the compliance committee request audited accounts from the asset issuer? Did they identify whether the underlying investment (such as overseas agroforestry, unlisted loan notes (Dolphin Trust), or hotel room pods) was a collective investment scheme (CIS) operating unlawfully as an Unregulated Collective Investment Scheme (UCIS)?

The Principle 2 operational test

Under FCA Principle 2, an operator must act with due skill, care, and diligence. When an operator notices an influx of identical high-risk investments introduced by a single unregulated party targeting non-sophisticated or mass-market pension savers, failing to freeze the distribution conduit is a direct governance failure.

Key Takeaway for SIPP Operators and Reviewers

An “execution-only” SIPP provider is not an unthinking conduit. The law and the regulator treat the trustee as the legal guardian of the scheme assets. If an asset is toxic, fraudulent, or unlawfully distributed, the operator’s sole compliant response is outright refusal of custody.