Westerby Trustee Services Limited · DRN-5308081

The complaint Mr L is unhappy as he feels Westerby Trustee Services Limited (‘Westerby’) failed to undertake sufficient due diligence when it accepted his Self-Invested Personal Pension (‘SIPP’) and Needlesmart Limited (‘Needlesmart’) investment applications. What happened I've outlined what I think are the key events and points involved in the complaint below. On 3 April 2017, Mr L received advice from a business I will call ‘Firm A’ to transfer his pensions, with a total value of around £1,083,400, to a Westerby SIPP to invest this largely in a discretionary managed funds (‘DFM’) and some alternative investments including £850,000 in DFM portfolios, £65,000 in Needlesmart (A shares), £100,000 in Dolphin and £60,000 in corporate bonds. Mr L’s Westerby SIPP application was dated 12 April 2017. On 20 April 2017, Firm A signed terms of business with Westerby. And, on or around 25 April 2017, Mr L’s SIPP application was accepted by Westerby. On 21 July 2017, Westerby received Mr L’s Needlesmart application from Firm A, which declared that he was a high-net worth investor. And, as well as making other investments, in August 2017, Mr L invested £100,000 in Needlesmart – an investment to fund a safety device designed to reduce needle-stick injuries. In late 2022, Needlesmart went into administration, the administrator concluded a sale of Needlesmart’s business and assets – also including its intellectual property – to a company connected to one of its directors, and Needlesmart was later dissolved. In 2023, Firm A also went into liquidation. And, in mid-2023, Mr L complained to Westerby that: • The due diligence carried out on Needlesmart failed to determine it had weak governance and shareholder rights, which meant there was no investor protection and that a potential scam could take place. • Needlesmart was able to employ another company owned by one of its directors for marketing activities when it had nothing to market, to siphon money out of it. • In late 2022, despite investors having sought to implement governance changes, Needlesmart was sold without their knowledge to another company owned by one of its directors for significantly less than its intellectual property was worth, which they wrote to the administrator at the Insolvency Service about in March 2023. • Companies House shows limited accounts information from when Westerby accepted this investment application and Needlesmart’s valuations weren’t independent. In June 2023, Westerby sent Mr L its final response letter not upholding his complaint. It said, in summary, that:

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• It wasn’t responsible for the advice Mr L received, nor the performance of his Needlesmart investment. And it was clear from Needlesmart’s literature that there was a risk of total capital investment loss. • While investors weren’t happy Needlesmart entered administration and with the sale of a patent, that’s down to investment risk and the issues that impacted it couldn’t have been predicted. • If Mr L wasn’t happy with the investment structure he should have discussed that with Firm A at the time. And Needlesmart did have products to market in the form of its device and the intellectual property for this. • It was a new company when Mr L made his investment, so accounts were published a month later, which isn’t unusual and wasn’t a concern for it in the circumstances. In September 2023, unhappy with this response, Mr L referred his complaint to our Service. One of our Investigators reviewed Mr L’s complaint and didn’t uphold it. They said Firm A was responsible for the suitability of the advice Mr L received. That Mr L was a high-net worth investor and his transfer to the SIPP was to mainly invest in DFM portfolios, with lesser amounts into alternative investments including Needlesmart and there wasn’t any reason to think Westerby should have declined Mr L’s business. They felt it had acted fairly in accepting Mr L’s business from the introducer, Firm A. In respect of the whether Westerby should have permitted the Needlesmart investment within its SIPPs, our Investigator said there’s nothing to suggest this investment wasn’t genuine, the investment and its accounts were on Companies House around the time showing that it was trading. And Westerby carried out checks on directors and checks which showed Needlesmart was genuinely seeking to develop products due to having obtained patents. They didn’t think Westerby had done anything wrong by permitting the Needlesmart investment within Mr L’s SIPP and they said they weren’t asking it to do anything. Mr L didn’t agree and asked for an Ombudsman to consider his complaint. He said, in summary, that Needlesmart’s articles of association weren’t secure enough regarding investor’s interests. It had the ability to do what it wanted without shareholders being able to intervene, which led (in his opinion) to sharp practice/fraud where the intellectual property (the real investment value) was sold, the investment was allowed to fail and then the assets were bought via another related company for nothing. And Mr L said that that 25% of his pension value was invested in non-standard investments and Needlesmart wasn’t an appropriate investment for his SIPP. Because no agreement could be reached the case has been passed to me for a decision. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. And, having done so, while I understand Mr L will be disappointed, I’m not asking Westerby to do anything for the following reasons, which are largely the same as those given by our Investigator. While I’ve carefully considered the entirety of the submissions the parties have provided, my decision focuses on what I consider to be the central issues. The purpose of my decision isn’t to comment on every point or question made, rather it’s to set out my decision and reasons for reaching it.

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I’m required to determine this complaint by reference to what I consider to be fair and reasonable in all the circumstances of the case. When considering what is fair and reasonable in the circumstances, I need to take account of relevant law and regulations, Regulators’ rules, guidance and standards, codes of practice and, where appropriate, what I consider to have been good industry practice at the relevant time. I have taken into account a number of considerations including, but not limited to: • The Financial Services and Markets Act 2000 (“FSMA”). • Court decisions relating to SIPP operators, in particular Options UK Personal Pensions LLP v Financial Ombudsman Service Limited [2024] EWCA Civ 541 (“Options”) and the case law referred to in it, including: ▪ Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474 (“Adams”) ▪ R (Berkeley Burke SIPP Administration) v Financial Ombudsman Service EWHC 2878 (“BBSAL”) ▪ Adams v Options SIPP UK LLP [2020] EWHC 1229 (Ch) (“Adams – High Court”) • The FCA (previously the FSA) rules including the following: ▪ PRIN Principles for Business ▪ COBS Conduct of Business Sourcebook ▪ DISP Dispute Resolution Complaints • Various regulatory publications relating to SIPP operators and good industry practice. The legal background As highlighted in the High Court decision in Adams, the factual context is the starting point for considering the obligations the parties were under. And in this case it isn’t disputed that the contractual relationship between Westerby and Mr L is a non-advisory one. Setting up and operating a SIPP is an activity that is regulated under FSMA. And pensions are subject to HMRC rules. Westerby was therefore subject to various obligations when offering and providing the service it agreed to provide – which in this case was a non-advisory service. I have considered the obligations on Westerby within the context of the non-advisory relationship agreed between the parties. The case law I’m required to determine this complaint by reference to what is in my opinion fair and reasonable in all the circumstances. I am not required to determine the complaint in the same way as a court. A court considers a claim as defined in the formal pleadings and they will be based on legal causes of action. Our Service was set up with a wider scope which means complaints might be upheld, and compensation awarded, in circumstances where a court would not do the same. The approach taken by our Service in two similar (but not identical) complaints was challenged in judicial review proceedings in the BBSAL and the Options cases. In both cases the approach taken by the Ombudsman concerned was endorsed by the court. A number of different arguments have therefore been considered by the courts and may now reasonably be regarded as resolved. As such, I don’t think it is necessary for me to quote extensively from the various court decisions. The Principles for Businesses

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The Principles for Businesses, which are set out in the FCA’s Handbook “are a general statement of the fundamental obligations of firms under the regulatory system” (see PRIN 1.1.2G). The Principles apply even when the regulated firm provides its services on a non- advisory basis, in a way appropriate to that relationship. Principles 2, 3 and 6 are of particular relevance here. These provide: “Principle 2 – Skill, care and diligence – A firm must conduct its business with due skill, care and diligence. Principle 3 – Management and control – A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. Principle 6 – Customers’ interests – A firm must pay due regard to the interests of its customers and treat them fairly.” I am satisfied that I am required to take the Principles into account (see BBSAL) even though a breach of the Principles does not give rise to a claim for damages at law (see Options). The regulatory publications and good industry practice The regulator issued several publications that reminded SIPP operators of their obligations, and which set out how they might achieve outcomes envisaged by the Principles, namely: • The 2009 and 2012 Thematic Review Reports. • The October 2013 Finalised SIPP Operator Guidance. • The July 2014 “Dear CEO” letter. The 2009 Report included: “We are concerned by a relatively widespread misunderstanding among SIPP operators that they bear little or no responsibility for the quality of the SIPP business that they administer, because advice is the responsibility of other parties, for example Independent Financial Advisers… We are very clear that SIPP operators, regardless of whether they provide advice, are bound by Principle 6 of the Principles for Businesses (‘a firm must pay due regard to the interests of its clients and treat them fairly’) insofar as they are obliged to ensure the fair treatment of their customers.” I have considered all the above publications in their entirety, but it isn’t necessary for me to quote more fully from these here. The 2009 and 2012 Thematic Review Reports and the “Dear CEO” letter aren’t formal guidance (whereas the 2013 Finalised Guidance is). However, all the publications provide a reminder that the Principles for Businesses apply and are an indication of the kinds of things a SIPP operator might do to ensure it is treating its customers fairly and produce the outcomes envisaged by the Principles. In that respect, the publications which set out the Regulators’ expectations of what SIPP operators should be doing also go some way to indicate what I consider amounts to good industry practice, and I’m therefore satisfied it’s appropriate to take them into account (as did the Ombudsman whose decision was upheld by the court in BBSAL). Points to note about the SIPP publications include:

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• The Principles on which the comments made in the publications are based have existed throughout the period covered by this complaint. So, even though the publications post-date the events that took place in relation to Mr L’s complaint, that doesn’t mean that the examples of good practice these provide weren’t good practice at the time of the relevant events. • The comments made in the publications apply to SIPP operators that provide a non- advisory service. • Neither court in the Adams cases considered the publications in the context of deciding what was fair and reasonable in all the circumstances. As already mentioned, the court has a different approach and was deciding different issues. • What should be done by the SIPP operator to meet the regulatory obligations on it will always depend upon the circumstances. Overall, in determining this complaint I need to consider whether Westerby complied with its regulatory obligations as set out by the Principles to act with due skill, care and diligence, to take reasonable care to organise its business affairs responsibly and effectively, to pay due regards to the interests of its customers (in this case Mr L), to treat them fairly, and to act honestly, fairly and professionally. And, in doing that, I’m looking to the Principles and the publications listed above to provide an indication of what Westerby could have done to comply with its regulatory obligations and duties. What did Westerby’s obligations mean in practice? Westerby provided the SIPP to Mr L on an execution-only basis. As Westerby didn’t provide advice here, it didn’t have an obligation to consider the suitability of the investment for him. Nevertheless, I think Westerby was required (in its role as an execution only SIPP provider) to consider whether to accept business from Firm A and whether the Needlesmart investment Mr L made was acceptable to make within its SIPP, for example. And I think Westerby’s duty was to treat Mr L fairly and to act in his best interests. While Westerby was not responsible for considering the suitability of the investment for its clients, it was still responsible for the quality of the SIPP business it administered. And for the reasons set out above in the “relevant considerations”, it is my view that for Westerby to meet its regulatory obligations (under the Principles and COBS 2.1.1R) when conducting its operation of SIPPs business, it should have undertaken sufficient due diligence checks to consider whether to accept/reject introductions from a particular business and accept/reject applications for particular investments, with its regulatory obligations in mind. The Regulators’ reports and guidance provided some examples of good practice observed by the FSA and FCA during its work with SIPP operators. This included being satisfied that a particular introducer is appropriate to deal with and that a particular investment is appropriate to accept. That involves conducting due diligence checks on introducers and investments to make informed decisions about accepting business. Its obligations and duties in this respect weren’t prescriptive and depended on the nature of the circumstances, information and events on an ongoing basis. Did Westerby act fairly and reasonably in accepting Mr L’s business from Firm A? While I think Westerby’s acceptance of the Needlesmart investment within its SIPPs is the crux of Mr L’s complaint, which I’ve addressed below, Mr L has also said, for example, that Westerby shouldn’t have accepted his business when he was intending to invest nearly 25% of this in non-standard assets.

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Prior to accepting business from Firm A, Westerby confirmed it was regulated and authorised to provide the advice it was, with no notices relevant to it. And, in mid-April 2017, Firm A gave Westerby an overview of, for example, the type and nature of business it would be referring to it and terms of business were put in place with it in the way I’d expect. I don’t think the volume of business Westerby had received from Firm A by the time of Mr L’s introduction to it in April 2017 should’ve led it to question Firm A’s motivations or the investment proposition for Mr L, given Westerby has said that of the 23 introductions it received from Firm A only around eight invested in non-mainstream assets and Mr L was only introduction number two. While Westerby wasn’t expected to check the suitability of Firm A’s advice, it obtained copies of its suitability reports. In Mr L’s case, Firm A had given him full advice. And, while Mr L intended to invest a bit more in non-standard investments than what Firm A had told Westerby it would be recommending to high-net worth customers, I think this was still reasonably in line with the overall strategy Westerby had been led to expect by it. Being that most of Mr L’s funds would be, and were, invested in DFM portfolios as the main reason for the transfer, with non-standard investments like Needlesmart making up a comparatively small proportion of his overall investments. I’ve not seen anything that ought reasonably to have been a ‘red flag’ by the time Westerby accepted Mr L’s applications in respect of the nature of the business introduced to it by Firm A. And I’m not persuaded Westerby ought to have refused Mr L’s business from Firm A. Did Westerby act fairly and and reasonably by permitting the Needlesmart investment within its SIPPs? Westerby needed to carry out appropriate due diligence checks on the investments to be held in its SIPPs. So, I’ve thought about those it ought to have carried out on Needlesmart before it first permitted this within its SIPPs. And whether the information it ought to have gathered should have led it, if acting in line with the Principles and guidance, to decline to accept the investment within these. The regulator has made it clear that the due diligence required will vary depending on the nature of the intended investments. And taking into account its guidance and what I consider to have been good practice at the time, I think Westerby needed to carry out due diligence to at least ensure: • That it understood the nature and structure of the investment. • That the investment was genuine and not part of a fraud or scam. • That the investment was safe/secure. • That the investment could be independently valued and wasn’t impaired. And, having considered the available evidence, I’m not persuaded Westerby ought reasonably to have refused to accept the Needlesmart investment, and Mr L’s application to invest in this, within its SIPPs. Westerby has said it first approved the Needlesmart investment to be permitted within its SIPPs in August 2016, that the investment was genuine and held relevant intellectual property protections/patents. That the failure of this was due to its management several years later, which inherent investment risk that couldn’t have been predicted, rather than due to being an unsuitable investment within a SIPP. And, amongst other things, I can see Westerby obtained corporate governance information and copies of patent applications for

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Needlesmart. That it carried out checks on the companies and parties involved and on intellectual property registers. And that it commissioned a third-party investment report. Turning to Mr L’s main points, he said that one of Needlesmart’s directors employed another company of theirs for marketing. I haven’t seen anything to suggest that company was involved in marketing Needlesmart until 2018 onwards though, which was after Westerby accepted this investment within Mr L’s SIPP, or that there’s anything to suggest it should have been aware of this prior to doing so. In respect of Mr L comments about weak governance and security of investors interests, the investment information memorandum set out that the shares had limited voting rights and I’m not persuaded this meant Westerby shouldn’t have permitted the investment within its SIPPs. While Mr L is concerned about what he has said is the resulting conduct of Needlesmart’s directors since 2020, including sales made in 2022 when it later ran into difficulty, I can’t hold Westerby responsible for sales made by, or with the involvement of, the administrator as part of the insolvency process. And, in any event, the way the investment might have later been ran doesn’t mean Westerby shouldn’t have permitted it within Mr L’s SIPP in 2017. I’ve not seen anything to persuade me that the investment failed due to anything Westerby should have reasonably foreseen at that time. Mr L is understandably disappointed and upset his Needlesmart investment hasn’t performed as expected. And I recognise it was high-risk, illiquid and wouldn’t be suitable for most retail customers in high proportions. But, based on the available information, there’s nothing to suggest the investment wasn’t a genuine and secure one, or one that couldn’t be independently valued, at the time. And, as I’ve said, a SIPP provider isn’t required to consider whether investments are suitable for customers. Just because an investment is high-risk, that doesn’t mean it’s inappropriate for a SIPP. In my view, that would form part of a suitability assessment, which Westerby wasn’t required to undertake for Mr L. And I haven’t seen anything that would’ve been discoverable to Westerby at the time that ought reasonably to have given it cause for concern about the Needlesmart investment such that it ought to have refused to permit this within Mr L’s SIPP. I haven’t seen sufficient evidence to persuade me that Westerby should have refused to accept the Needlesmart investment into its SIPPs, at the time Mr L applied to invest in it. And I don’t think Westerby should’ve reasonably refused to do so on the basis this might fail in the future; that is an inherent risk of all investments. And SIPP investors may choose to make high-risk investments. So, while I appreciate this isn’t the answer Mr L hoped for, I’m not asking Westerby to do anything. My final decision For the above reasons, I’m not asking Westerby Trustee Services Limited to do anything. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr L to accept or reject my decision before 14 April 2026. Holly Jackson Ombudsman

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