The Securities and Investments Board (SIB) guidance intended to make the pensions industry proactive in compensating victims of missold pensions is ultra vires, it has been ruled.
The ruling says part of the guidance is wholly irrational and must be amended.
However, the guidance is not ultra vires in relation to SIB's powers, and so will not have to be withdrawn, ruled Lord Justice Staunton and Mr Justice Mitchell in their judicial review judgement last Friday.
The crucial part of the judgement is that “IFAs are not to be required to take any step which will invalidate their insurance cover without their insurers' consent”.
The landmark ruling also raises serious questions about the role and power of the City regulatory bodies, which may be addressed in a further judicial review hearing of the Personal Investment Authority (PIA).
The PIA took the lead from main regulator SIB in issuing its own guidance to the pensions sector it regulates directly.
Independent financial advisers' trade body, the IFA Association, brought the judicial review and was advised by DJ Freeman.
Helen Pallot, DJ Freeman partner advising the IFAA, says: “All lawyers will have to consider the extent to which the review procedures would invalidate insurance cover, bearing in mind the judges' remark that it is very arguable that there will be breaches of their policy conditions.”
The IFA Association says it welcomes the ruling as an “all-win decision”.
Chief executive Garry Heath says: “The judgement clears the way for PIA and other regulators to take a more pragmatic approach to the guidance. We are now clear that the SIB has very limited powers and that the front-line regulators will have to pick through the guidance, extracting what they need to satisfy their particular bailiwick without jeopardising (financial) advisers' insurance.”