Interactive Brokers (UK) Limited · DRN-6136323

The complaint Mrs M complains Interactive Brokers (UK) Limited (‘IBUK’) allowed her to buy a non- qualifying investment in her ISA and then forced her to sell it which caused her a financial loss. What happened Mrs M had a stocks and shares ISA with IBUK. On 14 and 15 February 2025 she purchased shares inside the ISA which were non-qualifying shares under the ISA regulations. IBUK said it had controls in place in its system which generally prevented customers buying non-qualifying investments in their ISAs. But in this case an error occurred in the system which allowed Mrs M to make the non-qualifying purchase. On 16 April 2025 IBUK wrote to Mrs M to tell her she held non-qualifying shares in her ISA. It went on to say said the following: ‘… positions must be removed from the ISA account. We strongly encourage you to close these positions at a time and method of your own choosing. You may, of course reopen these positions in your regular investment (non-ISA) account. Please note, however, that should you not take action to remove the non-qualifying products listed above, Interactive Brokers will be required to close them out on your behalf. To ensure ongoing compliance with ISA regulations, Interactive Brokers will liquidate the above stated non-qualifying positions if they remain open on 30 April 2025, and any proceeds from the sales will be credited to your ISA cash balance and be available for reinvestment within the ISA. If you would like to consider alternative solutions or require further details, please contact us …’ On 22 April 2025 Mrs M sold the shares. She didn’t re-open the position in a non-ISA account. The sale resulted in a realised loss of around USD 1,116. Mrs M complained to IBUK. In response IBUK said Mrs M had made the decision to sell the shares when she did. And IBUK had acted in line with ISA rules and the terms and conditions of Mrs M’s account. Mrs M wasn’t satisfied. She referred her complaint to this service. One of our Investigators looked into Mrs M’s complaint. He didn’t think IBUK needed to do anything to put things right for Mrs M. His reasoning included the following: • The shares didn’t qualify to be held in an ISA and by taking action to have them removed IBUK acted in line with the terms and conditions of the ISA account and HMRC’s guidance for ISA managers. • Although IBUK made a mistake, it acted appropriately to remedy that. • Mrs M could’ve mitigated her loss on the sale of the shares by re-purchasing the

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shares outside her ISA. Mrs M didn’t agree. She said the following: • IBUK had acknowledged it made an error when it allowed her to buy non-qualifying shares in her ISA. • After discovering its error IBUK forced her to sell without providing any other option. • The error caused Mrs M to lose money. IBUK should compensate her for the loss. • Mrs M didn’t have spare capital to re-purchase the shares in a non-ISA account. And if she’d used the proceeds of the sale of her shares to fund the re-purchasing of the shares outside the ISA then she would’ve lost ISA status for that money. This would’ve had tax implications. • Mrs M wouldn’t have been able to re-buy the shares immediately. She would’ve had to wait for the sale to settle and money to be moved between her accounts. IBUK did nothing to eliminate or minimise the price differences that would occur due to that. • IBUK still charged Mrs M the commission/conversion fee for selling her shares and didn’t reimburse her for that. Because no agreement could be reached, the complaint was passed to me to review afresh and make a decision. I issued a provisional decision in which I said I intended to uphold the complaint. I said IBUK acted reasonably when it required Mrs M to stop holding the shares in her ISA because they were non-qualifying. But it hadn’t treated her fairly when it allowed her to buy non-qualifying shares in her ISA in the first place. I said I couldn’t identify that Mrs M had made any particular financial loss as a result of IBUK’s shortcoming, but I intended to require IBUK to pay her £250 for distress and inconvenience. IBUK didn’t reply to my provisional decision. Mrs M provided further information saying that if she’d ben unable to buy the non-qualifying shares in her ISA she would instead have bought shares in the ISA in a different named technology company. She also mentioned that in a different complaint from another consumer IBUK and this service had reached different outcome in similar circumstances. In that case IBUK refunded the commission paid to trade the non-qualifying stock in the ISA. 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. Having done so, I’m upholding the complaint. I’ll explain why. The purpose of this decision is to set out my findings on what’s fair and reasonable, and explain my reasons for reaching those findings, not to offer a point-by-point response to every submission made by the parties to the complaint. And so, while I’ve considered all the submissions by both parties, I’ve focussed here on the points I believe to be key to my decision on what’s fair and reasonable in the circumstances.

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IBUK acknowledged it made an error when it allowed Mrs M to buy non-qualifying shares in her ISA. After discovering the error it took action to bring her ISA in line with regulations. And it’s said it can’t be punished for adhering to regulatory requirements. My role isn’t to punish IBUK and I won’t make any award to Mrs M on the basis that IBUK attempted to meet regulatory requirements. I don’t dispute that IBUK needed to take action to correct the impact of its error. But, as Mrs M said, IBUK’s corrective action fixed the problem for its own regulatory compliance, but it didn’t fix the problem for Mrs M. I need to consider whether the error IBUK made caused Mrs M any detriment that needs to be put right. Although IBUK characterized her complaint as a case of regret over her trading decision, Mrs M has in fact complained not simply about the way IBUK said her shares had to be sold, but also about the fact IBUK allowed her to buy the shares in the first place. IBUK ought not to have allowed Mrs M to buy the shares in her ISA. By allowing her to do that it gave her to believe she could hold that particular investment in a tax-sheltered wrapper. And she committed part of her ISA allowance to doing that. The result of that was that Mrs M ended up in a situation whereby she had to choose between continuing to hold the shares she’d wanted to buy and continuing to retain the value of those shares in a tax- sheltered wrapper. Ordinarily, where a business has made an error, I’d look to put the customer back in the position they would’ve been in if the error hadn’t occurred. In this case it’s difficult to know what that position would’ve been. Given that Mrs M chose to sell and not re-purchase the stock after the error came to light, I think it likely that if she hadn’t been able to buy that stock in the ISA in the first place she would’ve bought a different stock in the ISA, rather than buy that stock outside the ISA. That’s because when she was later faced with a choice between two undesirable options, Mrs M chose to prioritise maintaining her ISA subscription over holding the particular stock she’d bought. Because the stock itself was relatively unique, being an individual share rather than, say, a broad-based index fund, I can’t say with any confidence what alternative stock Mrs M would’ve been likely to buy if things were different, and so I can’t say how that stock would then have performed while she held it. This means I can’t say whether Mrs M would’ve been better or worse off if she’d bought a different stock. In response to my provisional decision Mrs M provided evidence to show that at the time of the purchase, in February 2025, she’d been interested in technology shares. And she named a particular company whose shares she said she would’ve bought in February 2025 if she’d been unable to buy the non-qualifying shares she bought. I thank Mrs M for the additional information which has helped me consider her case fully. But I’m not persuaded she would necessarily have bought the shares in the company she’s named. Although I can see the stock was on her watchlist at the time, it was one of many on the list. And although she’s shown she had an interest in that particular sector, there’s no evidence to show she would’ve chosen that stock in particular to buy had she been unable to buy the non-qualifying shares in February 2025. I hope Mrs M will understand that I simply don’t have the evidence to be able to make that finding. I also note that Mrs M said she would’ve made a profit rather than a loss had she bought the other named stock rather than the non-qualifying shares in February 2025. But at the time she had to sell her non-qualifying shares, on 22 April 2025, the stock she’s now named as her chosen alternative was – like the stock Mrs M had to sell – trading at a price significantly lower than its February 2025 price. Had Mrs M purchased that alternative stock in February 2025 her holding would still have been running at a loss as of 22 April 2025. And when she sold her non-qualifying shares on 22 April 2025 Mrs M could’ve then purchased

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the alternative stock in her ISA. IBUK didn’t prevent her doing that and so I can’t hold it responsible for Mrs M missing out on any growth in that stock after that date. Overall having thought carefully about what Mrs M has said I can’t conclude that by allowing her to buy the non-qualifying shares when it did IBUK caused Mrs M a financial loss that it must put right. IBUK wasn’t responsible for the fact that the price of Mrs M’s shares was lower when she sold them than it had been when she bought them. However, Mrs M wouldn’t have been in the position of having to crystallise the loss if IBUK hadn’t wrongly allowed her to buy the shares in her ISA. IBUK said she could’ve avoided crystallising the loss by re-purchasing the shares outside the ISA. But Mrs M has said she had no spare capital outside the ISA to do that. So she would’ve had to move the proceeds of her sale outside the ISA. By doing that she would’ve lost ISA protection for that amount. And, even if her ISA was flexible, Mrs M has said she didn’t have an equivalent amount available to her outside the ISA and so I think on balance she would’ve lost that particular amount from her ISA subscription if she’d re- purchased the shares outside the ISA. So, while I agree Mrs M could’ve mitigated her loss on the shares she sold, that mitigation would’ve come with some new costs for her. IBUK said Mrs M sold the shares at a time of her choosing. That is true up to a point. In reality Mrs M had only a small window in which to sell the shares or have them liquidated by IBUK. IBUK ‘strongly encouraged’ her to try and sell at a time within that window that best suited her. And I think that’s what she tried to do. By selling her holdings in the ISA and so incurring a loss inside the ISA Mrs M missed out on the opportunity to offset that loss against her gains for tax purposes – that’s something she could’ve done if the non-qualifying shares had always been held outside the ISA. As it was, if Mrs M had re-purchased the shares outside the ISA and they’d then recovered in value, say, to the price at which she’d originally bought them, Mrs M would’ve been liable for tax on that recovery. So, again, repurchasing the shares outside the ISA would’ve come at a cost for Mrs M. Mrs M also pointed out that she wouldn’t have been able to re-purchase the shares immediately upon ordering the sale of the shares because she’d need to wait for the sale to settle and the proceeds to be available outside the ISA. I think his is likely to be true because I haven’t seen IBUK offered a way to make the re-purchase immediately. Mrs M didn’t in fact re-purchase the shares and so wasn’t affected by any particular price movement in that way, but I’ve taken into account that this would’ve factored into her decision making. It meant that, depending on price movements, she couldn’t necessarily mitigate her loss fully. Similarly Mrs M said IBUK charged and would’ve charged brokerage fees for her sale and purchase, which also meant she couldn’t necessarily mitigate her loss fully. Having said all of that I recognise that IBUK’s terms and conditions did make clear that Mrs M couldn’t hold non-qualifying investments in her ISA and that if it was found that she did hold such investments in the ISA then IBUK could sell them at her expense. In my view this didn’t mean IBUK could abdicate its responsibility as an ISA manager to ensure it didn’t provide non-qualifying investments in Mrs M’s ISA in the first place. But I think that, to a lesser degree, Mrs M shared some responsibility for complying with requirements. I say to a lesser degree because I think that as a customer Mrs M could reasonably expect that any investments IBUK made available to her in the ISA would be qualifying investments. In thinking about how to put things right I find I can’t identify a particular financial loss which was caused by IBUK’s error and which I can say with any confidence wouldn’t have occurred if IBUK hadn’t made the error it made. And I can’t say with any confidence what would’ve happened in Mrs M’s portfolio if the mistake had never been made. But Mrs M was put in a position – partly through her own actions and partly through IBUK’s error – which meant she

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had to choose between two financially undesirable options. For the distress and inconvenience this will have caused Mrs M I require IBUK to pay her £250 compensation. Compensation of £250 doesn’t hold IBUK accountable for Mrs M’s investment loss. It reflects the fact that the error in this case caused Mrs M a level of frustration and disappointment that was more than she ought to expect from her everyday dealings with IBUK, and some effort to resolve given she had to decide when to sell and whether to re-buy a holding she hadn’t planned to sell, and she was likely to have needed to review her investment portfolio as a result of these things. So I’m satisfied it’s a broadly fair outcome for both parties. A different outcome on the different complaint that Mrs M mentioned in response to my provisional decision doesn’t give me reason to change my decision about what I think is fair and reasonable in all the circumstances of Mrs M’s complaint. This service considers each case on its individual merits. And irrespective of any similarities and differences between the circumstances of the complaints, my role here is to determine Mrs M’s complaint by reference to what is, in my opinion, fair and reasonable in all the circumstances of the case. That’s what I’ve done, and I’ve explained my reasons for the decision I’ve reached. Mrs M raised a question about being refunded the commission she paid to trade the non- qualifying stock. I don’t consider that any commission she paid to trade the non-qualifying shares ought to be refunded. It’s likely that if Mrs M hadn’t been able to buy the non- qualifying shares she would’ve bought different shares. So she still would’ve incurred transaction costs. And considering the likely size of the fees Mrs M paid to make her sale in April 2025 I still think £250 compensation is a fair overall outcome in this case. Putting things right To put things right for Mrs M Interactive Brokers (UK) Limited must pay her £250 in recognition of distress and inconvenience. My final decision For the reasons I’ve set out above, my final decision is that I uphold this complaint. I require that Interactive Brokers (UK) Limited must pay the amount set out above. Lucinda Puls Ombudsman

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