FINAL NOTICE

To:
Alexander Jon Compliance Consulting Limited

ACTION

1.
By an application dated 19 October 2020, Alexander Jon Compliance Consulting
Limited applied under section 55A of the Act for Part 4A permission to carry on the
regulated activities of:

a.
Agreeing to carry on a regulated activity;

b.
Arranging deals in investments;

c.
Making arrangements with a view to transactions in investments; and

d.
Advising on investments (except pension transfers and pension opt-outs).

2.
The Authority has refused the Application.

SUMMARY OF REASONS

3.
For the reasons set out in this Notice, the Authority cannot ensure that AJCC will
satisfy, and continue to satisfy, Threshold Conditions 2D (Appropriate Resources),
2E (Suitability) and 2F (Business Model) as set out in Schedule 6 of the Act.

4.
AJCC is a compliance consultant, seeking permission to offer regulatory hosting
services to investment businesses, whereby it will carry on regulated activities
through appointed representatives (ARs) under section 39 of the Act. AJCC would
be responsible for the products sold or arranged, any advice given to customers
and for ensuring ARs meet all of the requirements of the regulatory system.

5.
AJCC applied to carry on the regulated activities set out in paragraph 1 in relation
to certain securities (shares, debentures, government and public securities,
warrants and certificates representing certain securities), options and futures
(excluding commodity options and futures). It applied to arrange and advise on
these products for retail clients, professional clients and eligible counterparties.

6.
The Authority is not satisfied that AJCC has the appropriate non-financial resources
for the regulated activities it seeks to carry on. AJCC has one director and no
employees. AJCC’s Director has relevant and longstanding compliance experience
but has not satisfied the Authority that they have the skills and experience to
manage and oversee an investment business as principal. AJCC informed the
Authority that it intends to recruit additional compliance professionals to assist with
providing the oversight required to ensure that its ARs act in compliance with the
requirements of the regulatory system. However, AJCC has not made it clear to
the Authority how it intends to recruit to fill the relevant experience gaps and lacks
clarity and understanding in respect of the skills it would need to recruit for. The
Authority expects firms, like AJCC, seeking to offer regulatory hosting services to
understand that to oversee ARs and ensure compliance with the appropriate rules
and requirements, they need to recruit appropriate personnel with knowledge and
frontline experience of advising on or arranging deals in investments, or of running
a business which carries on those regulated activities. AJCC has therefore not
demonstrated that it will satisfy, and continue to satisfy, Threshold Condition 2D
(Appropriate Resources).

7.
AJCC indicated to the Authority that it intends to rely upon prospective ARs to put
in place an Appropriateness Assessment which complies with regulatory
requirements, however responsibility for this rests with AJCC as the prospective
authorised person. Despite providing two versions of an Appropriateness
Assessment to the Authority, AJCC has not provided a version which meets
regulatory requirements and is suitable for the proposed business AJCC intends to
carry on. It has therefore not demonstrated that it is ready, willing and organised
to comply with the requirements of the regulatory system and it has not
demonstrated that it will satisfy, and continue to satisfy, Threshold Condition 2E
(Suitability).

8.
AJCC seeks Part 4A permission so that it can provide a regulatory hosting service,
whereby it will offer a compliance framework and enter contracts with a limited
number of ARs. However, AJCC is yet to identify any prospective ARs or to be
specific about the businesses it intends to take on as ARs, so it is not yet in a
position to articulate its rationale for the business it proposes to do, its competitive
advantage, viability or the longer-term profitability of the business. AJCC has not
therefore demonstrated that it will satisfy, and continue to satisfy, Threshold
Condition 2F (Business Model).

9.
The Authority’s concerns are compounded by the fact that AJCC will act as a
regulatory host. As principal, AJCC would be wholly responsible for oversight and
compliance with the requirements of the regulatory system of the AR businesses it
intends to host. A failure by AJCC to effectively discharge that obligation exposes
consumers to the risk of harm.

DEFINITIONS

10.
The definitions below are used in this Notice.

“the Act” means the Financial Services and Markets Act 2000;

“AJCC” means Alexander Jon Compliance Consulting Limited;

“the Application” means the application referred to in paragraph 1 above;

“Appropriateness Assessment” means a document which is intended to ensure that
ARs make suitable recommendations in accordance with COBS 10;

“AR” means appointed representative as defined by section 39(2) of the Act;

“the Authority” means the Financial Conduct Authority;

“COBS” means the Authority’s Conduct of Business Sourcebook part of the
Handbook;

“COND” means the Threshold Conditions part of the Handbook;

“the Handbook” means the Authority’s Handbook of rules and guidance;

“RDC” means the Regulatory Decisions Committee of the Authority (see further
under Procedural Matters below);

“SYSC” means the Senior Management Arrangements, Systems and Controls part
of the Handbook;

“the Tribunal” means the Upper Tribunal (Tax & Chancery Chamber); and

“the Warning Notice” means the Warning Notice given to AJCC dated 1 October
2021.

FACTS AND MATTERS

11.
AJCC is a limited company which provides unregulated compliance consultancy
services to financial services firms.

12.
By way of the Application, AJCC is seeking to obtain Part 4A permission so that it
can provide a regulatory hosting service, whereby AJCC, acting as principal, will
enter into contracts with a limited number of ARs and enable those ARs to carry on
regulated activities within AJCC’s permission under section 39 of the Act.

13.
AJCC seeks Part 4A permission to carry on regulated activities in relation to certain
securities (shares, debentures, government and public securities, warrants and
certificates representing certain securities), options and futures (excluding
commodity options and futures). In the Application, AJCC applied to arrange and
advise on these products for retail clients, professional clients and eligible
counterparties. AJCC has since indicated that it will not, and did not intend to, seek
permission to advise retail clients.

AJCC’s non-financial resources

14.
AJCC has one director who has applied for Part V approval to undertake all of AJCC’s
required Senior Management Functions: SMF 1 (Chief Executive), SMF 3 (Executive
Director), SMF 16 (Compliance Oversight) and SMF 17 (Money Laundering
Reporting Officer).

15.
AJCC’s Director has relevant and longstanding experience in compliance and money
laundering reporting roles but has not previously been a Chief Executive or
Executive Director of a regulated business and so has not previously held the SMF

1 or SMF 3 functions (or equivalent). They do not have any frontline experience of
advising on or arranging deals in investments or of running a business which carries
on those regulated activities.

16.
AJCC has no other staff but intends to recruit one full-time and one part-time
compliance consultant if permission were given. The Authority would expect AJCC
to recruit individuals with frontline experience of advising on or arranging deals in
investments and/or of running a business which carries on those regulated
activities. However, AJCC could not explain what skills gaps it would need to recruit
to fill and, although AJCC provided an unsigned Heads of Terms document for a
consultant with corporate finance experience to provide advisory services in respect
of the onboarding of potential ARs, the Authority does not consider that this
appointment would address its concerns. The Authority is therefore not persuaded
that AJCC’s plans to recruit to address its skills gaps are particularly well developed.

AJCC’s systems and controls

17.
Section 39(3) of the Act provides that the principal of an AR is responsible for
anything done or omitted to be done by its AR, as if the principal had expressly
permitted it. If permission were granted, AJCC would therefore be responsible for
the products sold or arranged by its ARs, any advice given to customers and for
the oversight and compliance of its ARs with the requirements of the regulatory
system, as if AJCC was carrying on those activities itself.

18.
AJCC has indicated that it expects its ARs would be arranging or dealing in certain
investments for high net worth and sophisticated investors. COBS 10 requires AJCC
to ask those clients for information about their knowledge and experience in the
investment field relevant to the specific type of product or service offered, in order
to assess whether the service or product envisaged is appropriate for the client. As
part of the Application, AJCC was asked to provide its Appropriateness Assessment
and on 4 February 2021 it produced a generic Appropriateness Assessment which
fell significantly short of the requirements of COBS 10. In particular:

a.
It did not relate to the specific types of products or services which AJCC
proposes to offer through its ARs;

b.
It related to start-up funding and not to each of the specific products for
which AJCC seeks permission to carry on regulated activity; and

c.
Although it indicated which answers in the assessment were correct, it did
not contain any methodology or scoring matrix to enable AJCC and its ARs
to determine how many correct answers would indicate that the product or
service would be appropriate for the client completing it.

19.
In response to the Authority’s concerns, AJCC said it would be for its ARs to produce
an Appropriateness Assessment suitable to their business and which complies with
the requirements of COBS 10. It said in respect of the shortcomings in its
methodology that “[t]his will depend on the nature of the product or service being
offered” and that as part of its onboarding process it would “review all the Appointed
Representatives policies and procedures [and] review their client categorisation
documents and process. If their procedures are robust and compliant, we will sign
it off. If their procedures appear to be inadequate, we will provide the necessary
declarations and wording to the Appointed Representative.”

20.
AJCC also said: “It is not possible for the firm to determine at this stage how the
Appointed Representatives will assess the appropriateness of an investment for
their clients. We expect that business models, products and clients will vary
therefore it will be for each Appointed Representative to demonstrate to Alexander
Jon that they are able to ensure that the rules on appropriateness are complied
with, both at the onboarding stage and whilst they remain an Appointed
Representative.

21.
This response indicates that AJCC intends to rely on its proposed ARs to create the
systems and controls necessary to meet the requirements of the regulatory system,
whereas this obligation would rest with AJCC as the principal.

22.
Following feedback from the Authority, on 23 February 2021 AJCC provided a
‘specific’ version of its Appropriateness Assessment, tailored to a product that AJCC
said its ARs would have permission to provide. However, the specific version of the
Appropriateness Assessment only appeared to relate specifically to shares in start-
up companies. It also fell short of the requirements in COBS 10, in that it did not
contain any methodology or scoring matrix to enable AJCC to determine whether
or not the product was suitable for the client. AJCC was provided with several
opportunities during the application process to recognise and address the
Authority’s concerns with the deficiencies identified in the generic and specific
versions of its Appropriate Assessments but failed to do so.

Retail clients

23.
In the Application, AJCC indicated that it would be dealing with retail, professional
and eligible counterparty client types. The Authority has detailed rules and guidance
for firms which offer products and services to retail clients, which include high net
worth and sophisticated investors.

24.
AJCC’s responses to the Authority and its policies and procedures are inconsistent
about whether it will be offering products and services to retail clients:

a.
In the Application, AJCC selected the option for retail clients for all the
regulated activities it applied for, including ‘advising’;

b.
AJCC’s document entitled ‘Investment Management Business Plan’ says:
“The Appointed Representative may sell / market these products to the [sic]
high net worth and sophisticated clients only. This may be conducted by
telephone, marketing materials / documentary selling, or via an online
portal.” As noted above at paragraph 23, high net worth and sophisticated
clients are considered a type of retail client;

c.
AJCC’s document entitled ‘Regulatory Permissions’ sets out that AJCC
requires the retail client type for all of the activities it has applied for. Under
the heading ‘Justification of the Retail Permission’ that document says: “The
firm requires the retail client type permission in order to engage with high
net worth and sophisticated clients. The firm does not intend to engage with
ordinary retail clients”;

d.
However, in its letter to the Authority dated 30 July 2021, AJCC said:
“Alexander Jon is not advising retail clients. It has never been the firm’s
intention to deal with retail clients”; and

e.
It went on to say: “suitability in relation to advising retail clients is not
applicable because Alexander Jon does not intend to give advice and / or
make personal recommendations. This is clearly detailed in all our

documents,
compliance
monitoring
program
and
draft
Appointed

Representative agreements.”

25.
The inconsistencies in its policies and procedures and in its responses suggest AJCC
is unable to identify or articulate the types of clients that its ARs will be engaging
with or which regulatory requirements it and its ARs need to meet. The Authority
is particularly concerned that AJCC does not understand that high net worth and
sophisticated investors are types of retail client.

26.
AJCC has subsequently requested the removal of the retail client type from the
advising activity within the Application, however, it has not revised its policies and
procedures to reflect this.

AJCC’s Business Model

27.
AJCC’s business plan provides that it seeks to extend its existing compliance
consultancy by offering a regulatory hosting service, developing a “robust oversight
compliance framework and strategy”.

28.
This does not appear to align with AJCC’s response mentioned in paragraphs 19
and 20 above, which indicates that it will rely on ARs to produce their own
Appropriateness Assessment.

29.
When asked about the types of businesses AJCC seeks to onboard as ARs, AJCC’s
Director said: “At this time, I am unable to confirm the exact kind of clients and
their business models that may approach the Alexander Jon [sic] for regulatory
hosting services. However, I can be clear on the types of business that the firm will
not appoint as an Appointed Representative…”. They went on to list several
business types which would not be onboarded as ARs.

30.
AJCC provided very limited detail on two broad types of business it would be seeking
to carry on (investment management and corporate finance) but it has not
explained how the regulated activities in the permission applied for correspond with
its proposed business. AJCC appears to have applied for permission to carry on a
wide range of regulated activities in the hope that it will recruit ARs which wish to
utilise some or all of the regulated activities within the scope of that permission.

IMPACT ON THE THRESHOLD CONDITIONS

31.
The regulatory provisions relevant to this Notice are referred to in Annex A.

32.
In light of the facts and matters set out above and for the reasons set out below,
the Authority cannot ensure that, if the Application were granted, AJCC would
satisfy, and continue to satisfy, Threshold Conditions 2D (Appropriate Resources),
2E (Suitability) and 2F (Business Model).

33.
The Authority is not satisfied that AJCC’s resources will be appropriate in relation
to the regulated activities it seeks to carry on. In particular:

a.
The resources of a firm must be appropriate in relation to the regulated
activities that it carries on or seeks to carry on (COND 2.4.1A(1)). The
matters which are relevant in determining whether this condition is met
include:

i.
the nature and scale of the business carried on, or to be carried on,
by the firm (COND 2.4.1A(2)(a)); and

ii.
the risks to the continuity of the services provided by, or to be
provided by, the firm (COND 2.4.1A(2)(b)).

b.
The matters which are relevant in determining whether a firm has
appropriate non-financial resources include:

i.
the skills and experience of those who manage the firm’s affairs
(COND 2.4.1A(4)(a).

c.
AJCC seeks permission to offer regulatory hosting services to investment
businesses, whereby it will carry on regulated activities through appointed
representatives under section 39 of the Act. AJCC would be responsible for
the products sold or arranged, any advice given to customers and for
ensuring appointed representatives meet all the requirements of the
regulatory system. It has applied to carry on the regulated activities of
advising, arranging and making arrangements with a view to transactions
in certain securities, options and futures (as set out in paragraph 6) for
retail clients, professional clients and eligible counterparties.

d.
AJCC has one director (who has relevant and longstanding compliance
experience but who has not previously been a Chief Executive or Executive
Director of a regulated business. They do not have any frontline experience
of advising on or arranging deals in investments or of running a business
which carries on those regulated activities.

e.
AJCC currently has no other employees. It intends to recruit one full time
and one part time compliance consultant but does not appear to have plans
to recruit someone with frontline experience of advising on or arranging
deals in investments or of running a business which carries on those
regulated activities.

34.
Carrying on a regulatory hosting service for investment products will require
extensive oversight of an AR’s day-to-day business. It requires a good
understanding of all aspects of that business, including a clear understanding of
when clients should be treated as retail clients, to ensure the oversight is robust
and effective. AJCC has not demonstrated that it will have the non-financial
resources necessary for the nature and scale of the business it proposes to carry
on.

35.
For these reasons, the Authority does not consider that AJCC will satisfy, and will
continue to satisfy, Threshold Condition 2D (Appropriate Resources).

36.
AJCC has not satisfied the Authority that it is a fit and proper person having regard
to all the circumstances, including:

a.
the nature (including the complexity) of any regulated activity that it
carries on or seeks to carry on (COND 2.5.1A(1)(b));

b.
the need to ensure that its affairs are conducted in an appropriate manner,
having regard in particular to the interests of consumers and the integrity
of the UK financial system (COND 2.5.1A(1)(c)); and

c.
whether its business is being, or is to be, managed in such a way as to
ensure that its affairs will be conducted in a sound and prudent manner
(COND 2.5.1A(1)(f)).

37.
The Appropriateness Assessment required by COBS 10 enables firms to determine
whether a client has the necessary experience and knowledge to understand the
risks involved in relation to the product or service offered. AJCC has not prepared
an Appropriateness Assessment for each of the products it intends to arrange and
deal in. It has indicated that it intends to rely on proposed ARs to create those
Appropriateness Assessments.

38.
The obligation to create the systems and controls necessary to meet the
requirements of the regulatory system rests with AJCC as the authorised person
and AJCC has not demonstrated that it can meet this obligation.

39.
For these reasons, the Authority does not consider that AJCC will satisfy, and will
continue to satisfy, Threshold Condition 2E (Suitability).

Business Model

40.
AJCC has not satisfied the Authority that its business model is suitable for a person
carrying on the regulated activities that AJCC proposes to carry on.

41.
A firm’s business model (that is, its strategy for doing business) must be suitable
for a person carrying on the regulated activities which the firm carries on or seeks
to carry on (COND 2.7.1). In deciding how it will satisfy, and will continue to satisfy,
Threshold Condition 2F, a firm should consider matters including:

a.
the rationale for the business the firm proposes to do or continues to do,
its competitive advantage, viability and the longer-term profitability of the
business (COND 2.7.8G(2));

b.
the needs of and risks to consumers (COND 2.7.8G(3)); and

c.
the products and services being offered and product strategy (COND
2.7.8G(5)).

42.
AJCC has not identified the types of businesses it is seeking to onboard as ARs, so
it cannot articulate its rationale for the business it proposes to do, its competitive
advantage, viability or the longer-term profitability of the business. It appears to
have applied to carry on a wide range of regulated activities in the hope that it will
recruit ARs which wish to utilise some or all of the regulated activities within the
scope of that permission.

43.
AJCC’s business plan suggests that it seeks to carry on a regulatory hosting service
whereby it will offer ARs a compliance framework, however it has indicated that it
will rely on ARs to produce their own detailed policies and procedures in respect of
the Appropriateness Assessment.

44.
For these reasons, the Authority does not consider that AJCC will satisfy, and will
continue to satisfy, Threshold Condition 2F (Business Model).

45.
On the basis of the facts and matters described above, the Authority cannot be
satisfied that AJCC will meet, and will continue to meet, the Threshold Conditions
in relation to all of the regulated activities it seeks to carry on and therefore has
decided to refuse the Application.

REPRESENTATIONS

46.
Annex B contains a brief summary of the key representations made by AJCC and
how they have been dealt with. In making the decision which gave rise to the
obligation to give this Notice, the Authority has taken into account all of the
representations made by AJCC, whether or not set out in Annex B.

IMPORTANT NOTICES

Decision maker

47.
The decision which gave rise to the obligation to give this Notice was made by the
RDC.

48.
This Final Notice is given under section 390 of the Act.

49.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of the
information about the matter to which this Notice relates. Under those provisions,
the Authority must publish such information about the matter to which the Notice
relates as the Authority considers appropriate. The information may be published
in such manner as the Authority considers appropriate. However, the Authority may
not publish information if such publication would, in the opinion of the Authority,
be unfair to you or prejudicial to the interests of consumers or detrimental to the
stability of the UK financial system.

50.
The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.

Authority contacts

51.
For more information concerning this matter generally, contact Daniel Measor
Manager, Authorisations Division at the Authority (direct line: 020 7066 2504 /
email: Daniel.Measor@fca.org.uk).

ANNEX A – REGULATORY PROVISIONS RELEVANT TO THIS FINAL NOTICE

1. Section 55A(1) of the Act provides for an application for permission to carry on one

or more regulated activities to be made to the appropriate regulator. Section
55A(2) defines the “appropriate regulator” for different applications.

2. Section 55B(3) of the Act provides that, in giving or varying permission, imposing

or varying a requirement, or giving consent, under any provision of Part 4A of the
Act, each regulator must ensure that the person concerned will satisfy, and continue
to satisfy, in relation to all of the regulated activities for which the person has or
will have permission, the Threshold Conditions for which that regulator is
responsible.

3. The threshold conditions that relate to the current application are set out in Part 2

of schedule 6 of the Act. In brief, the Threshold Conditions relate to:

a)
Threshold condition 2D: Appropriate resources

b)
Threshold condition 2E: Suitability

c)
Threshold condition 2F: Business model

Relevant provisions of the Handbook

Threshold Conditions - COND

4. In exercising its powers in relation to the granting of a Part 4A permission, the

Authority has regard to guidance published in the Authority’s Handbook, including
the part entitled ‘Threshold Conditions’ (“COND”). Provisions relevant to the
consideration of the current application include those set out below.

General guidance

5. COND 1.3.2G(2) states that, in relation to Threshold Conditions 2D to 2F, the

Authority will consider whether a firm is ready, willing and organised to comply on
a continuing basis with the requirements and standards under the regulatory
system which will apply to the firm if it is granted Part 4A permission.

6. Under COND 1.3.3AG, in determining the weight to be given to any relevant matter,

the Authority will consider its significance in relation to the regulated activities for
which the firm has, or will have, permission, in the context of its ability to supervise
the firm adequately, having regard to the Authority’s statutory objectives. In this
context, a series of matters may be significant when taken together, even though
each of them in isolation might not give serious cause for concern.

7. COND 1.3.3BG provides that, in determining whether the firm will satisfy, and

continue to satisfy, the Threshold Conditions, the Authority will have regard to all
relevant matters, whether arising in the United Kingdom or elsewhere.

8. COND 1.3.3CG provides that, when assessing the Threshold Conditions, the

Authority may have regard to any person appearing to be, or likely to be, in a
relevant relationship with the firm, in accordance with section 55R of the Act
(Persons connected with an applicant). For example, a firm's controllers, its

directors or partners, other persons with close links to the firm (see COND 2.3),
and other persons that exert influence on the firm which might pose a risk to the
firm's satisfaction of the Threshold Conditions, would be in a relevant relationship
with the firm.

Threshold condition 2D: Appropriate Resources

9. COND 2.4.2G(2) states that the Authority will interpret the term 'appropriate' as

meaning sufficient in terms of quantity, quality and availability, and 'resources' as
including all financial resources (though only in the case of firms not carrying on,
or seeking to carry on, a PRA-regulated activity), non-financial resources and
means of managing its resources; for example, capital, provisions against liabilities,
holdings of or access to cash and other liquid assets, human resources and effective
means by which to manage risks.

10. COND 2.4.2G(3) states that high level systems and control requirements are in

SYSC. The Authority will consider whether the firm is ready, willing and organised
to comply with these and other applicable systems and controls requirements when
assessing if it has appropriate non-financial resources for the purpose of Threshold
Condition 2D.

11. COND 2.4.2G(4) states that detailed financial resources requirements are in the

relevant section of the Prudential Standards part of the Handbook, including specific
provisions for particular types of regulated activity. The Authority will consider
whether firms (other than firms carrying on, or seeking to carry on, PRA-regulated
activities) are ready, willing and organised to comply with these requirements when
assessing if they have appropriate financial resources for the purposes of Threshold
Condition 2D.

Threshold condition 2E: Suitability

12. COND 2.5.2G(2) states that the Authority will also take into consideration anything

that could influence a firm's continuing ability to satisfy Threshold Condition 2E.
Examples include the firm's position within a UK or international group, information
provided by overseas regulators about the firm, and the firm's plans to seek to vary
its Part 4A permission to carry on additional regulated activities once it has been
granted that permission.

13. COND 2.5.4G(2) states that examples of the kind of general considerations to which

the Authority may have regard when assessing whether a firm will satisfy, and
continue to satisfy, Threshold Condition 2E include, but are not limited to, whether
the firm:

(a)
conducts, or will conduct, its business with integrity and in compliance with
proper standards;

(b)
has, or will have, a competent and prudent management; and

(c)
can demonstrate that it conducts, or will conduct, its affairs with the exercise
of due skill, care and diligence.

Threshold condition 2F: Business Model

14. COND 2.7.7G states that, in assessing whether Threshold Condition 2F is satisfied,

the Authority may consider all matters that might affect the design and execution
of a firm's business model, taking into account the nature, scale and complexity of
a firm's business.

15. COND 2.7.8G states that, in deciding how they will satisfy and continue to satisfy

Threshold Condition 2F, firms should consider matters including (but not limited to)
the following:

a)
the assumptions underlying the firm's business model and justification for
it;

b)
the rationale for the business the firm proposes to do or continues to do, its
competitive advantage, viability and the longer-term profitability of the
business;

c)
the needs of and risks to consumers;

d)
the expectations of stakeholders, for example, shareholders and regulators;

e)
the products and services being offered and product strategy;

f)
the governance and controls of the firm and of any member of its group (if
appropriate);

g)
the growth strategy and any risks arising from it;

h)
any diversification strategies; and

i)
the impact of the external macroeconomic and business environment.

Conduct of Business sourcebook - COBS


16. COBS 10.2.1R states that:

“(1) When providing a service to which this chapter applies, a firm must ask the
client to provide information regarding his knowledge and experience in the
investment field relevant to the specific type of product or service offered or
demanded so as to enable the firm to assess whether the service or product
envisaged is appropriate for the client.

(2) When assessing appropriateness, a firm must determine whether the client has
the necessary experience and knowledge in order to understand the risks involved
in relation to the product or service offered or demanded.”


17. COBS 10.2.2R states that:

“The information regarding a client's knowledge and experience in the investment
field includes, to the extent appropriate to the nature of the client, the nature and
extent of the service to be provided and the type of product or transaction
envisaged, including their complexity and the risks involved, information on:

(1) the types of service, transaction and designated investment with which the

client is familiar;


(2) the nature, volume, frequency of the client's transactions in designated
investments and the period over which they have been carried out;

(2) the level of education, profession or relevant former profession of the client.”

ANNEX B – REPRESENTATIONS

1. A summary of AJCC’s key representations and the Authority’s conclusions in respect

of them (in bold), is set out below.

Appropriate Resources

Frontline skills and experience

2. Whilst it might be desirable for a person with management and oversight

responsibilities to have direct and frontline skills and experience, it is not a
mandatory requirement. It is also unclear why AJCC’s Director with their vast
compliance skills and experience is deemed unfit to manage and oversee AJCC’s
business, which is to be conducted through ARs. It therefore appears that, in
considering whether AJCC has appropriate non-financial resources, the Authority
has applied a very narrow and restrictive requirement which has no legal basis.

3. The Authority agrees that it is not a mandatory requirement that a person

with management and oversight responsibilities must have direct and
frontline skills and experience. The Authority has also not concluded that
AJCC’s Director is ‘unfit’. Instead, it has concluded that AJCC’s human
resources are inadequate because they do not have: a) frontline
experience of advising on or arranging deals in investments; or b)
experience of running a business which carries on the regulated activities
AJCC seeks to carry on. The legal basis for the action is set out in this
Notice and takes account of all the circumstances, including:

a) AJCC’s proposed business as a regulatory host in the investment sector

and the regulatory responsibilities it would be taking on – including
those which relate to its onboarding and continuous assessment of
ARs;

b) AJCC’s policies and procedures for meeting those regulatory

responsibilities; and

c) AJCC’s
human
resources
for
establishing,
implementing
and

maintaining those policies and procedures, alongside all the other
responsibilities of running a regulated firm.

The role of AJCC’s policies and procedures and its impact on AJCC’s non-financial
resources

4. AJCC’s Director will not be carrying on the regulated activities themselves, as these

will be carried on by AJCC’s ARs. AJCC’s onboarding process for ARs is highly
sophisticated rigorous and robust. As a result, the ARs will have the relevant
qualifications, skills and experience needed for carrying on their chosen regulated
activities. The role of AJCC would simply be to manage and oversee the ARs to
ensure they comply with relevant regulatory requirements. Further, AJCC’s policies
and procedures are relevant to the Authority’s assessment of non-financial
resources and ought to have been considered because AJCC’s Director has the skills
and experience to implement them.

5. AJCC’s submission regarding the qualifications, skills and experience of its

ARs suggests a failure by AJCC to understand that Threshold Condition 2D

(Appropriate Resources) is concerned with the skills and experience of
those managing the principal firm, rather than its ARs. Further, AJCC’s
submission regarding its role demonstrates that it does not understand
the expectations placed by the Threshold Conditions on the principal.

6. A firm’s policies and procedures cannot be viewed in isolation without

considering the skills and experience of the human resources involved in
establishing, implementing and maintaining them. AJCC’s Director’s
compliance experience may be helpful to AJCC’s proposed business model,
but the Authority remains unsatisfied that AJCC’s policies and procedures
will be robust if implemented and reviewed by AJCC’s current, limited
human resources.

7. The Authority does not dispute that AJCC’s Director has extensive

experience in compliance and money laundering functions, but notes that
the last time AJCC’s Director was employed by an authorised firm with Part
4A permission to carry on investment business was for a period of 8
months in 2015. In this role they held the CF10 (Compliance Oversight)
and CF11 (Money Laundering Reporting) controlled functions but they
were not a director. For the reasons set out in this Notice, the Authority
remains of the view that AJCC’s Director’s skills and experience alone are
insufficient for AJCC to satisfy Threshold Condition 2D.

Prospective additional staff

8. If the Application is granted, AJCC is willing to recruit someone with relevant

frontline experience. AJCC has provided the Authority with the draft Heads of
Terms with an individual it will employ as a consultant with corporate finance
experience to advise and assist with the onboarding of ARs. However, there has
been no consideration of this proposal by the Authority.

9. The Authority has considered AJCC’s willingness to recruit someone with

frontline experience but is not persuaded that its proposal, which is not
fully thought through and which is conditional on the Application being
approved, demonstrates that AJCC satisfies, and will continue to satisfy,
the Threshold Conditions.

Prospective qualifications

10. AJCC’s Director is willing to undertake relevant training and exams in order to be

able to demonstrate the relevant knowledge required for undertaking monitoring
and oversight of AJCC’s ARs. AJCC’s Director has registered to enrol for a Chartered
Institute for Securities and Investment (‘CISI’) qualifications pathway in Capital
Markets and Corporate Finance. This programme, in addition to AJCC’s Director’s
experience, would equip them with the necessary practical skills and knowledge to
carry out their oversight responsibilities.

11. The Authority is not clear from the information provided by AJCC which, if

any, qualification on the CISI qualifications pathway AJCC’s Director has
enrolled on, or how long they envisage it will take to complete. It appears
to the Authority that completion of the whole pathway may take several
years. The Authority also notes that AJCC’s Director proposes to
undertake this qualification pathway in addition to running AJCC’s
regulated business and its unregulated compliance consultancy business.
Given that the Authority must make a decision based on whether AJCC
meets the Threshold Conditions from the moment it is authorised, a

prospective qualification does not assist AJCC in satisfying the Authority
that it meets the Threshold Conditions.

Adequacy of the Appropriateness Assessment

12. AJCC is fully aware of its obligations under COBS 10. It provided a generic copy of

an Appropriateness Assessment to the Authority as an example and subsequently
provided a specific version that can be used by investment management firms.
Whilst this specific version only relates to one product, it is flexible in its design and
can be adapted to relate to every product and service to be offered to clients by
AJCC.

13. In addition, during a meeting on 11 June 2021, the Authority informed AJCC that

most firms have generic documents that are tailored to their clients. Therefore,
the fact that AJCC did not provide an Appropriateness Assessment for each product
to be offered does not indicate an inability to conduct a satisfactory Appropriateness
Assessment.

14. The ‘generic’ Appropriateness Assessment provided to the Authority

during the Application fell so far short of the requirements of COBS 10, as
described in paragraph 19 of this Notice, that it gives rise to serious
concerns about AJCC’s understanding of, and its ability to meet, the
requirements of the regulatory system.

15. The ‘specific’ version of the Appropriateness Assessment subsequently

provided to the Authority appears to relate specifically to shares in start-
up companies and does not appear to be flexible in design. It also
continues to fall short of the COBS 10 requirements and does not contain
any methodology or scoring matrix to enable AJCC to determine whether
the product is appropriate for the client. The only way this
Appropriateness Assessment could be adapted is if it were rewritten with
completely different questions relevant to the specific type of product or
service being offered.

16. In respect of AJCC’s meeting with the Authority on 11 June 2021, the

Authority’s note of that meeting records that it dealt mostly with the
problem that AJCC did not appear to be clear about the ARs it intends to
work with and what kind of business it seeks to carry on. This meant the
Authority did not have the necessary context against which to assess the
Application. The Authority does not agree that AJCC was told that a generic
Appropriateness Assessment would be acceptable.

Reliance on ARs to produce policies and procedures

17. It is not the case that AJCC seeks to rely on ARs to create the systems and controls

necessary to meet the requirements of the regulatory system. During the
onboarding process, where an AR is already trading and already has an
Appropriateness Assessment in place, AJCC will review it. If the AR does not have
an Appropriateness Assessment or it is inadequate, AJCC will provide one for their
use.

18. SYSC 3.1.1R states that “A firm must take reasonable care to establish and

maintain such systems and controls as are appropriate to its business.”
Therefore, SYSC requires AJCC, and not its ARs, to establish appropriate

systems and controls. The Appropriateness Assessments AJCC has
provided fall short of the requirements of COBS 10. As a result, AJCC has
not demonstrated that it would be able to produce a suitable
Appropriateness Assessment even if it were to identify an AR which
requires one.

19. AJCC acknowledges that the ‘retail clients’ permission was ticked in the application

form. This was because of the design of the application form and uncertainty on
the part of AJCC in respect of the types of permission outlined in the application
form. Following discussions with the Authority, it became clear that a retail client’s
permission was not required for the products and services intended to be provided
by AJCC. AJCC subsequently confirmed that it was not seeking authorisation for
dealing with retail clients. AJCC has revised its policies and procedures accordingly.

20. The inconsistencies in AJCC’s responses relating to retail clients, and the

significant change of AJCC’s position in this respect, suggest that AJCC is
unable to identify or describe the types of clients that its ARs will be
engaging with and therefore which regulatory requirements it needs to
meet.

21. AJCC’s business model is clear. It is that of a regulatory compliance consulting firm

which now seeks to host investment firms as ARs to carry out regulated activities
subject to its permission and oversight. The business model is permitted under
section 39 of the Act and so the suitability of the business model is not an issue in
this Application.

22. The Authority has conflated the fact that AJCC does not yet have any ARs to

onboard with the suggestion that it has not identified the types of business it seeks
to carry on. AJCC’s Corporate Finance Business Plan sets out in detail the types of
businesses it seeks to onboard.

23. Without prejudice to its representations summarised at paragraphs 21 and 22

above, if the Authority is of the view that AJCC ought to have an AR in place in
order to satisfy Threshold Condition 2F (Business Model), rather than rely on the
lack of an AR in place as a ground to refuse the application, a condition could be
imposed on AJCC’s authorisation requiring it to notify the Authority of any AR it
seeks to onboard for the purposes of verification and approval. However, the
onboarding of ARs should be largely a matter of judgment for AJCC.

24. The Authority agrees that regulatory hosts may operate in a principal-AR

model under section 39 of the Act but that does not obviate the need for
them to meet the Threshold Conditions.

25. The Authority’s view on AJCC’s business model relates to its inability to

explain which of the investment types would be used by each of the broad
business models it has put forward. Whilst its Corporate Finance Plan
refers to some investment types, its Investment Management Business
Plan does not refer to any investment types.

26. AJCC has also not been able to describe the competitive advantage of its

business model. In the Application, AJCC states that it has surveyed two
firms who have comparable business models and has identified two main

issues that AJCC is best placed to deal with. There are currently around
40 regulatory hosts operating in this sector, so a survey of two firms
appears to the Authority to be insufficient for AJCC to understand its
competitive advantage.

27. For a firm to be authorised the Authority must be satisfied that it meets

the Threshold Conditions. As the Authority is not so satisfied it is not
appropriate for it to impose a requirement on AJCC as part of an approval
of the Application.