1

FIRST SUPERVISORY NOTICE

ACTION

1.
For the reasons listed below and pursuant to section 55J of the Act, the Authority
has decided to vary the permission granted to Catalyst Fund Management Limited
(“Catalyst”) pursuant to Part 4A of the Act (“Catalyst’s Part 4A permission”), by
removing the ‘Retail (Investment)’ customer type from the regulated activity
below with immediate effect. Accordingly, Catalyst may no longer conduct the
regulated activity of advising on investments (except on Pension Transfers and
Pension Opt Outs) in relation to retail customers.

2.
The Authority has further decided to vary Catalyst’s Part 4A permission by
imposing the following further requirements, pursuant to section 55L of the Act,
namely that Catalyst:

(a) must within 14 days notify in writing all its retail customers for the
regulated activity listed in paragraph 1, that Catalyst is no longer permitted
by the Authority to carry on that regulated activity in relation to retail
customers; and

(b) must within 14 days provide the Authority with a copy of the written
notification sent to all retail customers for the regulated activity listed at
paragraph 1, pursuant to (a) above, together with a list of all clients to
whom such notification has been sent.

2

REASONS FOR ACTION

3.
On the basis of the facts and matters described below, the Authority considers
that the variation of Catalyst’s Part 4A permission is necessary in order to
advance the Authority’s consumer protection objective.

4.
Catalyst does not have any employees who are qualified retail investment
advisers.

5.
Firms who do not employ qualified retail investment advisers, whilst being
permitted to provide investment advice to retail consumers, present a risk to the
Authority’s operational objective of consumer protection in that there is a risk
that retail investment advice will be provided to consumers by individuals who
have not attained the relevant regulatory module of an appropriate qualification,
as required following the Retail Distribution Review.

6.
In failing to employ qualified retail investment advisers Catalyst’s resources are
not appropriate in relation to the regulated activities in relation to the provision of
investment advice (except on Pension Transfers and Pension Opt Outs) to retail
customers, that Catalyst carries on or seeks to carry on.

7.
Catalyst has not been open and co-operative in all its dealings with the Authority,
in breach of Principle 11 (Relations with regulators) of the Authority’s Principles
for
Businesses
(the
“Principles”),
in
failing
to
respond
adequately
to
communications from the Authority requesting that it vary its permission to
remove the Retail (Investment) customer type from its permitted regulated
activity of advising on investments (except on pension transfers and opt outs).

DEFINITIONS

The definitions below are also used in this First Supervisory Notice:

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

“the Authority” means the body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the Financial Conduct
Authority;

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

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

FACTS AND MATTERS RELIED ON

9.
Catalyst is a personal investment firm and is permitted to conduct the regulated
activity of advising on investments (except on Pension Transfers and Pension Opt
Outs) in relation to retail customers.

10.
Catalyst does not have any employees who are qualified retail investment
advisers. Despite repeated requests from the Authority, Catalyst has failed to
apply to vary its permission so that it is not permitted to conduct retail
investment business.

3

FAILINGS

11.
The regulatory provisions relevant to this First Supervisory Notice are set out in
the Annex.

12.
From the facts and matters described above the Authority, having regard to its
regulatory objectives, has reached the following conclusions. Catalyst:

•
is failing to meet the appropriate resources threshold condition in that its
resources are not appropriate in relation to the regulated activities that
Catalyst carries on or seeks to carry on;

•
is failing to comply with Principle 11 in that Catalyst has not been open and
co-operative in all its dealings with the Authority, namely by failing to respond
appropriately, or at all, to the Authority’s repeated requests that Catalyst vary
its permission;

•
is therefore posing a risk to the Authority’s operational consumer protection
objective, and it is desirable to exercise the Authority’s own initiative power to
vary Catalyst’s Part 4A permission with immediate effect and to add the
requirements specified at paragraphs 1 and 2 of this First Supervisory Notice;
and

•
specifically, the variation of Catalyst’s permission should take immediate
effect to address the Authority’s serious concern that Catalyst poses a risk to
the Authority’s ability to achieve its consumer protection objective.

PROCEDURAL MATTERS

Decision Maker

13.
The decision which gave rise to the obligation to give this Warning Notice was
made by the Regulatory Transactions Committee.

14.
This First Supervisory Notice is given to Catalyst under section 55Y(4) and in
accordance with section 55Y(5) of the Act, and is being served on Catalyst at the
address Catalyst provided to the Authority as that of its principal place of business.
The following statutory rights are important.

The Tribunal

15.
Catalyst has the right to refer the matter to which this First Supervisory Notice
relates to the Tribunal. The Tax and Chancery Chamber is the part of the Tribunal
which, amongst other things, hears references arising from decisions of the
Authority. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper
Tribunal) Rules 2008, Catalyst has 28 days from the date on which this First
Supervisory Notice is given to it to refer the matter to the Tribunal.

16.
A reference to the Tribunal can be made by way of a reference notice (Form FTC3)
signed by Catalyst and filed with a copy of this First Supervisory Notice. The
Tribunal’s contact details are: The Upper Tribunal, Tax and Chancery Chamber,
45 Bedford Square, London WC1B 3DN (telephone: 020 7612 9700; email:
financeandtaxappeals@tribunals.gsi.gov.uk).

17.
Further details are contained in “Making a Reference to the UPPER TRIBUNAL (Tax
and Chancery Chamber)” which is available from the Tribunal website:

18.
Catalyst should note that a copy of the reference notice (Form FTC3) must also be
sent to the Authority at the same time as filing a reference with the Tribunal. A
copy of the reference notice should be sent to Alexander Banerjea at the Authority,
25 The North Colonnade, Canary Wharf, London E14 5HS.

Representations

19.
Catalyst has the right to make written and oral representations to the Authority
(whether or not Catalyst refers this matter to the Tribunal). If Catalyst wishes to
make written representations it must do so by 17 October 2013, or such later date
as may be permitted by the Authority, and sent to:

Mrs Kate Rowley
Secretary to the RTC
The Financial Conduct Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS

20.
The Authority must be informed in writing by 10 October 2013 if Catalyst wishes to
make oral representations. If the Authority is not notified by 10 October 2013,
Catalyst will not, other than in exceptional circumstances, be able to make oral
representations.

21.
Catalyst should note that section 391 of the Act requires the Authority, when the
First Supervisory Notice takes effect (and this First Supervisory Notice takes
immediate effect), to publish such information about the matter as it considers
appropriate.

Contacts

22.
For more information concerning this matter generally, Catalyst should contact
Alexander Banerjea at the Authority (direct line: 020 7066 7206).

23.
If Catalyst has any questions regarding the procedures of the Regulatory
Transactions
Committee,
it
should
contact
the
RTC
Secretariat
(email:
rtcsecretariat@fca.org.uk).

Graeme McLean
Chair, Regulatory Transactions Committee

5

ANNEX TO THE FIRST SUPERVISORY NOTICE ISSUED BY THE FINANCIAL
CONDUCT
AUTHORITY
TO
CATALYST
FUND
MANAGEMENT
LIMITED
ON

RELEVANT STATUTORY PROVISIONS

1.
The Authority’s operational objectives established in section 1(B) of the Act include
securing an appropriate degree of consumer protection.

2.
The Authority is authorised by section 55J of the Act to exercise the following
powers:

•
to vary an authorised person’s permission where it is desirable to do so in
order to advance one or more of the Authority’s operational objectives;
and

•
to include any provision in the permission as varied that could be included
if a fresh permission were being given in response to an application to the
Authority under section 55A of the Act, including the imposition pursuant
to section 55L of the Act of such requirements as the Authority considers
appropriate.

3.
Section 55N(1) of the Act states that a requirement may be imposed to require the
person concerned to take, or refrain from taking, specified action.

4.
Section 55Y of the Act allows such a variation to take effect on such date as is
specified in the notice, or immediately if the Authority reasonably considers that it
is necessary for the variation or the imposition of the requirement to take effect
immediately.

RELEVANT HANDBOOK PROVISIONS

5.
In exercising its power to cancel a Part 4A permission, the Authority must have
regard to guidance published in the Authority’s Handbook. The relevant main
considerations in relation to the action specified above are set out below.

6.
Principle 11 requires a firm to deal with its regulators in an open and co-operative
way, and to disclose to the Authority anything relating to the firm of which the
Authority would reasonably expect notice.

Guidance concerning the relevant Threshold Condition

7.
Guidance on the Threshold Conditions is set out in the part of the Handbook
entitled Threshold Conditions (“COND”).

COND 2.4 - Appropriate Resources (paragraph 2D of Part 1B of Schedule 6 to the
Act)

8.
COND 2.4.1AUK(1) reproduces the relevant statutory provision that the resources
of A must be appropriate in relation to the regulated activities that A carries on or
seeks to carry on.

6

9.
COND 2.4.1BG provides that paragraph 2D of Schedule 6 to the Act sets out the
appropriate resources threshold condition for firms carrying on, or seeking to carry
on, regulated activities which do not include a PRA-regulated activity.

10.
COND 2.4.1CUK(1) reproduces the relevant statutory provision (paragraph 3C of
Schedule 6 to the Act) that:

“The non-financial resources of B must be appropriate in relation to the
regulated activities that B carries on or seeks to carry on, having regard to
the operational objectives of the FCA.”

11.
COND 2.4.1CUK(2) states that the matters which are relevant in determining
whether the appropriate resources threshold condition is met include:

“a) the nature and scale of the business carried on, or to be carried on, by
B;

e) whether B’s non-financial resources are sufficient to enable B to comply
with-

(i) requirements imposed or likely to be imposed on B by the FCA
in the exercise of its functions…”

OTHER RELEVANT REGULATORY PROVISIONS

12. The Authority’s policy in relation to the allocation of decision making powers is set
out in the Decision Procedure and Penalties Manual (DEPP), certain provisions of
which are summarised below.

13.
DEPP 2.5.7G provides that the RDC will take the decision to give a supervisory
notice exercising the FCA’s own initiative powers (by removing a regulated activity,
by imposing a limitation or requirement or by specifying a narrower description of a
regulated activity) if the action involves a fundamental variation or requirement.
Otherwise, the decision to give the supervisory notice will be taken by FCA staff
under executive procedures.

14.
DEPP 2.5.8G states that a fundamental variation or requirement means:

“(1) removing a type of activity or investment from the firm’s permission;
or

(2) refusing an application to include a type of activity or investment; or

(3) [deleted]

(4) imposing or varying an assets requirement (as defined in section 55P
of the Act (Prohibitions and restrictions)), or refusing an application to
vary or cancel such a requirement.”

15. Prior to 1 April 2013, DEPP 2.5.8G stated that a fundamental variation or
requirement included:

“…(3) restricting a firm from taking on new business, dealing with a
particular category of client or handling client money by imposing a

7

limitation or requirement, refusing an application to vary or cancel such a
limitation or requirement;…”

16.
The Authority's policy in relation to its enforcement powers is set out in the
Enforcement Guide (EG), certain provisions of which are summarised below.

17.
EG 8.1(3) reflects section 55 of the Act under which the Authority may use its own-
initiative power to vary or cancel the permission of an authorised firm where it is
desirable to exercise the power where the person is failing or likely to fail the
threshold conditions or in order to advance one or more of its operational
objectives.

Varying a firm’s Part 4A permission or imposing requirements on the Authority’s own
initiative

18.
EG 8.1B provides that the Authority will have regard to its statutory objectives and
the range of regulatory tools that are available to it, when it considers how it
should deal with a concern about a firm.

19.
EG 8.3 provides that the Authority will exercise its formal powers under sections
55J or 55L of the Act, where the Authority considers it is appropriate to ensure a
firm meets its regulatory requirements. EG 8.3(1) specifies that the Authority may
consider it appropriate to exercise its powers where it has serious concerns about a
firm or the way its business is being or has been conducted.

Use of the own-initiative power in urgent cases

20.
EG 8.6 states that the Authority may impose a variation of permission so that it
takes effect immediately or on a specified date if it reasonably considers it
necessary for the variation to take effect immediately (or on the date specified),
having regard to the ground on which it is exercising its own-initiative power.

21.
EG 8.7 provides the circumstances in which the Authority will consider exercising
its own initiative power as a matter of urgency, including where circumstances
indicate that it is appropriate to use statutory powers immediately to require
and/or prohibit certain actions by the firm in order to ensure the firm addresses
these concerns (EG 8.7(2)).

22.
EG 8.8 provides a list of situations which will give rise to such serious concerns.
Specifically, EG 8.8(1) includes where information indicates a risk of loss or other
adverse effects for consumers, where action is necessary to protect their interests.

23.
EG 8.9 sets out the factors the Authority may consider in addition to the full
circumstances of each case when it decides whether an urgent variation of Part 4A
permission is appropriate. In particular, EG 8.9(1) states a factor is the extent of
any loss, or risk of loss, or other adverse effect on consumers, and EG 8.9(9)
states that the Authority may take into account the (sometimes significant) impact
that a variation of permission may have on a firm’s business and on its customers’
interests, including the effect of variation on the firm’s reputation and on market
confidence.

24.
EG 8.10 provides that when varying a Part 4A permission at its own-initiative, the
FCA may include in the Part 4A permission as varied any limitation or restriction
which it could have imposed if a fresh permission were being given in response to
an application under section 55A of the Act.

25.
EG 8.11 states that examples of the limitations that the FCA may impose when
exercising its own-initiative power in support of its enforcement function include
limitations on the category of customers that a firm can deal with.