Supervisory Notice
On , the Financial Conduct Authority issued a Supervisory Notice to Colbourne & Company
FIRST SUPERVISORY NOTICE
1.1
For the reasons given in this First Supervisory Notice, and pursuant to sections 55L(1)(a)
and (c) of the Act, the Authority has decided to impose with immediate effect the following
requirements on Colbourne’s Part 4A Permission:
Business Restrictions
a) Colbourne must immediately cease carrying on all regulated activities for which it
has a Part 4A permission, other than where it has the express written consent of
the Authority, given subsequent to this FSN, to carry on said activities;
b) Colbourne must immediately cease carrying on all regulated activities for which it
does not hold a Part 4A permission. This means that Colbourne is not permitted
to provide investment advice to, or arrange deals in investments for, retail clients.
For the avoidance of doubt, Colbourne is not permitted to conduct any other
regulated activities which fall outside its Part 4A permission, in addition to the
requirement at (a) above that it immediately cease carrying on all regulated
activities for which it does hold a Part 4A permission;
c) Colbourne must immediately cease invoicing for or collecting all charges, fees and
commissions for regulated activities it has carried out for ‘Retail (Investment)’-
type customers (those that were removed from its Part 4A permission on 22
November 2014), or with whom it is otherwise not authorised to deal;
d) Colbourne must not on-board any new customers;
Notification Requirements
e) Colbourne must, within 72 hours of the receipt of this notice write to (i) all clients
and; (ii) all platforms upon which its clients are placed informing them of the
imposition of this requirement and its effects. The wording of this communication
in the form of a template communication that will be supplied by the Authority.
The method of delivery must be agreed in advance by the Authority;
f) Once the notifications referred to in (e) above have been made, within 24 hours,
Colbourne must supply to the Authority:
i.
Copies of the template notification sent to all recipients;
ii.
A list of all parties to whom notifications have been sent; and
iii.
Confirmation that, to the best of its knowledge, Colbourne has sent the
specified notifications to all relevant parties
g) Colbourne must secure all books and records and preserve all information,
including material held via online/cloud-based systems to which the Firm has
access, in relation to regulated activities carried on by it and, in addition, regulated
activities carried out for or in relation to customers with whom it is not authorised
to deal. These include but are not limited to all: (i) all client lists; (ii) all
communications with clients; (iii) all financial records. These books and records
must be retained in a form and at a location within the UK to be notified to the
Authority within 24 hours of the receipt of this notice. The records must be retained
in a form and at a location such that they can be provided to the Authority, or to
a person named by the Authority, promptly upon its request;
Asset Requirement
h) Save as set out in sub-paragraph (j) below, Colbourne must not, without the prior
written consent of the Authority, take any action which has, or may have the effect
of in any way disposing of, withdrawing, transferring, dealing with or diminishing
the value of any of its own assets. whether in the United Kingdom or elsewhere;
i) For the avoidance of doubt (h) means, in particular (though the contents of this
sub-paragraph do not represent the full extent of (h), merely an example of how
the Asset Requirement operates) that save as permitted by (j) below, Colbourne
must not in any way diminish or transfer the funds in the accounts Colbourne holds
with Bank A, with account numbers ending [575] and [339];
j) The Assets Restriction does not apply to monetary payments or the disposal of
assets in the following circumstances:
i.
Payments to the Firm’s suppliers and in satisfaction of the Firm's
contractual obligations in the ordinary course of business where the
supplier and contractual obligation been notified to and approved by the
Authority, subsequent to the imposition of this FSN;
ii.
Payments to legal advisors;
iii.
Where the Firm can demonstrate to the Authority’s satisfaction that a
particular account which may contain a mix of Firm and personal funds is
used to pay necessary living expenses (such as mortgage payments etc)
then the payment of a list of those expenses, to be agreed in writing with
the Authority;
iv.
Monthly withdrawals from the [575] account of amounts equivalent to state
benefits and pension payments received during that period to which any
person who uses the account to receive such payments is entitled; and
v.
Payments of redress, where the individual or entity to receive payments
has been approved in writing by the Authority subsequent to this notice.
k) The following will not be regarded as payments in the ordinary course of business
or necessary living expenses:
i.
Payment of any unusual or significant sum (meaning in excess of £100
whether as a single transaction or combination of transactions) to either
individual who is a signatory on the [575] or [339] account and any person
connected with them;
ii.
The making of any capital distribution;
iii.
The making of any gift, loan, or dividend;
iv.
The sale or other disposal of the Firm’s client book;
v.
Salaries to any of Colbourne’s employees the payment of which has not
been approved in writing by the Authority
l) The terms and effect of (h)-(k) above comprise an asset requirement within the
meaning of Section 55P(4)(a) of the Act.
2
REASONS FOR ACTION
Summary
2.1
The Authority has concluded, on the basis of the facts and matters described below, that
it is appropriate to exercise its power under sections 55L(1)(a) and (c) to impose these
requirements because Colbourne is failing, or is likely to fail, to satisfy the Suitability
Threshold Condition (paragraph 2E of Schedule 6 to the Act). The action is also desirable
in order to advance the Authority’s operational objective of securing an appropriate
degree of protection for consumers (section 1C of the Act).
2.2
The Authority has identified serious concerns relating to Colbourne, in particular that it
may have taken from clients significant sums – believed to be at least £218,000 - in fees
to which it was not entitled. Analysis of bank accounts and the surrounding circumstances
suggests there is a significant risk of dissipation of the funds taken.
2.3
In addition, and significantly aggravating the Authority’s concerns, it appears that
Colbourne may not have had the requisite Part 4A permissions to advise the individuals
whose funds have been misused, or indeed, regarding investments, any retail clients at
all. The Firm must or should have been aware of the position as it applied for the variation
of it’s Part 4A permission which meant it was not permitted to advise retail clients.
Colbourne applied for this variation because its SMF function holder does not have the
requisite SPS qualification to advise retail clients on investments.
2.4
The Authority considers that the proposed requirements should take immediate effect
because the matters set out in this First Supervisory Notice demonstrate that Colbourne
is not fit and proper and that it poses a serious risk which needs to be addressed on an
urgent basis.
3
DEFINITIONS
3.1
The definitions below are used in this First Supervisory Notice:
“the Act” means the Financial Services and Markets Act 2000;
“Asset Requirement” means a requirement which can be added to a firm’s Part 4A
permission and which is defined in Section 55P(4)(a) of the Act;
“the Authority” means the Financial Conduct Authority;
“Bank A” means the bank at which Colbourne holds the accounts referred to in the Asset
Requirement;
“Colbourne”/”the Firm” means Colbourne & Company, an unincorporated financial advisory
firm;
“COND” means the part of the Authority’s handbook that contains the Threshold Conditions
and related guidance;
“EG” means the Enforcement Guide, part of the Authority’s Handbook
“Firm A” means a firm which hosts a platform used by financial advisers to manage their
clients’ investments ;
“Firm B” means a firm which hosts a platform used by financial advisers to manage their
clients’ investments
“FSN” means a First Supervisory Notice;
“Handbook” means the Authority’s online handbook of rules and guidance (as in force from
time to time);
“Part 4A permission” means permission to conduct regulated activities, granted by the
Authority under Part 4A of the Act
“SMF Function Holder” means the individual who holds the SMF 16 senior management
function at Colbourne;
“SPS” means Statement of Professional Standing issued by an appropriate accredited body
“Suitability Threshold Condition” means the condition set out in Paragraph 2E of Schedule
6 of the Act and COND 2.5
“Supervision” means the Authority’s Supervision Division; and
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).
4
FACTS AND MATTERS
Background
4.1
Colbourne is an unicorporated entity based in Tamworth, Staffordshire. It has been
authorised since 1 December 2001. It has a single SMF Function Holder who appears to
conduct most of the Firm’s business.
4.2
Colbourne has the following Part 4A permissions:
Insurance
•
Advising on Investments (except pension
transfers & opt outs)
•
Arranging Deals in Investments
•
Assisting in the Administration of a Contract
of Insurance
•
Making Deals With a View to Transactions
in Investments
• Commercial
• Professional
• Retail
(Non-
Investment
Insurance)
Pensions
•
Advising on Investments (except pension
transfers & opt outs)
•
Arranging Deals in Investments
•
Making Deals With a View to Transactions
in Investments
• Commercial
• Professional
• Retail
(Non-
Investment
Insurance)
Investments
•
Advising on Investments (except pension
transfers & opt outs)
•
Arranging Deals in Investments
•
Making Deals With a View to Transactions
in Investments
• Commercial
• Professional
• Retail
(Non-
Investment
Insurance)
•
Agreeing to carry on a regulated activity
4.3
In November 2014, Colbourne submitted an application to the Authority to vary its Part
4A permission to remove the ‘Retail (Investment)’ customer type. Colbourne’s Part 4A
permission was varied accordingly on 22 November 2014. Colbourne submitted the
application following discussions with the Authority regarding the SMF Function Holder’s
lack of an SPS. The effect of the variation is that Colbourne was no longer permitted to
conduct retail investment business.
Failings and risks identified
Consumer reports to the Authority
4.4
The Authority has received reports and documentation from consumers demonstrating
that significant unauthorised sums have been taken by Colbourne from their investment
funds. Those sums, which records indicate were largely denoted as “fees” were taken
subsequent to Colbourne no longer being permitted to conduct retail investment business.
Almost £20,000 was taken from these individuals, though an as yet unclear amount,
believed to be less than half the total, has been returned.
Firm A
4.5
Firm A runs an investment platform which hosts “clients” of Colbourne. These clients
appear to be retail investors, though – as noted above – it appears that the Firm is not
permitted to conduct such business.
4.6
Firm A has become aware of instances of Colbourne taking very significant sums from the
investment funds of clients which purport to be “fees” for the Firm’s services. The alleged
“fees” taken from two clients, a couple, total approximately £218,000 in a period of just
over 3 years. The effect has been to greatly deplete their investment fund. Information
received by the Authority suggests that these “fees” were not authorised by clients or
were otherwise justified/appropriate, even had the Firm been permitted to advise on or
arrange investments for retail clients. The fees taken do not accord with material
submitted by Colbourne to the Authority.
4.7
The conduct in question appears to have taken place over a number of years. The conduct
also appears to relate to multiple clients. Further, there are significant concerns about
the nature of the advice and documentation given by Colbourne to certain clients: analysis
by Firm A indicates that certain documents may have been altered and/or contain false
information. For example, it appears that documents given to one client, purporting to
have been produced by Firm A, contained handwritten corrections and a false valuation
of their fund.
Firm B
4.8
Firm B informed the Authority that an individual had reported significant unauthorised
charges, linked to Colbourne, being taken from a SIPP. The sums significantly depleted
the value of the SIPP over the course of a year, with more taken out during that period
than was left after the discovery of the situation. Approximately £28,000 in “fees” had
been taken during the period in question. Firm B also reported that other clients had been
subject to “ad hoc” charges from Colbourne, but fewer details of those incidents are
available.
Bank Accounts
4.9
The account held by Colbourne referred to at Bank A, with an account number ending
[575] above has been identified as Colbourne’s business bank account and the account
to which alleged fees were paid by the clients Firm A identified. The SMF function holder
is one of the signatories to the account. Analysis indicates that this account appears to
have been used for personal spending – leisure/travel/shopping - and that the current
balance is only a very small proportion of the substantial and apparently unauthorised
fees that have been deposited. A more substantial sum is held in the [339] account (also
a business account), which relies as a source of income entirely on transfers from the
[575] account.
5
CONCLUSION
5.1
The regulatory provisions relevant to this First Supervisory Notice are set out in the
Annex.
Analysis of failings and risks
Failure to meet with the Threshold Conditions
5.2
The Authority has serious concerns about Colbourne’s ability to meet the Threshold
Conditions. The Threshold Conditions are minimum requirements that firms need to meet
in order to be authorised and to continue carrying on regulated activities. In particular,
the Authority considers that Colbourne is failing, or is likely to fail, to satisfy the Suitability
Threshold Condition because it is not conducting its affairs in an appropriate manner
regarding the interests of consumers.
The Authority’s operational objective of consumer protection
5.3
The Authority’s operational objective of consumer protection requires the Authority to
ensure an appropriate degree of protection for consumers. The Firm appears to have
exposed some its “clients” to the risk of loss, by removing on an unauthorised basis
significant sums from their investment funds which have then been dissipated. Further,
the Firm appears to have been advising clients with whom it is not authorised to deal –
the same clients, amongst others, from whom it has taken unauthorised fees.
5.4
On the basis of the facts and matters set out, it appears to the Authority that it is desirable
to impose these requirements in order to advance the consumer protection objective
contained in Section 1C of the Act.
Timing and duration of the Variation
5.5
It is necessary to impose the requirements on an urgent basis to take immediate effect
given the seriousness of the risks and the need to protect consumers. The facts and
matters set out above indicate that Colbourne has potentially misappropriated funds,
dissipated them and carried on regulated investment business without required
permissions. The Authority has therefore identified the following factors from those listed
in EG 8.3.3:
a) Information indicating significant loss, risk of loss or other adverse effects for
consumers, where action is necessary to protect their interests (EG 8.3.3(1));
b) Information indicating that the Firm’s conduct has put at risk of being used for the
purposes of financial crime, or of being otherwise involved in crime (EG 8.3.3(2));
and
c) Circumstances suggesting a serious problem with the Firm and/or its controllers that
calls into question the Firm’s ability to meet the Threshold Conditions (EG 8.3.3(4)).
5.6
The Authority will consider full circumstances of each case when it decides whether an
urgent requirement is appropriate. The Authority has identified the following relevant
factors within the circumstances of this case:
a) The extent of any loss, or risk of loss, or other adverse effect on consumers (EG
8.3.4(1));
b) The extent to which customer assets appear to be at risk (EG 8.3.4(2));
c) The seriousness of any suspected breach of the requirements of the legislation (EG
d) The financial resources of the Firm (EG 8.3.4(5));
e) The risk that the Firm’s business may be used or has been used to facilitate financial
crime (EG 8.3.4(6));
f) The Firm’s conduct (EG 8.3.4(8);
g) The impact that use of these powers will have on the firm’s business and on its
customers (EG 8.3.4(9))
5.7
The Authority considers that it is necessary for the requirement to remain in place
indefinitely.
6
PROCEDURAL MATTERS
6.1
This First Supervisory Notice is given under section 55Y(4) and in accordance with Section
55Y(5) of the Act and is being served on the Firm at its principal place of business as last
notified to the Authority.
Decision-maker
6.2
The decision which gave rise to the obligation to give this First Supervisory Notice was
made under Executive Procedures.
6.3
The following statutory rights are important.
Representations
6.4
Colbourne has the right to make written representations to the Authority. The Authority
will consider oral representations only in exceptional circumstances where it is determined
that prohibiting oral representations will impact upon the fairness of the decision. The
deadline for notifying the Authority that Colbourne wishes to make oral representations
and for providing written representations is 11 July 2022 .
Supervision, Policy and Competition Decision Making Secretariat
The Financial Conduct Authority
12 Endeavour Square
London
E20 1JN
Email: SPCDecisionMakingSecretariat@fca.org.uk
6.5
All written representations and any notification of a request to make oral representations
should also be copied to xxx@fca.org.uk.
The Tribunal
6.6
Colbourne has the right to refer the matter to which this First Supervisory Notice relates
to the Tribunal. The Tax and Chancery Chamber is 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, Colbourne has
28 days from the date on which this First Supervisory Notice is given to it to refer the
matter to the Tribunal.
6.7
A reference to the Tribunal can be made by way of a reference notice (Form FTC3) signed
by or on behalf of Colbourne and filed with a copy of this First Supervisory Notice. The
Tribunal’s contact details are: The Upper Tribunal, Tax and Chancery Chamber, 5th Floor,
Rolls Building, Fetter Lane, London EC4A 1NL (telephone: 020 7612 9730; email:
uttc@hmcts.gsi.gov.uk).
6.8
Further information on the Tribunal, including guidance and the relevant forms to
complete, can be found on the HM Courts and Tribunal Service website:
http://www.justice.gov.uk/forms/hmcts/tax-and-chancery-upper-tribunal
6.9
Colbourne should note that a copy of the reference notice (Form FTC3) must also be sent
to the Authority at the same time as a reference is filed with the Tribunal. A copy of the
reference notice should be sent to xxx@fca.org.uk at the Financial Conduct Authority, 12
Endeavour Square, London, E20 1JN.
Confidentiality and publicity
6.10 Colbourne should note that this First Supervisory Notice may contain confidential
information and should not be disclosed to a third party (except for the purpose of
obtaining legal advice on its contents).
6.11 Colbourne should note that section 391(5) of the Act requires the Authority, when the
First Supervisory Notice takes effect, to publish such information about the matter to
which the notice relates as it considers appropriate.
Authority contacts
6.12 For more information concerning this matter generally, contact xxx@fca.org.uk
6.13 Any questions regarding the Decision-Making procedures relevant to this FSN should be
directed to the Decision Making Secretariat by email:
[Signature]
Decision Made Under Executive Procedures
Annex
RELEVANT STATUTORY PROVISIONS
1.
The Authority’s operational objectives established in section 1B of the Act include securing
an appropriate degree of protection for consumers (section 1C).
2.
Section 20(1) of the Act provides that, if an authorised person carried on a regulated
activity otherwise than in accordance with its Part 4A permissions, it is taken to have
contravened a requirement imposed under the Act.
3.
Section 55L of the Act allows the Authority to impose a requirement on the Part 4A
permission of an authorised person if it appears to the Authority that the authorised person
is failing, or likely to fail to satisfy the Threshold Conditions (section 55L(2)(a)), or it is
desirable to exercise the power in order to advance one or more of the Authority’s
operational objectives (section 55LJ(2(c)). This power is referred to as the Authority’s own-
initiative requirement power.
4.
55P(4)(a) defines an Asset Requirement as a requirement imposed under section 55L
which prohibits the disposal of, or other dealing with, any of a Firm’s assets(whether in the
UK or elsewhere) or restricting such disposals or dealings.
5.
Section 55Y(3) of the Act allows a requirement imposed under the own-initiative
requirement power to take effect immediately (or on a specified date) if the Authority,
having regard to the ground on which it is exercising its own-initiative power, reasonably
considers that it is necessary for the requirement to take effect immediately (or on that
date).
6.
Section 391 of the Act provides that:
“[…]
(5) When a supervisory notice takes effect, the Authority must publish such
information about the matter to which the notice relates as it considers
appropriate.
(6) But the Authority may not publish information under this section if in its opinion,
publication of the information would, be unfair to the person with respect to whom
the action was taken or proposed to be taken [or] prejudicial to the interests of
consumers or detrimental to the stability of the UK financial system.
(7) Information is to be published under this section in such manner as the Authority
considers appropriate.”
RELEVANT REGULATORY PROVISIONS
The Threshold Conditions
7.
The section of the Handbook entitled ‘Threshold Conditions’ (COND) gives guidance on the
Threshold Conditions. COND 1.2.3G provides that the Authority may exercise its own-
initiative powers under either section 55J of the Act if, among other things, a firm is failing
to satisfy any of the Threshold Conditions or is likely to do so.
8.
COND 2.5.1AUK reflects the provisions of FSMA (Paragraph 2E to Schedule 6) to the effect
that a firm must be fit and proper having regard to all the circumstances. These can include
the nature of the firm’s connection with any person (COND 2.5.1AUK(1)(a) and the need
to ensure its affairs are conduct in an appropriate manner having regard to the needs of
consumers (COND 2.5.1AUK(c)) and whether the firm has complied and is complying with
the Authority’s requirements (COND 2.5.1AUK(1)(d).
9.
COND 2.5.4G provides 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, the Suitability Threshold Condition. These include, but are not limited to, whether
the firm conducts its business with integrity and in compliance with proper standards, has
a competent and prudent management and can demonstrate that it conducts its affairs
with the exercise of due skill, care and diligence.
The Enforcement Guide
10.
The Authority's approach in relation to its own-initiative powers is set out in Chapter 8 of
the Enforcement Guide (EG), certain provisions of which are summarised below.
11.
EG 8.1.1 reflects the provisions of section 55L of the Act by stating that the Authority may
use its own-initiative power to impose a variation on an authorised person where, amongst
other factors, the person is failing or is likely to fail to satisfy the threshold conditions for
which the Authority is responsible (EG 8.1.1(1)), or it is desirable to exercise the power in
order to advance one or more of its operational objectives (EG 8.1.1(3)).
12.
EG 8.2.1 states that when the Authority considers how it should deal with a concern about a
firm, it will have regard to its statutory objectives and the range of regulatory tools that
are available to it. It will also have regard to the principle that a restriction imposed on a
firm should be proportionate to the objectives the Authority is seeking to achieve (EG
8.2.1(2)).
13.
EG 8.2.3 states that in the course of its supervision and monitoring of a firm or as part of
an enforcement action, the Authority may make it clear that it expects the firm to take
certain steps to meet regulatory requirements. In the vast majority of cases the Authority
will seek to agree with a firm those steps the firm must take to address the Authority’s
concerns. However, where the Authority considers it appropriate to do so, it will exercise
its formal powers under section 55J of the Act to impose a variation to ensure such
requirements are met. This may include where, amongst other factors, the Authority has
serious concerns about a firm, or about the way its business is being or has been conducted
(EG 8.2.3(1)), or is concerned that the consequences of a firm not taking the desired steps
may be serious (EG 8.2.3(2)).
14.
EG 8.3.1 states that the Authority may impose a variation 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 powers.
15.
EG 8.3.2 states that the Authority will consider exercising its own-initiative power as a
matter of urgency where: 1) the information available to it indicates serious concerns about
the firm or its business that need to be addressed immediately; and 2) 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.
16.
EG 8.3.3 states that it is not possible to provide an exhaustive list of the situations that will
give rise to such serious concerns, but they are likely to include one or more of four listed
characteristics, these include, but are not limited to: 1) information indicating significant
loss, risk of loss or other adverse effects for consumers, where action is necessary to
protect their interests; 2) information indicating that a firm’s conduct has put it at risk of
being used for the purposes of financial crime, or of being otherwise involved in crime 3)
evidence that the firm has submitted to the Authority inaccurate or misleading information
so that the Authority becomes seriously concerned about the firm’s ability to meet its
regulatory obligations; 4) circumstances suggesting a serious problem within a firm or with
a firm’s controllers that calls into question the firm’s ability to continue to meet the
threshold conditions.
17.
EG 8.3.4 states that the Authority will consider the full circumstances of each case when it
decides whether an imposition of a variation is appropriate and sets out a non-exhaustive
list of factors the Authority may consider. EG 8.3.4(9) includes the impact that use of the
Authority’s own-initiative powers will have on the firm's business and on its customers.
The Authority will need to be satisfied that the impact of any use of the own-initiative
power is likely to be proportionate to the concerns being addressed, in the context of the
overall aim of achieving its statutory objectives.
1.1
For the reasons given in this First Supervisory Notice, and pursuant to sections 55L(1)(a)
and (c) of the Act, the Authority has decided to impose with immediate effect the following
requirements on Colbourne’s Part 4A Permission:
Business Restrictions
a) Colbourne must immediately cease carrying on all regulated activities for which it
has a Part 4A permission, other than where it has the express written consent of
the Authority, given subsequent to this FSN, to carry on said activities;
b) Colbourne must immediately cease carrying on all regulated activities for which it
does not hold a Part 4A permission. This means that Colbourne is not permitted
to provide investment advice to, or arrange deals in investments for, retail clients.
For the avoidance of doubt, Colbourne is not permitted to conduct any other
regulated activities which fall outside its Part 4A permission, in addition to the
requirement at (a) above that it immediately cease carrying on all regulated
activities for which it does hold a Part 4A permission;
c) Colbourne must immediately cease invoicing for or collecting all charges, fees and
commissions for regulated activities it has carried out for ‘Retail (Investment)’-
type customers (those that were removed from its Part 4A permission on 22
November 2014), or with whom it is otherwise not authorised to deal;
d) Colbourne must not on-board any new customers;
Notification Requirements
e) Colbourne must, within 72 hours of the receipt of this notice write to (i) all clients
and; (ii) all platforms upon which its clients are placed informing them of the
imposition of this requirement and its effects. The wording of this communication
in the form of a template communication that will be supplied by the Authority.
The method of delivery must be agreed in advance by the Authority;
f) Once the notifications referred to in (e) above have been made, within 24 hours,
Colbourne must supply to the Authority:
i.
Copies of the template notification sent to all recipients;
ii.
A list of all parties to whom notifications have been sent; and
iii.
Confirmation that, to the best of its knowledge, Colbourne has sent the
specified notifications to all relevant parties
g) Colbourne must secure all books and records and preserve all information,
including material held via online/cloud-based systems to which the Firm has
access, in relation to regulated activities carried on by it and, in addition, regulated
activities carried out for or in relation to customers with whom it is not authorised
to deal. These include but are not limited to all: (i) all client lists; (ii) all
communications with clients; (iii) all financial records. These books and records
must be retained in a form and at a location within the UK to be notified to the
Authority within 24 hours of the receipt of this notice. The records must be retained
in a form and at a location such that they can be provided to the Authority, or to
a person named by the Authority, promptly upon its request;
Asset Requirement
h) Save as set out in sub-paragraph (j) below, Colbourne must not, without the prior
written consent of the Authority, take any action which has, or may have the effect
of in any way disposing of, withdrawing, transferring, dealing with or diminishing
the value of any of its own assets. whether in the United Kingdom or elsewhere;
i) For the avoidance of doubt (h) means, in particular (though the contents of this
sub-paragraph do not represent the full extent of (h), merely an example of how
the Asset Requirement operates) that save as permitted by (j) below, Colbourne
must not in any way diminish or transfer the funds in the accounts Colbourne holds
with Bank A, with account numbers ending [575] and [339];
j) The Assets Restriction does not apply to monetary payments or the disposal of
assets in the following circumstances:
i.
Payments to the Firm’s suppliers and in satisfaction of the Firm's
contractual obligations in the ordinary course of business where the
supplier and contractual obligation been notified to and approved by the
Authority, subsequent to the imposition of this FSN;
ii.
Payments to legal advisors;
iii.
Where the Firm can demonstrate to the Authority’s satisfaction that a
particular account which may contain a mix of Firm and personal funds is
used to pay necessary living expenses (such as mortgage payments etc)
then the payment of a list of those expenses, to be agreed in writing with
the Authority;
iv.
Monthly withdrawals from the [575] account of amounts equivalent to state
benefits and pension payments received during that period to which any
person who uses the account to receive such payments is entitled; and
v.
Payments of redress, where the individual or entity to receive payments
has been approved in writing by the Authority subsequent to this notice.
k) The following will not be regarded as payments in the ordinary course of business
or necessary living expenses:
i.
Payment of any unusual or significant sum (meaning in excess of £100
whether as a single transaction or combination of transactions) to either
individual who is a signatory on the [575] or [339] account and any person
connected with them;
ii.
The making of any capital distribution;
iii.
The making of any gift, loan, or dividend;
iv.
The sale or other disposal of the Firm’s client book;
v.
Salaries to any of Colbourne’s employees the payment of which has not
been approved in writing by the Authority
l) The terms and effect of (h)-(k) above comprise an asset requirement within the
meaning of Section 55P(4)(a) of the Act.
2
REASONS FOR ACTION
Summary
2.1
The Authority has concluded, on the basis of the facts and matters described below, that
it is appropriate to exercise its power under sections 55L(1)(a) and (c) to impose these
requirements because Colbourne is failing, or is likely to fail, to satisfy the Suitability
Threshold Condition (paragraph 2E of Schedule 6 to the Act). The action is also desirable
in order to advance the Authority’s operational objective of securing an appropriate
degree of protection for consumers (section 1C of the Act).
2.2
The Authority has identified serious concerns relating to Colbourne, in particular that it
may have taken from clients significant sums – believed to be at least £218,000 - in fees
to which it was not entitled. Analysis of bank accounts and the surrounding circumstances
suggests there is a significant risk of dissipation of the funds taken.
2.3
In addition, and significantly aggravating the Authority’s concerns, it appears that
Colbourne may not have had the requisite Part 4A permissions to advise the individuals
whose funds have been misused, or indeed, regarding investments, any retail clients at
all. The Firm must or should have been aware of the position as it applied for the variation
of it’s Part 4A permission which meant it was not permitted to advise retail clients.
Colbourne applied for this variation because its SMF function holder does not have the
requisite SPS qualification to advise retail clients on investments.
2.4
The Authority considers that the proposed requirements should take immediate effect
because the matters set out in this First Supervisory Notice demonstrate that Colbourne
is not fit and proper and that it poses a serious risk which needs to be addressed on an
urgent basis.
3
DEFINITIONS
3.1
The definitions below are used in this First Supervisory Notice:
“the Act” means the Financial Services and Markets Act 2000;
“Asset Requirement” means a requirement which can be added to a firm’s Part 4A
permission and which is defined in Section 55P(4)(a) of the Act;
“the Authority” means the Financial Conduct Authority;
“Bank A” means the bank at which Colbourne holds the accounts referred to in the Asset
Requirement;
“Colbourne”/”the Firm” means Colbourne & Company, an unincorporated financial advisory
firm;
“COND” means the part of the Authority’s handbook that contains the Threshold Conditions
and related guidance;
“EG” means the Enforcement Guide, part of the Authority’s Handbook
“Firm A” means a firm which hosts a platform used by financial advisers to manage their
clients’ investments ;
“Firm B” means a firm which hosts a platform used by financial advisers to manage their
clients’ investments
“FSN” means a First Supervisory Notice;
“Handbook” means the Authority’s online handbook of rules and guidance (as in force from
time to time);
“Part 4A permission” means permission to conduct regulated activities, granted by the
Authority under Part 4A of the Act
“SMF Function Holder” means the individual who holds the SMF 16 senior management
function at Colbourne;
“SPS” means Statement of Professional Standing issued by an appropriate accredited body
“Suitability Threshold Condition” means the condition set out in Paragraph 2E of Schedule
6 of the Act and COND 2.5
“Supervision” means the Authority’s Supervision Division; and
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).
4
FACTS AND MATTERS
Background
4.1
Colbourne is an unicorporated entity based in Tamworth, Staffordshire. It has been
authorised since 1 December 2001. It has a single SMF Function Holder who appears to
conduct most of the Firm’s business.
4.2
Colbourne has the following Part 4A permissions:
Insurance
•
Advising on Investments (except pension
transfers & opt outs)
•
Arranging Deals in Investments
•
Assisting in the Administration of a Contract
of Insurance
•
Making Deals With a View to Transactions
in Investments
• Commercial
• Professional
• Retail
(Non-
Investment
Insurance)
Pensions
•
Advising on Investments (except pension
transfers & opt outs)
•
Arranging Deals in Investments
•
Making Deals With a View to Transactions
in Investments
• Commercial
• Professional
• Retail
(Non-
Investment
Insurance)
Investments
•
Advising on Investments (except pension
transfers & opt outs)
•
Arranging Deals in Investments
•
Making Deals With a View to Transactions
in Investments
• Commercial
• Professional
• Retail
(Non-
Investment
Insurance)
•
Agreeing to carry on a regulated activity
4.3
In November 2014, Colbourne submitted an application to the Authority to vary its Part
4A permission to remove the ‘Retail (Investment)’ customer type. Colbourne’s Part 4A
permission was varied accordingly on 22 November 2014. Colbourne submitted the
application following discussions with the Authority regarding the SMF Function Holder’s
lack of an SPS. The effect of the variation is that Colbourne was no longer permitted to
conduct retail investment business.
Failings and risks identified
Consumer reports to the Authority
4.4
The Authority has received reports and documentation from consumers demonstrating
that significant unauthorised sums have been taken by Colbourne from their investment
funds. Those sums, which records indicate were largely denoted as “fees” were taken
subsequent to Colbourne no longer being permitted to conduct retail investment business.
Almost £20,000 was taken from these individuals, though an as yet unclear amount,
believed to be less than half the total, has been returned.
Firm A
4.5
Firm A runs an investment platform which hosts “clients” of Colbourne. These clients
appear to be retail investors, though – as noted above – it appears that the Firm is not
permitted to conduct such business.
4.6
Firm A has become aware of instances of Colbourne taking very significant sums from the
investment funds of clients which purport to be “fees” for the Firm’s services. The alleged
“fees” taken from two clients, a couple, total approximately £218,000 in a period of just
over 3 years. The effect has been to greatly deplete their investment fund. Information
received by the Authority suggests that these “fees” were not authorised by clients or
were otherwise justified/appropriate, even had the Firm been permitted to advise on or
arrange investments for retail clients. The fees taken do not accord with material
submitted by Colbourne to the Authority.
4.7
The conduct in question appears to have taken place over a number of years. The conduct
also appears to relate to multiple clients. Further, there are significant concerns about
the nature of the advice and documentation given by Colbourne to certain clients: analysis
by Firm A indicates that certain documents may have been altered and/or contain false
information. For example, it appears that documents given to one client, purporting to
have been produced by Firm A, contained handwritten corrections and a false valuation
of their fund.
Firm B
4.8
Firm B informed the Authority that an individual had reported significant unauthorised
charges, linked to Colbourne, being taken from a SIPP. The sums significantly depleted
the value of the SIPP over the course of a year, with more taken out during that period
than was left after the discovery of the situation. Approximately £28,000 in “fees” had
been taken during the period in question. Firm B also reported that other clients had been
subject to “ad hoc” charges from Colbourne, but fewer details of those incidents are
available.
Bank Accounts
4.9
The account held by Colbourne referred to at Bank A, with an account number ending
[575] above has been identified as Colbourne’s business bank account and the account
to which alleged fees were paid by the clients Firm A identified. The SMF function holder
is one of the signatories to the account. Analysis indicates that this account appears to
have been used for personal spending – leisure/travel/shopping - and that the current
balance is only a very small proportion of the substantial and apparently unauthorised
fees that have been deposited. A more substantial sum is held in the [339] account (also
a business account), which relies as a source of income entirely on transfers from the
[575] account.
5
CONCLUSION
5.1
The regulatory provisions relevant to this First Supervisory Notice are set out in the
Annex.
Analysis of failings and risks
Failure to meet with the Threshold Conditions
5.2
The Authority has serious concerns about Colbourne’s ability to meet the Threshold
Conditions. The Threshold Conditions are minimum requirements that firms need to meet
in order to be authorised and to continue carrying on regulated activities. In particular,
the Authority considers that Colbourne is failing, or is likely to fail, to satisfy the Suitability
Threshold Condition because it is not conducting its affairs in an appropriate manner
regarding the interests of consumers.
The Authority’s operational objective of consumer protection
5.3
The Authority’s operational objective of consumer protection requires the Authority to
ensure an appropriate degree of protection for consumers. The Firm appears to have
exposed some its “clients” to the risk of loss, by removing on an unauthorised basis
significant sums from their investment funds which have then been dissipated. Further,
the Firm appears to have been advising clients with whom it is not authorised to deal –
the same clients, amongst others, from whom it has taken unauthorised fees.
5.4
On the basis of the facts and matters set out, it appears to the Authority that it is desirable
to impose these requirements in order to advance the consumer protection objective
contained in Section 1C of the Act.
Timing and duration of the Variation
5.5
It is necessary to impose the requirements on an urgent basis to take immediate effect
given the seriousness of the risks and the need to protect consumers. The facts and
matters set out above indicate that Colbourne has potentially misappropriated funds,
dissipated them and carried on regulated investment business without required
permissions. The Authority has therefore identified the following factors from those listed
in EG 8.3.3:
a) Information indicating significant loss, risk of loss or other adverse effects for
consumers, where action is necessary to protect their interests (EG 8.3.3(1));
b) Information indicating that the Firm’s conduct has put at risk of being used for the
purposes of financial crime, or of being otherwise involved in crime (EG 8.3.3(2));
and
c) Circumstances suggesting a serious problem with the Firm and/or its controllers that
calls into question the Firm’s ability to meet the Threshold Conditions (EG 8.3.3(4)).
5.6
The Authority will consider full circumstances of each case when it decides whether an
urgent requirement is appropriate. The Authority has identified the following relevant
factors within the circumstances of this case:
a) The extent of any loss, or risk of loss, or other adverse effect on consumers (EG
8.3.4(1));
b) The extent to which customer assets appear to be at risk (EG 8.3.4(2));
c) The seriousness of any suspected breach of the requirements of the legislation (EG
d) The financial resources of the Firm (EG 8.3.4(5));
e) The risk that the Firm’s business may be used or has been used to facilitate financial
crime (EG 8.3.4(6));
f) The Firm’s conduct (EG 8.3.4(8);
g) The impact that use of these powers will have on the firm’s business and on its
customers (EG 8.3.4(9))
5.7
The Authority considers that it is necessary for the requirement to remain in place
indefinitely.
6
PROCEDURAL MATTERS
6.1
This First Supervisory Notice is given under section 55Y(4) and in accordance with Section
55Y(5) of the Act and is being served on the Firm at its principal place of business as last
notified to the Authority.
Decision-maker
6.2
The decision which gave rise to the obligation to give this First Supervisory Notice was
made under Executive Procedures.
6.3
The following statutory rights are important.
Representations
6.4
Colbourne has the right to make written representations to the Authority. The Authority
will consider oral representations only in exceptional circumstances where it is determined
that prohibiting oral representations will impact upon the fairness of the decision. The
deadline for notifying the Authority that Colbourne wishes to make oral representations
and for providing written representations is 11 July 2022 .
Supervision, Policy and Competition Decision Making Secretariat
The Financial Conduct Authority
12 Endeavour Square
London
E20 1JN
Email: SPCDecisionMakingSecretariat@fca.org.uk
6.5
All written representations and any notification of a request to make oral representations
should also be copied to xxx@fca.org.uk.
The Tribunal
6.6
Colbourne has the right to refer the matter to which this First Supervisory Notice relates
to the Tribunal. The Tax and Chancery Chamber is 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, Colbourne has
28 days from the date on which this First Supervisory Notice is given to it to refer the
matter to the Tribunal.
6.7
A reference to the Tribunal can be made by way of a reference notice (Form FTC3) signed
by or on behalf of Colbourne and filed with a copy of this First Supervisory Notice. The
Tribunal’s contact details are: The Upper Tribunal, Tax and Chancery Chamber, 5th Floor,
Rolls Building, Fetter Lane, London EC4A 1NL (telephone: 020 7612 9730; email:
uttc@hmcts.gsi.gov.uk).
6.8
Further information on the Tribunal, including guidance and the relevant forms to
complete, can be found on the HM Courts and Tribunal Service website:
http://www.justice.gov.uk/forms/hmcts/tax-and-chancery-upper-tribunal
6.9
Colbourne should note that a copy of the reference notice (Form FTC3) must also be sent
to the Authority at the same time as a reference is filed with the Tribunal. A copy of the
reference notice should be sent to xxx@fca.org.uk at the Financial Conduct Authority, 12
Endeavour Square, London, E20 1JN.
Confidentiality and publicity
6.10 Colbourne should note that this First Supervisory Notice may contain confidential
information and should not be disclosed to a third party (except for the purpose of
obtaining legal advice on its contents).
6.11 Colbourne should note that section 391(5) of the Act requires the Authority, when the
First Supervisory Notice takes effect, to publish such information about the matter to
which the notice relates as it considers appropriate.
Authority contacts
6.12 For more information concerning this matter generally, contact xxx@fca.org.uk
6.13 Any questions regarding the Decision-Making procedures relevant to this FSN should be
directed to the Decision Making Secretariat by email:
[Signature]
Decision Made Under Executive Procedures
Annex
RELEVANT STATUTORY PROVISIONS
1.
The Authority’s operational objectives established in section 1B of the Act include securing
an appropriate degree of protection for consumers (section 1C).
2.
Section 20(1) of the Act provides that, if an authorised person carried on a regulated
activity otherwise than in accordance with its Part 4A permissions, it is taken to have
contravened a requirement imposed under the Act.
3.
Section 55L of the Act allows the Authority to impose a requirement on the Part 4A
permission of an authorised person if it appears to the Authority that the authorised person
is failing, or likely to fail to satisfy the Threshold Conditions (section 55L(2)(a)), or it is
desirable to exercise the power in order to advance one or more of the Authority’s
operational objectives (section 55LJ(2(c)). This power is referred to as the Authority’s own-
initiative requirement power.
4.
55P(4)(a) defines an Asset Requirement as a requirement imposed under section 55L
which prohibits the disposal of, or other dealing with, any of a Firm’s assets(whether in the
UK or elsewhere) or restricting such disposals or dealings.
5.
Section 55Y(3) of the Act allows a requirement imposed under the own-initiative
requirement power to take effect immediately (or on a specified date) if the Authority,
having regard to the ground on which it is exercising its own-initiative power, reasonably
considers that it is necessary for the requirement to take effect immediately (or on that
date).
6.
Section 391 of the Act provides that:
“[…]
(5) When a supervisory notice takes effect, the Authority must publish such
information about the matter to which the notice relates as it considers
appropriate.
(6) But the Authority may not publish information under this section if in its opinion,
publication of the information would, be unfair to the person with respect to whom
the action was taken or proposed to be taken [or] prejudicial to the interests of
consumers or detrimental to the stability of the UK financial system.
(7) Information is to be published under this section in such manner as the Authority
considers appropriate.”
RELEVANT REGULATORY PROVISIONS
The Threshold Conditions
7.
The section of the Handbook entitled ‘Threshold Conditions’ (COND) gives guidance on the
Threshold Conditions. COND 1.2.3G provides that the Authority may exercise its own-
initiative powers under either section 55J of the Act if, among other things, a firm is failing
to satisfy any of the Threshold Conditions or is likely to do so.
8.
COND 2.5.1AUK reflects the provisions of FSMA (Paragraph 2E to Schedule 6) to the effect
that a firm must be fit and proper having regard to all the circumstances. These can include
the nature of the firm’s connection with any person (COND 2.5.1AUK(1)(a) and the need
to ensure its affairs are conduct in an appropriate manner having regard to the needs of
consumers (COND 2.5.1AUK(c)) and whether the firm has complied and is complying with
the Authority’s requirements (COND 2.5.1AUK(1)(d).
9.
COND 2.5.4G provides 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, the Suitability Threshold Condition. These include, but are not limited to, whether
the firm conducts its business with integrity and in compliance with proper standards, has
a competent and prudent management and can demonstrate that it conducts its affairs
with the exercise of due skill, care and diligence.
The Enforcement Guide
10.
The Authority's approach in relation to its own-initiative powers is set out in Chapter 8 of
the Enforcement Guide (EG), certain provisions of which are summarised below.
11.
EG 8.1.1 reflects the provisions of section 55L of the Act by stating that the Authority may
use its own-initiative power to impose a variation on an authorised person where, amongst
other factors, the person is failing or is likely to fail to satisfy the threshold conditions for
which the Authority is responsible (EG 8.1.1(1)), or it is desirable to exercise the power in
order to advance one or more of its operational objectives (EG 8.1.1(3)).
12.
EG 8.2.1 states that when the Authority considers how it should deal with a concern about a
firm, it will have regard to its statutory objectives and the range of regulatory tools that
are available to it. It will also have regard to the principle that a restriction imposed on a
firm should be proportionate to the objectives the Authority is seeking to achieve (EG
8.2.1(2)).
13.
EG 8.2.3 states that in the course of its supervision and monitoring of a firm or as part of
an enforcement action, the Authority may make it clear that it expects the firm to take
certain steps to meet regulatory requirements. In the vast majority of cases the Authority
will seek to agree with a firm those steps the firm must take to address the Authority’s
concerns. However, where the Authority considers it appropriate to do so, it will exercise
its formal powers under section 55J of the Act to impose a variation to ensure such
requirements are met. This may include where, amongst other factors, the Authority has
serious concerns about a firm, or about the way its business is being or has been conducted
(EG 8.2.3(1)), or is concerned that the consequences of a firm not taking the desired steps
may be serious (EG 8.2.3(2)).
14.
EG 8.3.1 states that the Authority may impose a variation 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 powers.
15.
EG 8.3.2 states that the Authority will consider exercising its own-initiative power as a
matter of urgency where: 1) the information available to it indicates serious concerns about
the firm or its business that need to be addressed immediately; and 2) 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.
16.
EG 8.3.3 states that it is not possible to provide an exhaustive list of the situations that will
give rise to such serious concerns, but they are likely to include one or more of four listed
characteristics, these include, but are not limited to: 1) information indicating significant
loss, risk of loss or other adverse effects for consumers, where action is necessary to
protect their interests; 2) information indicating that a firm’s conduct has put it at risk of
being used for the purposes of financial crime, or of being otherwise involved in crime 3)
evidence that the firm has submitted to the Authority inaccurate or misleading information
so that the Authority becomes seriously concerned about the firm’s ability to meet its
regulatory obligations; 4) circumstances suggesting a serious problem within a firm or with
a firm’s controllers that calls into question the firm’s ability to continue to meet the
threshold conditions.
17.
EG 8.3.4 states that the Authority will consider the full circumstances of each case when it
decides whether an imposition of a variation is appropriate and sets out a non-exhaustive
list of factors the Authority may consider. EG 8.3.4(9) includes the impact that use of the
Authority’s own-initiative powers will have on the firm's business and on its customers.
The Authority will need to be satisfied that the impact of any use of the own-initiative
power is likely to be proportionate to the concerns being addressed, in the context of the
overall aim of achieving its statutory objectives.