FIRST SUPERVISORY NOTICE

To:
Dolfin Financial (UK) Limited

Address:
77 Coleman Street
London
EC2R 5BT
UNITED KINGDOM

1.
ACTION

1.1
For the reasons given in this First Supervisory Notice, and pursuant to section
55L(3)(a) of the Financial Services and Markets Act 2000 (“the Act”), the
Authority has decided to impose the requirements set out at paragraphs 1.1(1) to
1.1(14) below (“the Requirements”) on Dolfin Financial (UK) Limited (“Dolfin” or
the “Firm”) with immediate effect.

Restrictions on activities

1)
Dolfin (whether directly or through its agents) must not, without the prior
written consent of the Authority, carry on any regulated activities for which
it has a Part 4A permission, except as set out in sub-paragraph (2).

The published version of this notice has been redacted to avoid

identifying third parties who have not had an opportunity to make

representations about matters in the notice that are prejudicial to

them.

On 1 July 2021, all the requirements in paragraph 1.1 except

1.1(9) were cancelled following the appointment of Special

Administrators over Dolfin Financial (UK) Limited.

2)
Dolfin may continue to hold client money and safeguard and administer
custody assets held as at the date of these Requirements, or which Dolfin
has accepted or segregated in accordance with sub-paragraph (3).

3)
Sub-paragraph (1) does not apply to the receipt of new client money or
custody assets from, or on behalf of, existing clients by Dolfin as a result of
or in relation to the following:

a)
Receipt of dividends or coupons.

b)
Rights issues.

c)
Corporate actions including maturing bonds.

d)
Settlement of trades instructed but not settled as at the date of these
Requirements.

4)
Save as set out in sub-paragraph (3), Dolfin must not accept any new
client money or custody assets, whether from existing or new clients in
any of its business areas.

5)
Dolfin must not, without the prior written consent of the Authority,
recommence any regulated activities.

Assets requirement

6)
Save as set out in sub-paragraph (3)(d), Dolfin must not, without the
Authority’s prior written consent, take any action which has, or may have,
the effect of disposing of, withdrawing, transferring, dealing with or
diminishing the value of any of its own assets, or assets held for or on
behalf of others, including client money or custody assets.

7)
Dolfin may continue dealing with or disposing of any of its own assets
(whether in the UK or elsewhere) in the ordinary and proper course of
business provided that the sum or value of such dealings or disposals does
not exceed £900,000 per month. Dolfin may also spend, from its own
assets, a reasonable amount on reasonable legal expenses. For the
avoidance of doubt, the following would not be in the ordinary and proper
course of business for these purposes:

a)
The disposal, transfer or sale in whole or in part of Dolfin’s client
base.

b)
The making of any distribution to shareholders whether by way of
capital distribution or dividends.

c)
The payment of unusual or significant amounts to Dolfin’s
shareholders, directors, officers, employees or any connected
persons.

d)
The making of any gift or loan by Dolfin to any party.

e)
The entry into any financial reconstruction or reorganisation.

8)
Sub-paragraphs (6) and (7) are assets requirements within the meaning of
section 55P(4)(a) of the Act.

Retention and notification requirements

9)
Dolfin must secure all books and records and preserve all information and
systems in relation to regulated activities carried on by it, and must retain
these in a form and at a location within the UK, to be notified to the
Authority in writing by 19 March 2021, such that they (or, so as not to
hinder Dolfin’s performance of its business activities, true copies of them)
can be provided to the Authority, or to a person named by the Authority,
promptly on its request.

10)
By close of business on 19 March 2021, Dolfin must notify in writing:

a)
All its clients;

b)
All financial advisers which it knows or believes act as agents for its
clients;

c)
All platforms which Dolfin uses to manage or trade assets;

d)
The custodians of all assets managed by Dolfin; and

e)
The banks and custodians of all client money and custody assets held
by Dolfin

of the terms and effects of these Requirements. This must be in a form to
be agreed in advance with the Authority.

11)
By close of business on 16 March 2021, Dolfin must publish in a prominent
place on its website www.dolfin.com, in a form to be agreed in advance
with the Authority, a notice setting out the terms and effects of these
Requirements.

12)
Once the notifications referred to in sub-paragraph (10) have been made,
on 22 March 2021 Dolfin must provide to the Authority:

a)
Copies of the template notifications sent to all recipients referred to
in sub-paragraph (10).

b)
A list of all parties to whom notifications have been sent pursuant to
sub-paragraph (10).

c)
Confirmation that, to the best of its knowledge, Dolfin has sent
notifications pursuant to sub-paragraph (10) to all relevant parties.

13)
A person approved to perform a senior management function (“SMF”) at
Dolfin must send to the Authority by email by 12 noon every Friday, until
such time as it is notified otherwise in writing by the Authority, written
confirmation that Dolfin is in compliance with these Requirements.

14)
A person approved to perform a SMF at Dolfin must send to the Authority
by email, until such time as it is notified otherwise in writing by the

a)
By 12 noon every Friday (or the next business day should the Friday
fall on a Bank Holiday), copies of up to date statements of all
accounts held by Dolfin with financial institutions, whether in the UK
or elsewhere, and whether in respect of its own assets, client assets
or both, showing at least all transactions in the previous week and
the balances of the accounts.

b)
By 12 noon every Friday (or the next business day should the Friday
fall on a Bank Holiday), the client money reconciliations performed
for close of business the previous working day.

c)
By 12 noon on the first Friday (or the next business day should the
Friday fall on a Bank Holiday) of each calendar month, the custody
assets reconciliations.

1.2
These Requirements replace all other requirements imposed on Dolfin pursuant to
section 55L(5)(a) of the Act.

1.3
These Requirements take immediate effect and remain in force unless and until
varied or cancelled by the Authority (either on the application of Dolfin or of the
Authority’s own volition).

2.
REASONS FOR ACTION

2.1
The Authority has concluded, on the basis of the facts and matters described
below that it is necessary to exercise its power under section 55L(3)(a) of the
Act to impose the Requirements on Dolfin because it is failing, or is likely to fail,
to satisfy the Suitability Threshold Condition (paragraph 2E of Schedule 6 to the
Act), the Effective Supervision Threshold Condition (paragraph 2C of Schedule 6
to the Act) and the Appropriate Resources Threshold Condition (paragraph 2D of
Schedule 6 to the Act) and/or it is desirable in order to advance the Authority’s
operational objective of protecting and enhancing the integrity of the UK
financial system (section 1D of the Act).

2.2
The Authority has identified serious concerns relating to Dolfin in that it appears
to have:

1)
Operated a scheme designed to enable its clients to obtain a Tier 1
investor visa in breach of the Immigration Rules and therefore unlawfully.
In the course of this business, it appears that Dolfin has dishonestly or
recklessly made false or misleading representations to the Home Office
that its clients who were applicants for a Tier 1 investor visa met the
requirements under the Immigration Rules to invest a minimum of £2
million in UK businesses.

2)
Breached Principles 1 (Integrity) and 11 (Relations with regulators) of the
Authority’s Principles for Businesses:

a)
Dolfin provided incomplete and misleading information to the
Authority about its Tier 1 investor visa business, both when it was
first
contacted
by
Supervision
about
this
business
in

November/December 2019 and when providing its initial response to

an information requirement sent for the purposes of an Enforcement
investigation in July 2020.

b)
Dolfin also sought to mislead the Authority in February and April
2020 as to the purported legitimacy of its Tier 1 investor visa
business by sharing with the Authority legal advice which Dolfin had
obtained from a firm of solicitors on the basis of incomplete
information and which was therefore misleading.

c)
When asked in April 2020 about its connections with an ultra-high-
net-worth individual client (“the HNW Client”), in the light of reports
that he had been made subject to an Unexplained Wealth Order,
Dolfin dishonestly or recklessly provided misleading information to
the Authority by stating that the HNW Client had not undertaken any
transactions on his account for twelve months. The Authority has
since discovered that while that may have been the case, it did not
reveal the true nature of Dolfin’s significant and ongoing connections
with the HNW Client, his family and his broader business interests.
Moreover, Dolfin was specifically aware that its association with the
HNW Client could have a significant adverse impact on its reputation,
but it did not inform the Authority of that concern.

3)
An inadequate financial crime control framework. A recent section 166
skilled person review (“section 166 review”) has found material deficiencies
in relation to Dolfin’s onboarding and financial crime controls which led the
skilled person to make a significant number of recommendations to be
addressed as a high priority.

4)
A business model which involves a high level of money laundering risk as a
result of its high-risk client base and a prevalence of red flag transactions.
This has resulted in two banks terminating their banking relationships with
Dolfin.

5)
Inadequate non-financial resources on the basis that Dolfin has been
unable to successfully identify, recruit and retain suitable individuals in key
roles. In particular, in December 2020 Dolfin’s replacement Chief Executive
Officer (“CEO”) resigned at short notice and Dolfin dismissed its newly
appointed Money Laundering Reporting Officer (“MLRO”) such that, at the
present time, it does not have a permanent CEO or MLRO in place.
Furthermore, there has been additional staff turnover in
Dolfin’s

compliance department. The section 166 review also raised concerns as to
the ability of Dolfin’s compliance resource to ensure that the Firm is
compliant with its obligations.

2.3
The Authority considers that imposition of the Requirements should take
immediate effect, in particular, because the matters which are the subject of this
First Supervisory Notice demonstrate that Dolfin presents an immediate and
ongoing risk on the basis that:

1)
Through its Tier 1 investor visa business, Dolfin has knowingly or
recklessly promoted and facilitated unlawful activity.

2)
It appears that Dolfin has deliberately submitted false information in an
attempt to mislead both the Home Office and the Authority, raising serious

;

concerns about its suitability to conduct regulated activities.

3)
Dolfin’s inadequate financial crime framework coupled with its inherently
high-risk business model gives rise to an unacceptable risk of the Firm
being used for the purposes of financial crime.

4)
For the reasons set out in this First Supervisory Notice, there are serious
concerns in relation to the propriety of
that call into

question the Firm’s ability to continue to meet the Threshold Conditions.

3.
DEFINITIONS

3.1
The definitions below are used in this First Supervisory Notice:

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

“AML” means anti-money laundering;

“the Authority” means the Financial Conduct Authority;

“the Bank A investigation report” means the report provided by Bank A to the
Authority on the outcome of its investigation into transactions carried out on
Dolfin’s account;

“CASS” means client money and custody assets;

“CEO” means Chief Executive Officer;

“CTF” means counter terrorist financing;

“Conflicted securities” means bonds which were issued by companies that Dolfin
or its directors had an interest in;

“Dolfin” or the “Firm” means Dolfin Financial (UK) Limited;

“Dolfin Group” means the global group of companies

;

“EDD” means enhanced due diligence;

“Enforcement” means the Authority’s Enforcement and Market Oversight
Division;

“Handbook” means the Authority’s online handbook of rules and guidance (as in
force from time to time);

“HNW Client” means the ultra-high-net-worth individual client who was subject
to an Unexplained Wealth Order;

“KYB” means know your business;

“KYC” means know your customer

“MLRO” means Money Laundering Reporting Officer;

“the NCA” means the National Crime Agency;

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

“Requirements” means the terms imposed on the Firm by this First Supervisory
Notice as outlined in section 1 above;

“section 166 final report” means the report delivered by the skilled person in
October 2020;

“section 166 review” means the review by the skilled person appointed under
section 166 of the Act;

“SMF” means senior management function;

“SoF” means source of funds;

“SoW” means source of wealth;

“SPV” means special purpose vehicle;

“Supervision” means the Authority’s Supervision Division;

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

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

“UBO” means ultimate beneficial owner;

“UWO” means Unexplained Wealth Order;

“Visa loan business” means the complex funding scheme involving loans to Tier
1 investor visa clients via Dolfin connected companies registered in offshore
jurisdictions;

“VREQ” means voluntary requirements imposed on the Firm following an
application by the Firm under section 55L(5)(a) of the Act.

4.
FACTS AND MATTERS

4.1
Dolfin is part of a global group of companies

. Dolfin is the only UK

authorised person within the Group; it was incorporated on 5 November 2010
and has been authorised since 25 October 2011.

4.2
Dolfin is a financial services firm that provides custody, brokerage and asset
management services to private clients, financial advisers and institutional
investors in respect of a range of investment securities such as bonds,
commodities, currencies, derivatives, funds and shares. Dolfin also provides a
Tier 1 investor visa service. This involves assisting clients with Home Office
requirements to obtain a Tier 1 investor visa, which requires at least £2 million
to be invested by the client into active and trading UK companies. Dolfin’s clients
are based in the UK and overseas locations, including China, the Middle East and
Russia.

4.3
Approximately 80% of Dolfin’s clients are retail investors with the remainder
being professional investors. Dolfin’s retail investors are predominately high net
worth individuals.

4.4
Dolfin currently has no permanent CEO or MLRO in place following the
resignation of its SMF1 Chief Executive/SMF3 Executive Director designate on 8
December 2020 after eight months in those roles and the dismissal of its SMF17
MLRO designate after two months in this role on 11 December 2020.

4.6
Despite having no formal position on the executive board, it is apparent that

has the ability to exercise a significant influence over Dolfin’s

activities, as follows:

2)
A Liechtenstein foundation, of which
his children are the beneficiaries,
shareholding in

is the founder and

is known to have had a 62.8%

.

3)
A letter from Dolfin to Supervision on 23 July 2020 described

as “the holder of the majority economic interest”.

6)
Dolfin is reliant on ongoing financial support from

to meet its regulatory capital

obligations. In this regard, on 14 September 2020 Dolfin entered into an

agreement with
for the subscription of up to £6

million of capital in the form of convertible non-voting shares, of which £2
million was subscribed for in September 2020.

Dolfin’s regulatory history

Conflicts of interest

4.7
Supervision first identified significant concerns with Dolfin following supervisory
work in November 2019 that reviewed its Tier 1 investor visa business and
management of conflicts of interest. The crux of Supervision’s concerns related
to the fact that Dolfin had distributed a large number of conflicted securities
predominately to its Tier 1 investor visa clients on an execution only basis.

4.8
In light of these concerns, Supervision invited Dolfin to apply for a VREQ. Dolfin
and Supervision negotiated the terms of that VREQ, ultimately agreeing that it
should require Dolfin to: not accept new Tier 1 investor visa clients, except on a
discretionary basis, and to cease distributing conflicted securities. Dolfin agreed
and applied for the VREQ on 19 December 2019, and its application was granted
that day.

4.9
An Enforcement investigation was subsequently opened into Dolfin

. The

initial scope of the investigation into Dolfin focused on whether it had failed to
take appropriate steps to properly identify and manage conflicts of interest in
relation to the conflicted securities in which Dolfin
had an

interest, and in which clients invested as part of the Tier 1 investor visa scheme.
It also included investigating whether the Tier 1 investor visa business model
had been recklessly or intentionally set up for Dolfin’s benefit without regard to
the risks to its clients as a result of the conflicts of interest. At the outset, the
core concern was that Dolfin may have been “mis-selling” the conflicted
securities to its Tier 1 investor visa clients.

4.10
As explained below, the Enforcement investigation has since discovered, over
and above the conflicts of interest concerns, that Dolfin appears to have
operated a scheme designed to enable its clients to obtain a Tier 1 investor visa
whilst circumventing the financial thresholds in the Immigration Rules. In fact,
the sale of the conflicted securities was a part of this scheme whereby Dolfin
arranged for its clients to obtain Tier 1 investor visas, typically at a cost of
£400,000, without having to invest the full £2 million as stipulated in the
Immigration Rules.

CASS review

4.11
Separately in November 2019, Supervision conducted a supervisory visit to
Dolfin to review its CASS arrangements. The visit did not identify a shortfall in
any client money or custody assets but found a number of weaknesses and long-
standing errors in Dolfin’s CASS controls.

4.12
Supervision informed Dolfin that it would be required to commission a section
166 review of its CASS controls.

Financial crime controls

4.13
Supervision undertook further supervisory work in March and April 2020 to
review the financial crime checks Dolfin completed when onboarding clients. As a
result, Supervision wrote to Dolfin on 16 April 2020 setting out its concerns
about Dolfin’s financial crime systems and controls. The letter from Supervision
also referred to Dolfin’s apparent failure to notify the Authority of certain
material matters. In light of the concerns raised, Supervision invited Dolfin to
apply for a further VREQ to cease all regulated activities and to restrict its assets
on the basis that it was considered to be failing to satisfy the Suitability
Threshold Condition.

4.14
Dolfin responded to Supervision by letter dated 30 April 2020, in which it
declined to apply for the VREQ. Dolfin argued that its financial crime controls
were adequate and that it had not failed to notify the Authority of material
issues. However, to address Supervision’s concerns, Dolfin explained that it was
undertaking a major change to its management and ownership structure

4.15
On 2 June 2020, Supervision confirmed that it did not intend to seek to impose a
requirement on Dolfin to cease all regulated activities in light of the information
the Firm had provided, the remedial work it had undertaken and its proposed
restructuring. However, to provide independent assurance that Dolfin had fully
identified any weaknesses and effectively addressed them, Supervision required
Dolfin to commission a wide-ranging section 166 review to cover Dolfin’s CASS
arrangements, conflicts of interest controls, financial crime control framework,
governance and oversight and wind-down planning. Supervision explained that it
would use the findings of the section 166 review and Enforcement investigation
to determine on an ongoing basis whether to revisit the case for seeking further
restrictions on Dolfin’s activities.

4.16
The section 166 final report delivered in October 2020 provided further details of

share capital consisted of 15,390,001 ordinary shares. Post-merger, Dolfin
would have a share capital divided into three share classes:

4.17
Under the proposed new ownership and control structure:

. The report stated that Dolfin’s current

.

r

t

Failings and risks identified

Tier 1 investor visa business

4.20
The Immigration Rules1 require a Tier 1 investor visa applicant to:

1)
Invest not less than £2 million of their own money, under their control, in
UK Government bonds, or in the share capital or loan capital of active and
trading UK registered companies; and

2)
Maintain that investment for the whole of the period of their leave to
remain in the UK.

4.21
Dolfin appears to have facilitated an arrangement for its Tier 1 investor visa
clients to obtain a visa with only £400,000 of their own funds, instead of £2
million. Dolfin provided the remaining £1.6 million to its Tier 1 investor visa
clients through a complex funding scheme involving loans via Dolfin connected
companies registered in offshore jurisdictions. The Tier 1 investor visa clients
would then purchase £2 million in conflicted securities from Dolfin connected
companies, however, in reality, this was not in the manner of a genuine

1 Immigration Rules, Part 6A (paragraphs 245E to 245EF) and Appendix A (paragraphs 54-65 and Table 8A)

investment. Nonetheless, it enabled Dolfin to make false or misleading
representations to the Home Office that its Tier 1 investor visa clients had
invested £2 million in qualifying investments and were compliant with the
Immigration Rules, when this was not in fact the case.

4.22
As part of the Enforcement investigation, Dolfin was asked to give a presentation
on its Tier 1 investor visa offering and, by an information requirement dated 28
May 2020, to provide a narrative of its Tier 1 investor visa business model with
copies
of
contemporaneous
supporting
documentation.
In
its
various

representations at this time, Dolfin made no reference to the visa loan business
which enabled its Tier 1 investor visa clients to obtain a visa by paying only
£400,000 of their own funds, and it did not provide any of the transactional
documents implementing this arrangement. On 27 January 2021, some eight
months later, Dolfin provided supplemental information which detailed these
financing arrangements and further stated that the majority of its execution-only
Tier 1 investor visa clients had used them. However, this supplemental response
did not comment on the legality of the arrangements or provide any underlying
documentation.

4.23
Dolfin also sought and obtained retrospective legal advice on its Tier 1 investor
visa business purportedly to demonstrate compliance with the Immigration
Rules. However, the legal advice that Dolfin obtained was based on incomplete
information in that it made no reference to the visa loan business. This led to a
material misunderstanding on the part of Dolfin’s lawyers who do not appear to
have been sighted on the true nature of the arrangements.

Promotion and set-up of the Tier 1 investor visa business

4.24
Dolfin began offering a range of wealth management services to high-net-worth
individuals and institutional investors in 2013. Dolfin’s view was that investment
services based on a Tier 1 investor visa offering would provide an attractive
route into the Chinese market.

4.25
Draft promotional materials for the visa loan business which were circulated
between
and another Dolfin employee in November 2016

presented two options for a prospective Tier 1 investor visa client, as follows:

1) Option 1 stated “You invest £2 million, we give you back £1.6 million … This

way you get your invested funds back at your disposal (minus our £400,000
service fee).” In effect, the client would open a personal execution-only
account with Dolfin and through it purchase £2 million in conflicted
securities from a Dolfin connected company. This would result in the client’s
personal account with Dolfin reflecting a £2 million investment. A Dolfin
connected company would then transfer £1.6 million to an account held by
the client’s offshore SPV with Dolfin.

2) Option 2 stated “You only invest £400,000.00 … Your investment of

£400,000.00 is non-refundable and is held by us as a commission for our
services”. In effect, the client would open a personal execution-only account
with Dolfin and transfer £400,000 into it. Dolfin would then “help you fund
your account up to £2 million” and invest this in conflicted securities. Once
again, this would result in the client’s personal account with Dolfin reflecting
a £2 million investment.

Transactional structure of the visa loan business

4.26
The methods by which Dolfin helped its Tier 1 investor visa clients to appear to
invest £2 million of their own funds took on different iterations. In its
supplemental response of 27 January 2021, Dolfin set out five options whereby
it had helped clients to finance their Tier 1 visa “investment”, all designed to
enable the Tier 1 investor visa client to make a net contribution (of varying
amounts) significantly below that required to be invested under the Immigration
Rules:

1)
The “Gold” service involves the client contributing £400,000 and being
financed with the remaining £1.6 million.

2)
The “Jade” service involves the client paying £2 million into their account
with £1.6 million of that contribution being returned within a short period
(about a week).

3)
The “Silver” service involves the client contributing £1 million and being
financed with the remaining £1 million with £950,000 being returned to the
client after five years.

4)
The “Platinum” service involves the client contributing £2 million and being
financed with £3 million with £1.9 million being returned to the client after
three years.

5)
The “Palladium” service involves the client contributing £3 million and
being financed with £7 milion with £2.85 million being returned to the
client after three years.

4.27
The supplemental response described the “Gold” service as having the following
features:

1)
An SPV is set up, typically in the BVI. A relative of the Tier 1 investor visa
client is appointed as the sole director and SPV ultimate beneficial owner.

2)
The SPV borrows £1.6 million of bonds issued by a Dolfin connected
company under a promissory note.

3)
The SPV sells the £1.6 million of bonds to another Dolfin connected
company for £1.6 million in cash.

4)
The SPV UBO, in their capacity as the sole director, declares a dividend of
£1.6 million and this is paid to the SPV UBO.

5)
The SPV UBO transfers the £1.6 million received as a dividend to the Tier 1
investor visa client under a deed of gift. This amount is credited to the
account of the Tier 1 investor visa client with Dolfin.

6)
The Tier 1 investor visa client contributes £400,000 of their own funds to
their account with Dolfin.

7)
The Tier 1 investor visa client gives Dolfin instructions to use the £2 million
in their account to purchase conflicted securities from a Dolfin connected
company.

4.28
The “Jade” service is described as having the following features in the
supplemental response:

1)
The Tier 1 investor visa client contributes £2 million into their account with
Dolfin and purchases conflicted securities from a Dolfin connected
company, as per step 7 of the “Gold” service.

2)
An SPV is set up and the same process as in steps 1 to 4 of the “Gold”
service is followed so that the SPV UBO will hold £1.6 million in cash. The
SPV UBO then makes a gift of the £1.6 million to the Tier 1 investor visa
client’s personal bank account. In this way, £1.6 million of the £2 million
contributed is returned to the client within a short period.

4.29
The description of the “Gold” service corresponds with “Option 2” in the
promotional materials and the description of the “Jade” service corresponds with
“Option 1”.

4.30
According to Dolfin’s supplemental response dated 27 January 2021, there were
97 clients who used its visa loan business to obtain a Tier 1 investor visa. The
letter stated that 77 clients used the “Gold” service or entered into transactions
which resembled those of the “Gold” service, seven clients used the “Silver”
service, two clients used the “Platinum” service, two clients used the “Palladium”
service and nine clients used the “Jade” service.

Fund flow analysis

4.31
The Enforcement investigation has found that the issuers of the conflicted
securities did not receive the vast majority of the proceeds from the sale of their
bonds (most of which were recycled through Dolfin connected companies to new
Tier 1 investor visa clients). The issuers appear to have simply been a
component in the visa loan business in order to give the impression that £2
million had been invested. In reality, in the most common scenario and as per
the Gold and Jade services, the Tier 1 investor visa clients paid a £400,000 fee
to Dolfin and there was no genuine investment in UK trading companies.

Legal advice obtained by Dolfin

4.32
In response to Supervision’s concerns, Dolfin sought legal advice about its Tier 1
investor visa business from a firm of immigration lawyers.

played a key role in formulating the information supplied to

Dolfin’s immigration lawyers.

4.33
The legal advice provided on 21 February 2020, which Dolfin shared with the
Authority on a limited waiver of privilege basis, related to the purported
compliance of the Tier 1 investor visa business with certain aspects of the
Immigration Rules. However, in being tasked with providing this focused advice,
it does not appear that Dolfin’s lawyers were informed about the true nature of
Dolfin’s Tier 1 investor visa business. In particular, the legal advice appears to
have been formulated without consideration of the visa loan business and it
makes no reference to this aspect of Dolfin’s Tier 1 investor visa business which
was clearly of central importance to whether Dolfin was compliant with the
Immigration Rules. Likewise, subsequent legal advice produced on 3 April 2020
and shared with the Authority on the same basis made no reference to the visa

loan business and, in addition, was based upon a misapprehension that the
consideration for the conflicted securities payable to the issuers of the conflicted
securities had been duly paid. However, analysis undertaken during the
Enforcement investigation shows that this was not the case.

Immigration Rules

4.34
The requirements for a Tier 1 investor visa applicant are set out in Part 6A and
Appendix A of the Immigration Rules.

4.35
Dolfin’s Tier 1 investor visa business appears to have been in contravention of
the Immigration Rules on various bases but primarily because:

1)
The arrangements did not, in reality, involve an investment of £2 million
but rather sought to enable the client to circumvent this obligation by
obtaining an investor visa for a fee of £400,000.

2)
As a result of the visa loan business, Dolfin’s clients did not provide the

3)
The conflicted securities were not a genuine investment opportunity as is
clear from the fact that the issuers of the conflicted securities did not
receive the vast majority of the proceeds from the sale of the conflicted
securities.

4.36
Section 25 of the Immigration Act 1971 provides that a person commits an
offence if he:

1)
Does an act which facilitates the commission of a breach of immigration
law by an individual who is not a citizen of the European Union;

2)
Knows or has reasonable cause for believing that the act facilitates the
commission of a breach or attempted breach of immigration law by the
individual; and

3)
Knows or has reasonable cause for believing that the individual is not a
citizen of the European Union.

4.37
In circumstances where it appears that Dolfin’s clients have breached
immigration law by obtaining a Tier 1 investor visa in a manner which
circumvents the minimum financial threshold for investment under the
Immigration Rules, Dolfin may have committed the section 25 offence. This is
on the basis that the Tier 1 investor visa business was so clearly unlikely to
comply with the Tier 1 investor visa requirements that Dolfin would appear to
have known, or at the very least had reasonable cause to believe, that it was
facilitating the commission of a breach.

Unexplained Wealth Order in relation to a Dolfin client

4.38
A Dolfin client who is an ultra-high-net-worth individual was issued with an
Unexplained Wealth Order by the NCA in 2019, which was first publicised in
early 2020. The HNW Client’s wife and various companies associated with him
were also clients of Dolfin.

requisite amount of their own money for investment purposes.

4.39
When Supervision asked Dolfin in April 2020 to explain why it had not
proactively notified the Authority about its connections to the HNW Client, in
light of the UWO, Dolfin explained that it had considered making a notification
but thought that it was unnecessary because no transactions had been made on
the HNW Client’s account in the preceding 12 months, so it had been deemed
dormant and closed. Moreover, Dolfin contended that news of the UWO would
not have had an adverse impact on Dolfin’s reputation in any event.

4.40
In fact, there was a significant amount of ongoing activity between Dolfin and
the HNW Client, his wife and their business interests, and Dolfin was acutely
aware of the risk of reputational damage deriving from the UWO. Dolfin’s
explanations were therefore misleading.

4.41
Upon the publication of the UWO, a journalist had contacted Dolfin, stating that
he planned to report on the UWO and offering Dolfin the opportunity to provide
any comments. Shortly thereafter, a second journalist sent an email to Dolfin
making further enquiries in relation to the UWO and the HNW Client.

4.42
and
were alert to the likely adverse reputational

impact on Dolfin should its connections to the HNW Client be publicised by the
journalists. As a result, after being contacted by the journalists, Dolfin engaged
a crisis management consultancy firm to prevent the publication of Dolfin’s
business links to the HNW Client. As a follow up action,
also asked

to instruct a Dolfin member of staff to delete any references

connecting them to the HNW Client from public registers.

Inadequate financial crime control framework

4.43
The section 166 final report in relation to Dolfin was delivered in October 2020.
The section 166 review assessed Dolfin’s governance and oversight framework,
conflicts of interest framework, CASS arrangements and recovery/wind down
plan, as well as its client onboarding and financial crime framework. The final
report made 103 recommendations for remedial work across the areas reviewed.

4.44
The recommendations are graded against a defined RAG status:

1)
Green: low priority – meaning the recommendation should be addressed
but there is not an immediate material issue.

2)
Amber: medium priority – meaning the recommendation if not addressed
has the potential to develop into a material issue.

3)
Red: high priority – meaning the recommendation identifies a material
issue which needs to be addressed.

4.45
A “material issue” was further defined as an issue that exposes Dolfin to
regulatory, reputational and/or operational risk that if not addressed has the
potential to expose it to regulatory criticism, financial loss, client complaints and
negative publicity.

4.46
Of the 103 recommendations, 25 are rated green, 57 as amber and 21 as red.
Dolfin’s
client
onboarding
and
financial
crime
framework
received
34

recommendations, of which one is rated green, 17 as amber and 16 as red. The

i

section 166 final report indicates that there are material issues with Dolfin’s
client onboarding and financial crime controls given that they received the
majority of the recommendations rated red and thus to be addressed as a high
priority, compared to the other areas reviewed.

4.47
As explained in further detail below, Dolfin appears to have a high-risk client
base and a prevalence of red flag transactions. For this reason, of the wide-
ranging issues identified by the section 166 review, the greatest concern relates
to the deficiency of controls designed to identify and mitigate risk in high-risk
customers, including the following:

1)
The ongoing EDD measures in the Firm’s AML/CTF Handbook in relation to
high-risk and complex clients are not clearly documented and Dolfin
applies the same ongoing monitoring approach for clients, regardless of
risk rating. This approach means that Dolfin cannot target resources to
high-risk clients.

2)
In a significant proportion of the files reviewed, the Source of Funds /
Source of Wealth evidence was not sufficient to truly demonstrate the
clients’ SoF/SoW and adhere to Dolfin’s policies. In this regard, the section
166 final report specifically noted that “Due to the high-risk nature of the
Firm’s clients, we would expect the files to contain evidence that clearly
demonstrates SoF and SoW to allow the Firm to be comfortable that funds
and wealth have been generated through legitimate means. We found
deficiencies in eight out of the 20 files (40%), where SoF or SoW has not
been sufficiently evidenced, as the file did not clearly evidence how an
individual’s or company’s assets or funds had been obtained.”

3)
The section 166 final report considered that the SoF and SoW deficiencies
found in the client files may be because Dolfin’s procedural documentation
is not completely clear and inconsistently applied, does not
have

supporting guidance for staff to follow and does not have a SoF and SoW
matrix, which can advise staff on the evidence that can and cannot be
accepted. As a result, the section 166 final report recommended, amongst
other things, that Dolfin should produce a SoF and SoW matrix outlining
the minimum required evidence as a high priority.

4.48
The section 166 review of Dolfin’s financial crime framework also included a
random sample of 20 client files of varying risk levels to assess its customer due
diligence and adherence to money laundering requirements. Each client file was
graded against a defined scoring methodology:

1)
Green: adequate – meaning the file meets the minimum regulatory
standard and amounted to good practice.

2)
Amber: deficient – meaning the file meets the minimum regulatory
standard but does not amount to good practice.

3)
Red: inadequate – meaning the file does not contain sufficient client due
diligence.

4.49
The client file review found only 15% (3 files) to be adequate, 45% (9 files) to
be deficient and 40% (8 files) to be inadequate. Themes noted from the client
files included, but are not limited to, the following:

1)
Incomplete proof of address documents being obtained for verification
purposes.

2)
The level of information obtained in respect of the nature and purpose for
opening an account with Dolfin varied significantly and impacted its
ongoing monitoring.

3)
SoF and SoW evidence collated was insufficient to provide comfort on how

an individual’s wealth or company’s assets/funds originated.

4)
Where clients were connected, there was no explanatory note on how they
were connected so making it difficult to understand their relationship.

4.50
The section 166 final report also noted material issues in respect of Dolfin’s
financial crime framework:

1)
Dolfin has no documented business wide risk assessment for financial crime.
Although financial crime risk is documented in Dolfin’s risk register, this is at
a very high level and does not breakdown the specific risks which Dolfin is
exposed to. Without a business wide financial crime risk assessment, it is
difficult for Dolfin to evidence that its policies, procedures and controls are
appropriate and in line with the inherent risks arising through the products
and services it provides, its clients and the overseas locations in which it
operates.

2)
Dolfin’s three lines of defence are not operating appropriately. Dolfin has not
documented how financial crime risk is managed across the three lines and
the MLRO is performing first line activities. This inhibits the independence of
the second line and results in lack of ownership of risk in the first line. The
MLRO also reports to the Head of Compliance instead of the CEO which is an
atypical structure.

3)
Dolfin’s financial crime policies and procedures are not sufficient. These are
high level without granular detail that fully describes or outlines the steps to
be taken when completing a process to ensure that all requirements are
met. This impacts the utility of the policies and would be likely to lead to
inconsistent application of procedures.

4)
In relation to screening, there was no documentation to explain why
potential alerts were discounted or true matches were accepted and when
they were approved by the appropriate management and/or committee.
There was also limited evidence of research carried out to verify information
provided by clients or screening results.

5)
Dolfin has no automated transaction monitoring system. All transactions are
monitored and approved manually by the MLRO against a number of pre-
determined criteria to identify and assess risks and trends. The manual
process gives rise to the risk of human error and the potential for Dolfin’s
policies and parameters to be applied incorrectly.

4.51
Dolfin is currently undertaking a file remediation programme. On 8 December
2020, Dolfin shared with Supervision its action plan with assigned owners and
completion dates to address all 103 recommendations. This plan indicated that

while most actions would be completed in Q1 2021, the file remediation
programme would not be completed until September 2021. In its latest update
to the Authority on progress, Dolfin indicated it had not yet completed
implementing four “Red” rated and two “Amber” rated actions in respect of its
financial crime framework. It indicated that these would be addressed as part of
its file review.

High-risk client base and prevalence of red flag transactions

4.52
Two banks have raised concerns about transactions on Dolfin’s accounts and
decided to end their banking relationship as a result. While some of these events
are historic, taken together they are reflective of a firm which has a high-risk
client base and a prevalence of red flag transactions. This is a matter of
particular concern when considered in conjunction with:

1)
The findings in the section 166 final report dated October 2020 which
identified material issues with Dolfin’s client onboarding and financial crime
controls.

2)
The departure of two key members of Dolfin’s new leadership team in
December 2020, the CEO designate and the MLRO designate (see below).

3)
The Authority’s concerns in relation to the integrity of

a scheme designed to enable its clients to obtain a Tier

1 investor visa in breach of the Immigration Rules.

Termination of relationship with Bank A

4.53
On 13 November 2019, Bank A notified Dolfin that further to an AML review, it
had identified a number of concerns and was reviewing the continuation of its
banking services to Dolfin. Bank A informed Dolfin that:

1)
Through monitoring Dolfin’s transactions, it had observed transactions which
were concerning and required further investigation.

2)
It was concerned about Dolfin’s delayed and lack of response to requests for
information in relation to client transactions.

3)
Dolfin needed to conduct a full KYC review and provide a third-party audit
that met Bank A’s prescribed standards.

4.54
Bank A subsequently informed Dolfin of its decision to close its accounts on 5
March 2020. Bank A informed the Authority on 9 March 2020 that its reasons for
ending its relationship with Dolfin included the following:

1)
Dolfin’s connection with the HNW Client who was, at that time, under NCA
investigation and subject to an UWO.

2)
Dolfin conducting significant business with high risk jurisdictions including
Kazakhstan, Russia, China, Turkey and Lebanon.

3)
Dolfin appearing to act as a correspondent bank rather than as an
investment consulting business.

4)
Dolfin not being forthcoming about its ownership structure.

5)
Dolfin’s involvement in a large number of transactions involving Singapore-
based shell companies.

6)
A number of Dolfin’s transactions appearing not to have any business or
economic rationale.

7)
Dolfin’s involvement in litigation where allegations had been made that

funds obtained by fraudulent activity had passed through it accounts.

4.55
Bank A also provided the Authority with the outcome of its investigation into
transactions carried out on Dolfin’s account.

4.56
The Bank A investigation report made reference to a large number of payments
to Singapore-based shell companies over an 18-months period from June 2018
to December 2019, as follows: (a) payments totalling USD $70.4211 million to
Singapore Shell Company A; and (b) payments totalling USD $1.878 million to
Singapore Shell Company B. The Enforcement investigation has identified that a
Dolfin connected company, owned by

, was involved in making payments to the

Singapore-based shell companies, as follows:

1)
It paid USD $6.975 million to Singapore Shell Company A over the period
21 May to 17 June 2019.

2)
It paid USD $12.86 million to Singapore Shell Company B over the period
21 June to 12 September 2019.

4.57
Transaction descriptions indicate that the payments to both these companies
were purportedly in furtherance of loan agreements. However, it is apparent that
the payments were often made within a few days of the sale of bonds in a
similar amount by an entity connected to Dolfin.

4.58
The Bank A investigation report also referred to the fact that circa 10% of the
overall turnover through Dolfin’s accounts with Bank A was with high-risk
jurisdictions, in particular, Russia, Kazakhstan and China.

4.59
On 6 April 2020, Bank A notified the Authority that Dolfin was transferring all
funds from its accounts to accounts at Bank B.

4.60
On 13 July 2020, Bank A informed the Authority that it had also ended its
banking relationship with a Dolfin connected company in respect of which

Termination of relationship with Bank B

4.61
On 16 December 2020, Bank B informed the Authority that it had taken urgent
action to suspend over 20 Dolfin accounts holding circa £100 million. Bank B
explained that the decision was made following a KYB review of transactions
undertaken by Dolfin between November 2019 and October 2020. The KYB
review identified an unusual prevalence of payments involving individuals and
entities from high-risk jurisdictions, with many apparently engaged in high-risk

industries and/or making use of complex corporate structures, leading to
significant concerns that Dolfin’s client accounts contained the proceeds of
crime.

4.62
Bank B subsequently provided the Authority with details of four transactions
which were illustrative of its concerns, occurring between 7 November 2019 and
30 July 2020, as described below. Bank B stated that the transactions were
examples of many others with similar characteristics that it had identified.

4.63
On 20 January 2021, Bank B gave formal notification to Dolfin that further to an
EDD review of Dolfin’s business, it had decided to withdraw the provision of
banking facilities to Dolfin. Bank B explained its reasons for ending their banking
relationship as follows:

1)
The EDD review identified that the risk profile of Dolfin’s business had
increased significantly since the banking relationship started in 2014 due to
the proportion and type of its clients based overseas. Bank B stated that it
also had ongoing concerns with the high-risk nature of Dolfin’s client base.

2)
This change in Dolfin’s business model resulted in certain, more complex,
transactional flows through Bank B.

3)
Dolfin’s business model, which was almost exclusively a UK business, had
now shifted to one that was predominantly focused overseas.

4)
Given its UK focus, Bank B was not best placed to provide the additional
and intensive monitoring that Dolfin’s ongoing transactional flows required.

5)
Dolfin’s business model and activities were not compatible with Bank B’s
risk appetite.

4.64
On 20 January 2021, Bank B also wrote to three Dolfin connected companies to
inform them that it would be ending its banking relationship with each of them.

Suspicious transaction 1: Dolfin Connected Company A and Counterparty A

4.65
On 7 November 2019, a payment of just under $1.9 million was made from the
Dolfin client account of Dolfin Connected Company A to Counterparty A,
apparently in respect of an “investment agreement in relation to real estate”.
Counterparty A was not a Dolfin client and its bank account, which received the
payment, was with a Kazakhstan bank.

4.66
Dolfin Connected Company A is registered in the Seychelles and has a client
account with Dolfin. It is 100% owned by a foundation of which

.

4.67
Counterparty A is a private limited company incorporated in Scotland with a
registered address in Edinburgh (32 other companies are also registered at the
same address, indicating that this is a mailbox address). Its sole director and
owner is an Azerbaijani national with a correspondence address in Azerbaijan.
According to Companies House records, its stated business includes “non-
specialised wholesale trade”, “other transportation support activities” and

.

“agents involved in the sale of a variety of goods”. Counterparty A has to date
filed accounts for a dormant company.

4.68
The transaction raised red flags because it involved a Seychelles registered
company, controlled by
, engaging in real estate investment

with a dormant Scottish company, that ostensibly carried on wholesale trade,
sale of goods and transportation support activities, which operates from a
mailbox address with an Azerbaijani owner and a Kazakh bank account.

Suspicious transactions 2 to 4: Dolfin Client A, Counterparty B and Ukrainian
Mining Company C

4.69
Dolfin Client A was the only Dolfin client involved in suspicious transactions 2 to
4 in the context of which substantial payments were made between Dolfin Client
A, Counterparty B and Ukrainian Mining Company C, ostensibly in furtherance of
a shipping contract.

4.70
Dolfin Client A is a BVI registered company and apparently a shipping
consultancy operating in Ukraine. There is some indication from material in the
public domain that Dolfin Client A is involved in shipping for Ukrainian Mining
Company C.

4.72
On 26 November 2019, Dolfin Client A paid $3.024 million from its account with
Dolfin to Counterparty B’s Swiss bank account. On 11 March 2020, Dolfin Client
A’s account with Dolfin received $3.089 million from Ukrainian Mining Company
C. On 30 July 2020, Dolfin Client A made a final outgoing payment from its
account with Dolfin to its Swiss bank account. Dolfin Client A’s account at Dolfin
was then closed with no further explanation.

4.73
Counterparty B is a Scottish limited partnership operating from a rented mailbox
address. It has no registered business or partners but the person with significant
control is listed as a Moldovan national with a correspondence address in
Moldova. Counterparty B’s website claims that it has connections with Ukraine
and is primarily engaged in marketing, buying and the wholesale of grain.

4.74
Although there appears to be public information to suggest a relationship
between Ukrainian Mining Company C and Dolfin Client A, the engagement of
Counterparty C by Dolfin Client A to charter a cargo vessel on behalf of a
Ukrainian mining and metals group, itself owned by an individual subject to
adverse media, raises multiple red flags. This is on the basis that Counterparty C
is controlled by a Moldovan national, its business ostensibly involves trading in
grain and it operates from a rented mailbox address. The involvement of a
Scottish limited partnership in the transaction is also a cause for concern due to
reports that this is a common vehicle used to launder money in the UK by
nationals from the former Soviet Union.

Further suspicious transactions involving Conflicted Securities Issuer 1

Ukrainian Mining Company C is a Switzerland incorporated company and part of
a Ukrainian mining and metals group.

.

4.75
The Enforcement investigation has identified a number of additional transactions
involving Conflicted Securities Issuer 1 which appear to be of a suspicious
nature.

i) Loan to Counterparty C

4.76
Conflicted Securities Issuer 1 issued a proportion of the conflicted securities
which were sold to Dolfin’s Tier 1 investor visa clients. According to its only set
of filed accounts, it was incorporated in 2017 to provide financial data to its
clients using financial data distribution technology. One of the two directors and
the ultimate beneficial owner of Conflicted Securities Issuer 1 was also the
director of one of Dolfin’s largest clients and Dolfin Connected Company B, which
is controlled by
.

4.77
On 7 April 2020, Dolfin Connected Company B’s account with Dolfin received
EUR 5.5 million from its client account held with a Dolfin group company. On the
same date, Dolfin Connected Company B paid EUR 5.5 million to Conflicted
Securities Issuer 1’s account at Dolfin. On 8 April 2020, Conflicted Securities
Issuer 1 made an external payment of EUR 5.5 million to Counterparty C, a
company registered in Hungary. Emails between the director and ultimate
beneficial owner of Conflicted Securities Issuer 1 and the director and sole
shareholder of Counterparty C stated that the purpose of the payment was to
provide a one-year bridging loan of EUR 5.5 million to Counterparty C.

4.78
Counterparty C’s Business Plan Overview, which was provided to Conflicted
Securities Issuer 1 on 3 April 2020, stated that Counterparty C was involved in
vessel crane installation on offshore wind farms. The Business Plan Overview did
not provide any specific financial information in relation to either Counterparty C
or the project summarised but focused on the offshore wind market in general
terms.

4.79
A few days after receiving the Business Plan Overview, Conflicted Securities
Issuer 1 agreed to provide the bridging loan and, on the same date, a
promissory note was issued by Counterparty C which provided that Conflicted
Securities Issuer 1 would pay EUR 5.5 million unsecured to Counterparty C on 8
April 2020, to be repaid on 7 April 2021 with an interest rate of 37.8%. On 8
April 2020, the director and ultimate beneficial owner of Conflicted Securities
Issuer 1 instructed Dolfin to make the payment from Conflicted Securities Issuer
1 to Counterparty C, which was transferred on that date.

4.80
The Enforcement investigation identified this transaction as being of a suspicious
nature on the basis that the purported purpose of the bridging loan was for
investment in activities related to offshore wind farms, which did not appear to
bear any resemblance to Conflicted Securities Issuer 1’s area of activity.
Moreover, there appeared to have been minimal due diligence undertaken in
relation to the transaction, in particular, in relation to the level of credit risk
involved and/or the viability of both Counterparty C generally and the specific
project summarised in the Business Plan Overview.

ii) Payments to Hong Kong companies

4.81
There were also numerous payments totalling USD $35.376 million in the first
half of 2019 from Conflicted Securities Issuer 1’s account with Dolfin to Hong

Kong incorporated companies.

4.82
Invoices show that these payments were ostensibly for purchasing items such as
clothes, textiles, printers,
concrete
mixers and equipment
for mining

cryptocurrency. The Hong Kong companies were newly incorporated (over the
period 2016 to 2019) and a number have since been dissolved or become
dormant. Conflicted Securities Issuer 1 primarily made these payments out of
monies received from a BVI company from the sale of bonds in a Dolfin
connected company owned by
.

4.83
The transactions raise a number of red flags as they involved Conflicted
Securities Issuer 1 making a significant volume of payments to Hong Kong
companies that were newly incorporated and had little to no online presence.
Furthermore, invoices show that the payments were for products that do not
appear to have any relevance to Conflicted Securities Issuer 1’s area of activity.

Lack of appropriate non-financial resources

4.84
in April 2020, Dolfin appointed a

new CEO designate alongside a new Chairman designate to its new leadership
team. At the mid-management level, Dolfin appointed a new Head of
Compliance in November 2019, who was subsequently approved as SMF16
Compliance Oversight on 26 June 2020. Dolfin then appointed a new MLRO
designate in December 2019.

4.85
The section 166 review noted that staff at Dolfin appeared to have relevant
backgrounds, expertise, gravitas and knowledge to conduct their roles except for
the MLRO designate. The section 166 review concluded that the MLRO designate
lacked the seniority to ensure robust systems and controls were in place and this
resulted in some of the actions that were permitted under the previous
leadership team.

4.86
Dolfin subsequently informed Supervision on 23 September 2020 that the MLRO
designate had insufficient experience for the MLRO role and would be replaced,
after being in the role for nine months. A new candidate was appointed as the
replacement MLRO designate on 21 October 2020.

4.87
On 11 December 2020, Dolfin informed Supervision that two members of the
new leadership team had departed. It stated that the CEO designate had
resigned with immediate effect after eight months in the role on 8 December
2020 due to his lack of knowledge of the wealth management sector. Dolfin
stated that the Chairman designate, would take on the role of interim CEO until
a new appointment was made. Dolfin also confirmed that the replacement MLRO
had been dismissed after two months in role due to her failure to adapt to a firm
of Dolfin’s size and garner respect from her colleagues. It stated that the Head
of Compliance would act as the interim MLRO while Dolfin searched for a
permanent replacement.

4.88
The section 166 review made 34 recommendations for remedial work in relation
to Dolfin’s client onboarding and financial crime framework. According to Dolfin’s
action plan, the majority of the work to be completed in this area was assigned
to the MLRO. Dolfin has informed the Authority that the actions will also be
taken on by the Head of Compliance and the compliance function. During a call
with the Authority on 15 December 2020, Dolfin indicated that two junior

members of staff who had been recruited to bolster the compliance function
have also left the Firm.

4.89
The Authority is concerned that Dolfin’s compliance function is not able to
adequately address all of the recommendations from the section 166 review
within the timescales set out in the action plan. In this regard, the section 166
review noted that, while recent recruitment had enhanced the skill and
experience in the second line compliance and risk functions, compliance resource
was stretched and accordingly Dolfin should consider additional recruitment
given the number of priority recommendations in the financial crime function in
respect of strengthening controls.

5.
CONCLUSION

5.1
The regulatory provisions relevant to this First Supervisory Notice are set out in
the Annex.

Analysis of failings and risks

Tier 1 Investor Visa Business

5.2
Based on the facts and matters described above, Dolfin appears to have
conducted its Tier 1 investor visa business either dishonestly or recklessly, in
breach of Principle 1 (Integrity) of the Authority’s Principles for Businesses.

5.3
Dolfin appears to have operated a scheme designed to enable its clients to
obtain a Tier 1 investor visa in breach of the Immigration Rules and therefore
unlawfully. In effect, Dolfin’s Tier 1 investor visa business involved a series of
artificial transactions which were intended to give the impression that its clients
had invested £2 million, as required under the Immigration Rules, when this was
not in fact the case. Dolfin then made false or misleading representations to the
Home Office to the effect that its clients had satisfied the Immigration Rules by
investing the requisite amount in UK businesses.

5.4
Dolfin further appears to have breached Principles 1 (Integrity) and 11
(Relations with regulators) of the Authority’s Principles for Businesses on the
basis that:

1)
It provided incomplete and misleading information to the Authority about
its Tier 1 investor visa business, both when it was first contacted by
Supervision about this business in November/December 2019 and when
providing its initial response to an information requirement sent for the
purposes of an Enforcement investigation.

2)
It also sought to mislead the Authority as to the purported legitimacy of its
Tier 1 investor visa business by sharing with the Authority legal advice
which Dolfin had obtained from a firm of solicitors on the basis of
incomplete information and which was therefore misleading.

5.5
were instrumental in

setting up the Tier 1 investor visa business and

, also appears to have been involved, albeit to a lesser degree.

also played a key role in formulating the

partial information supplied to Dolfin’s immigration lawyers in order to obtain the
misleading legal advice which was subsequently provided to the Authority.

Unexplained Wealth Order in relation to Dolfin Client

5.6
Dolfin also appears to have failed to engage with the Authority in an open and
cooperative way in breach of Principle 11 (Relations with regulators) of the
Authority’s Principles for Businesses. This is on the basis that, as is apparent
from the facts and matters set out above, Dolfin had significant ongoing
connections to the HNW Client, his wife and their business interests. However, in
its communications with the Authority, Dolfin misleadingly suggested that it had
had no dealings with the HNW Client for over a year. Moreover,

were specifically aware that Dolfin’s association with the HNW

Client could have a significant adverse impact on its reputation, but this was not
communicated to the Authority.

5.7
This action on the part of Dolfin appears to have been deliberate and, as a
consequence, it therefore appears that Dolfin has acted dishonestly or recklessly
in its dealings with the Authority.

Financial crime controls

5.8
In addition, Dolfin appears to have an inadequate financial crime framework in
contravention of SYSC 6.1.1R and in breach of Principle 3 (Management and
control) of the Authority’s Principles for Businesses. In this regard, the recent
section 166 review has found material deficiencies in relation to Dolfin’s client
onboarding and financial crime control processes which led to a significant
number of recommendations to be addressed as a high priority.

5.9
This is a matter of particular concern given that Dolfin’s business model involves
a high level of money laundering risk as a result of its high-risk client base and a
prevalence of red flag transactions. In this regard, the high-risk nature of
Dolfin’s business has resulted in two banks terminating their banking
relationships with Dolfin. Consequently, Dolfin presents an unacceptable level of
risk that it may be used to facilitate financial crime.

Failure to satisfy the Threshold Conditions

Suitability Threshold Condition

5.10
Based on the facts and matters described above, the Authority considers that
Dolfin is failing, or likely to fail, to satisfy the Suitability Threshold Condition
(paragraph 2E of Schedule 6 to the Act) due to:

1)
The dishonest or reckless way in which it has conducted its Tier 1 investor
visa business which does not appear to comply with requirements imposed
upon it by the Authority or other agencies.

2)
Its failure to provide complete and not misleading information to the
Authority in response to information requirements about its Tier 1 investor
visa
business
when
it
was
contacted
by
Supervision
in

November/December 2019 and by Enforcement in May 2020, and in
sharing with the Authority legal advice that it had obtained from a firm of

solicitors in February and April 2020 based on incomplete information and
which was therefore misleading, in what appears to have been a breach of
Principles 1 (Integrity) and 11 (Relations with regulators) of the Authority’s
Principles for Businesses.

3)
Its provision of misleading explanations to the Authority when asked about
its connection to the HNW Client in the light of reports that he had been
made subject to an UWO and which it was aware could have a significant
impact on its reputation.

4)
Its ongoing connections with
dependence on capital injections by

.

, and its

5)
The increased level of financial crime risk it poses given the high-risk
nature of its business and the material issues within its client onboarding
and financial crime framework, particularly in light of the
influence of
on Dolfin’s business.

5.11
The Authority also considers that Dolfin is failing, or likely to fail, to satisfy the
Effective Supervision Threshold Condition (paragraph 2C of Schedule 6 to the
Act) because it is not capable of being effectively supervised by the Authority
due to the fact that:

5.12
COND 2.3.3 G provides that, in assessing the Effective Supervision Threshold
Condition, factors which the Authority will take into consideration include,
among other things, whether:

1)
It is likely that the Authority will receive adequate information from the firm,
and those persons with whom the firm has close links, to enable it to

determine whether the firm is complying with the requirements and
standards under the regulatory system and to identify and assess the
impact on its statutory objectives.

2)
The structure and geographical spread of the firm, the group to which it
belongs and other persons with whom the firm has close links, might hinder
the provision of adequate and reliable flows of information to the Authority.

Appropriate Resources Threshold Condition

5.13
The Authority also considers that Dolfin is failing, or is likely to fail, to satisfy the
Appropriate Resources Threshold Condition (paragraph 2D of Schedule to the
Act) because it lacks adequate personnel following the recent departure of its
CEO, MLRO and other compliance staff.

5.14
In light of Dolfin’s recent regulatory history, the fact that it is under Enforcement
investigation and the scale of remedial work arising from the section 166 review,
having suitably qualified individuals in senior management and compliance-
facing roles is particularly important. The absence of senior managers and
adequate compliance resources at Dolfin casts serious doubt over its ability to
deliver its remedial action plan and within the timescales set. Consequently, the
numerous deficiencies identified by the section 166 review, in particular those
relating to Dolfin’s inadequate financial crime framework, may not
be

remediated appropriately or within an acceptable timeframe.

The Authority’s operational objective of integrity

5.15
The Authority’s integrity objective requires the Authority to protect and enhance
the integrity of the UK financial system. This includes its soundness, stability and
resilience and not being used for a purpose connected with financial crime. It
appears that Dolfin has been involved in promoting and facilitating unlawful
conduct through its Tier 1 investor visa business. There are also very substantial
concerns about the inadequacy of Dolfin’s financial crime controls which are all
the more acute given the high level of money laundering risk inherent to its
business model and the lack of integrity with which it has conducted its dealings
with the Authority and its Tier 1 investor visa business. In short, the Authority
considers that there is an unacceptable level of risk that Dolfin may be used to
facilitate financial crime and accordingly imposing the Requirements will further
the integrity objective.

5.16
The Authority has concluded, in light of the matters set out above, that it is
necessary to exercise its own-initiative power under section 55L(3)(a) of the Act
by imposing the Requirements to stop the Dolfin conducting regulated activities
and prevent any dissipation of assets in order to protect the interests of
consumers.

5.17
The Authority considers that the Requirements are a proportionate and
appropriate means to address the current and immediate risks associated with
Dolfin, and are desirable in order to advance the FCA’s operational objective of
integrity.

Timing and duration of the Requirements

5.18
It is necessary to impose the Requirements on an urgent basis given the

seriousness of the risks associated with Dolfin and in accordance with EG 8.3.3
which provides that the Authority may impose a requirement so that it takes
effect immediately in situations which include one or more of the following
characteristics:

1)
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.

2)
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.

3)
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.

5.19
The Authority considers that it is necessary for the Requirements 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 Dolfin 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 by the RDC. The RDC is a committee of the Authority which takes
certain decisions on behalf of the Authority. The members of the RDC are
separate to the Authority staff involved in conducting investigations and
recommending action against firms and individuals. Further information about
the RDC can be found on the Authority’s website:

Representations

6.3
Dolfin has the right to make written and oral representations to the Authority
(whether or not it refers this matter to the Tribunal). The deadline for notifying
the Authority that Dolfin wishes to make oral representations and for providing
written representations is 30 March 2021 or such later date as may be permitted
by the Authority. The address for doing so is:

Jack Williams
Decision-Making Committees Secretariat
The Financial Conduct Authority
12 Endeavour Square
London
E20 1JN

The Tribunal

6.4
Dolfin 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, Dolfin has 28 days from the date on which this First
Supervisory Notice is given to it to refer the matter to the Tribunal.

6.5
A reference to the Tribunal can be made by way of a reference notice (Form
FTC3) signed by or on behalf of Dolfin and filed with a copy of this First
Supervisory Notice. The Tribunal’s contact details are: The Upper Tribunal, Tax
and Chancery Chamber, Fifth Floor, Rolls Building, Fetter Lane, London, EC4A 1NL
(telephone: 020 7612 9730; email: uttc@hmcts.gsi.gov.uk).

6.6
Further information on the Tribunal, including guidance and the relevant forms to
complete, can be found on the HM Courts and Tribunal Service website:

6.7
Dolfin 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 Lynn Duffy at the Financial Conduct
Authority, 12 Endeavour Square, London, E20 1JN, London, E14 5HS.

Confidentiality and Publicity

6.8
Dolfin 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 advice on its contents).

6.9
Dolfin should note that section 391 of the Act requires the Authority, when the
First Supervisory Notice takes effect, to publish such information about the matter
as it considers appropriate.

Authority contacts

6.10
For more information concerning this matter generally, contact Lynn Duffy,
Manager, Investment Intermediaries and Scams, Investment, Wholesale and
Specialist Supervision at the Authority (direct line: 0131 301 2002 or email:
lynn.duffy@fca.org.uk ).

6.11
Any questions regarding the procedures of the RDC should be directed to Jack
Williams in the Decision-Making Committees Secretariat (direct line: 020 7066
1610 or email: Jack.Williams@fca.org.uk).

Tim Parkes
Chair, Regulatory Decisions Committee

ANNEX A

RELEVANT STATUTORY PROVISIONS

1.
The Authority’s operational objectives established in section 1B of the Act include
protecting and enhancing the integrity of the UK financial system (section 1D).

2.
Section 55L of the Act allows the Authority to impose a new requirement, or to
vary a requirement previously imposed by the Authority under section 55L, on an
authorised person if it appears to the Authority that the authorised person is
failing, or is 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 55L(2)(c)). This power is referred to as
the Authority’s own-initiative requirement power.

3.
Section 55N of the Act allows a requirement to be imposed under section 55L of
the Act so as to require the person concerned to take specified action (section
55N(1)(a)) or to refrain from taking specified action (section 55N(1)(b)). Section
55N(2) provides that a requirement may extend to activities which are not
regulated activities.

4.
Pursuant to section 55P(4)(a) of the Act, an assets requirement means a
requirement prohibiting the disposal of, or other dealing with, any of the subject’s
assets (whether in the United Kingdom or elsewhere) or restricting such disposals
or dealings. If the Authority gives notice of such a requirement to any institution
with whom the subject has an account, the notice has the effects, for that
institution, set out in section 55P(6) of the Act.

5.
Section 55Y of the Act allows a requirement imposed under the own-initiative
requirement power to take effect immediately (or on a specified date) only if the
Authority, having regard to the ground on which it is exercising its own-initiative
requirement power, reasonably considers that it is necessary for the variation or
imposition of the requirement to take effect immediately (or on that date).
Section 391 of the Act provides that, when a supervisory notice takes effect, the
Authority must publish such information about the matter to which the notice
relates as it considers appropriate. However, the Authority may not publish
information 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.

6.
The Threshold Conditions represent the minimum standards which a firm is
required to satisfy, and continue to satisfy, in order to be given and to retain a
Part 4A Permission. They are set out in Part 1B of Schedule 6 to the Act.

7.
The Effective Supervision Threshold Condition in paragraph 2C of Schedule 6 to
the Act provides in relation to a person (“A”) that “A must be capable of being
effectively supervised by the [Authority] having regard to all the circumstances
including … if A has close links with another person (“CL”)”:

a)
the nature of the relationship between A and CL;

b)
whether those links are or that relationship is likely to prevent the
[Authority’s] effective supervision of A; and

c)
if CL is subject to the laws, regulations or administrative provisions of a
country or territory outside the United Kingdom (“the foreign provisions”),
whether those foreign provisions, or any deficiency in their enforcement,
would prevent the [Authority’s] effective supervision of A.

8.
The Appropriate Resources Threshold Condition in paragraph 2D of Schedule 6 to
the Act provides, in relation to a person (“A”) carrying on or seeking to carry on
regulated activities which do not consist of or include a PRA-regulated activity,
that:

“The resources of A must be appropriate in relation to the regulated
activities that A carries on or seeks to carry on.”

9.
The matters which are relevant in determining whether A has appropriate non-
financial resources include –

a)
The skills and experience of those who manage A’s affairs; […]

10.
The Suitability Threshold Condition in paragraph 2E of Schedule 6 to the Act
states that:

“A must be a fit and proper person having regard to all the circumstances,
including—

a)
A’s connection with any person;

b)
the nature (including the complexity) of the regulated activities that A
carries on or seeks to carry on;

c)
the need to ensure that A’s affairs are conducted in an appropriate manner,
having regard in particular to the interests of consumers and the integrity of
the UK financial system;

d)
whether A has complied and is complying with requirements imposed by
[the Authority] in the exercise of its functions, or requests made by [the
Authority], relating to the provision of information to [the Authority] and,
where A has so complied or is so complying, the manner of that compliance;

e)
whether those who manage A’s affairs have adequate skills and experience
and have acted and may be expected to act with probity;

f)
whether A’s 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;

RELEVANT REGULATORY PROVISIONS

The Principles for Businesses

11.
The Principles for Businesses (PRIN) are a general statement of the fundamental
obligations of firms under the regulatory system. PRIN 1.1.2R provides that they
derive their authority from the Authority’s rule-making powers as set out in the

Act and reflect the statutory objectives. The Principles are set out at PRIN 2.1.1,
and those which are of particular relevance to this Notice are:

Principle 1 provides that a firm must conduct its business with integrity.

Principle 3 provides that a firm must take reasonable care to organise and control
its affairs responsibly and effectively, with adequate risk management systems.

Principle 11 provides that a firm must deal with its regulators in an open and
cooperative way, and must disclose to the Authority appropriately anything
relating to the firm of which that regulator would reasonably expect notice.

Threshold Conditions

12.
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 or section 55L of
the Act if, among other things, a firm is failing to satisfy any of the Threshold
Conditions or is likely to do so.

13.
COND 2.3.3G states that in assessing the Effective Supervision Threshold
Condition, factors which the Authority will take into consideration include, among
other things, (1) whether it is likely that the Authority will receive adequate
information from the firm and those persons with whom the firm has close links,
and (2) whether the structure and geographical spread of the firm, the group to
which it belongs and other persons with whom the firm has close links, might
hinder the provision of adequate and reliable flows of information to the
Authority.

14.
COND 2.4.2G(2) provides that, in the context of the Appropriate Resources
Threshold Condition, the Authority will interpret the term ‘appropriate’ as
meaning sufficient in terms of quantity, quality and availability and ‘resources’ as
including all financial resources, non-financial resources and means of managing
its resources; for example, capital, provisions against liabilities, holdings of or
access to cash and other liquid.

15.
COND 2.5.2G provides that the Authority will take into consideration anything
that could influence a firm’s continuing ability to satisfy the Suitability Threshold
Condition. 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.

16.
Examples of the kind of particular considerations to which the Authority may have
regard when assessing whether a firm will satisfy, and continue to satisfy, the
Suitability Threshold Condition are outlined in COND 2.5.6G. These include
whether the firm is ready, willing and organised to comply with the requirements
and standards under the regulatory system and whether the firm has contravened
any provisions of the Act or the regulatory system.

17.
The Authority’s policy 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

18.
EG 8.2.1 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. It will also have regard to the
responsibilities of a firm’s management to deal with concerns about the firm or
about the way its business is being or has been run and the principle that a
restriction imposed on a firm should be proportionate to the objectives the
Authority is seeking to achieve.

19.
EG 8.2.3 provides that the Authority will exercise its formal powers under section
55J or 55L of the Act, where the Authority considers it is appropriate to ensure a
firm meets its regulatory requirements. EG 8.2.3(1) and (2) 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,
where it is concerned that the consequences of a firm not taking the desired steps
may be serious or where the imposition of a formal statutory requirement reflects
the importance the Authority attaches to the need for the firm to address its
concerns.

20.
EG 8.3.1 provides that the Authority may impose a requirement so that it takes
effect immediately or on a specified date if it reasonably considers it necessary for
the requirement to take effect immediately (or on the date specified), having
regard to the ground on which it is exercising its own-initiative powers.

21.
EG 8.3.2 provides 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 needs 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.