Supervisory Notice
On , the Financial Conduct Authority issued a Supervisory Notice to Falcon Financial Solutions Ltd
_______________________________________________________________
FIRST SUPERVISORY NOTICE
_______________________________________________________________
To:
Falcon Financial Solutions Ltd
Reference Number:
918276
Address:
109 George Lane
London
E18 1AN
Date:
28 January 2022
1
ACTION
1.1
For the reasons given in this First Supervisory Notice, and pursuant to sections
55J(2)(a)(ii) of the Act, the Authority has decided to vary with immediate effect
the Part 4A permission granted to Falcon by removing the following regulated
activities:
1)
Secondary credit broking; and
2)
Agreeing to carry on a regulated activity.
1.2
The effect of the Variation is that Falcon no longer has permission to conduct
any regulated activities.
2
REASONS FOR ACTION
Summary
2.1
The Authority has concluded, on the basis of the facts and matters described
below that, that it is appropriate to exercise its power under sections 55J(1)(a)
and (c) of the Act to vary Falcon’s permission because it is failing, or is likely to
fail, to satisfy the Suitability Threshold Condition and to advance the Authority’s
consumer protection objectives (section 1C of the Act).
2.2
The Authority has identified serious concerns relating to Falcon in that its conduct
appears to demonstrate that it is not fit and proper and poses a significant risk
of harm to consumers. Specifically:
1)
Falcon appears to be linked to firms that the Authority has taken regulatory
action against, either through the imposition of requirements or variation
of permissions to stop them conducting regulated activities, including:
a)
Cavendish to whom the Authority issued a First Supervisory Notice
on 2 August 2021 for carrying out investment activities outside the
scope of its permissions and misleading investors over the extent of
its regulated status. Information filed on Companies House records
that Cavendish’s director is a shareholder of Falcon.
b)
Sentor to whom the Authority issued a First Supervisory Notice on 8
September 2021 for facilitating investments in companies that the
Authority has warned about for engaging in unauthorised business.
Information filed on Companies House records that Falcon and Sentor
share a common associate who is also connected to Renaissance.
Falcon and Sentor’s respective directors also have a linked history
through a previous company.
c)
Grosvenor to whom the Authority issued a First Supervisory Notice
on 30 November 2021 due to its apparent links to firms that the
Authority has warned about for undertaking unauthorised business,
and for providing misleading information about its controllers and
intended business at authorisation. Information filed on Companies
House records that Falcon and Grosvenor share a common
shareholder.
d)
Renaissance to whom the Authority issued a First Supervisory Notice
on 7 December 2021 due to its connections to firms that may not be
fit and proper, and for failing to provide accurate information about
its controllers and intended business at authorisation. Information
filed on Companies House records that Falcon and Renaissance share
a common associate who is also connected to Sentor.
Given Falcon’s apparent links to other firms that also appear to share
further connections, there are serious concerns that Falcon may be seeking
to misuse its regulated status as a credit broker to take advantage of
consumers.
2)
Falcon is failing to deal with the Authority in an open and cooperative way:
a)
Falcon has stated that it is not currently trading. However, it has
failed to respond to the Authority’s requests for information about its
future plans for use of its credit broking permissions.
b)
The Authority is unclear on the identity of Falcon’s director. Falcon
has failed to respond to the Authority’s requests to provide proof of
identity for its director.
c)
Apart from an initial response where it provided misleading
information, Falcon has failed to respond to three follow-up
information requirements issued under section 165 of the Act
requiring clarity on its links to other firms and about its business
activities and plans. Falcon has also not answered or returned any
calls from the Authority.
2.3
The Authority considers that Falcon is failing, or is likely to fail, to satisfy the
3
Suitability Threshold Condition (paragraph 2E of Schedule 6 to the Act) because
of its apparent connections to firms that have been the subject of regulatory
actions (as summarised at 2.2.(1)), and potential breach of Principle 11
(Relations with regulators) of the Authority’s Principles for Businesses (as
summarised at 2.2(2)). The Authority considers that Variation of Falcon’s
permission with immediate effect is desirable to protect consumers.
3
DEFINITIONS
3.1
The definitions below are used in this First Supervisory Notice:
“the Act” means the Financial Services and Markets Act 2000;
“the Authority” means the Financial Conduct Authority;
“Cavendish” means Cavendish Incorporated Ltd;
“DEPP” means the Decision Procedure and Penalties Manual in Authority’s online
handbook of rules and guidance (as in force from time to time);
“Fabcourt” means Fabcourt Developments Limited;
“Falcon” means Falcon Financial Solutions Ltd;
“Grosvenor” means Grosvenor Associates Ltd;
“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;
“Renaissance” means Renaissance Advisory Ltd;
“Sentor” means Sentor Solutions Commercial Ltd;
“SMF” means senior management function;
“Texmoore” means Texmoore Limited;
“Threshold Conditions” are the minimum requirements that firms need to meet in
order to be authorised and to continue carrying on regulated activities as set out
in Schedule 6 to the Act;
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber); and
“Variation” means the variation of Falcon’s Part 4A permission set out in
paragraph 1.1. above.
4
FACTS AND MATTERS
Background
4.1
Falcon was incorporated on 9 December 2019. It was authorised on 13 January
2020 as a limited permission credit broker with secondary broking permission.
Falcon is not permitted to hold client money.
4.2
Falcon has one approved person who holds the SMF29 limited scope function.
According to Companies House records he is the sole director and significant
controller of Falcon.
Failings and risks identified
Falcon’s links to other firms
4.3
Falcon and its director appear to have connections to firms that the Authority
has taken regulatory action against. These firms were all authorised as limited
permission credit brokers. The Authority has either imposed requirements or
varied the permissions of these firms to stop them conducting regulated
activities.
Links to Cavendish
4.4
The Authority issued a First Supervisory Notice to Cavendish on 2 August 2021
for:
1)
Failing to conduct its affairs in an appropriate manner having due regard
to the interests of consumers. Cavendish made misleading statements to
consumers to influence their investment decisions and provided investment
services outside the scope of its permitted regulated activities.
2)
Failing to comply with requirements imposed by the Authority. Cavendish
did not provide accurate information to the Authority about issues
impacting its business or respond to the Authority’s communications.
4.5
Information filed on Companies House records that Cavendish’s director is a
shareholder of Falcon. On 25 January 2021, Falcon filed on Companies House a
confirmation statement. This listed Cavendish’s director as a shareholder of
Falcon as at 8 December 2020.
Links to Sentor
4.6
The Authority issued a First Supervisory Notice to Sentor on 8 September 2021
for:
1)
Facilitating consumer investments in Texmoore and Fabcourt, companies
that the Authority has warned about for engaging in unauthorised business.
Sentor provided investment services beyond its permissions and misled
consumers about its regulated status.
2)
Failing to comply with requirements imposed by the Authority. Sentor
provided misleading information about its involvement with Texmoore and
Fabcourt, and failed to respond to the Authority’s further communications.
4.7
Information filed on Companies House shows that Falcon and Sentor share a
common associate. According to Companies House records Individual A is the
Company Secretary of Falcon. On 26 January 2021, Sentor filed on Companies
House a confirmation statement. This listed Individual A as a shareholder of
Sentor as at 11 November 2020. Individual A is also connected to Renaissance
(see below).
4.8
Falcon and Sentor’s respective directors also have a linked history through a
previous company. According to Companies House records, Sentor’s director was
associated with Firm A from 6 February 2020 as the director until 10 March 2020
and the significant controller until 23 March 2020. Falcon’s director became the
significant controller of Firm A on 1 March 2020, when Sentor’s director was still
Firm A’s director and significant controller.
Links to Grosvenor
4.9
The Authority issued a First Supervisory Notice to Grosvenor on 30 November
2021 due to:
1)
Its apparent links to firms that may not be fit and proper and which the
Authority has warned about for undertaking unauthorised business,
including Texmoore and Fabcourt.
2)
Failing to engage with the Authority in an open and cooperative way.
Grosvenor provided misleading information about its controllers and
intended business at authorisation and failed to respond to the Authority’s
information requirements.
4.10
Information filed on Companies House records that Falcon and Grosvenor share
a common shareholder. On 25 January 2021, Falcon filed on Companies House
a confirmation statement. This listed Individual B as a shareholder of Falcon as
at 8 December 2020. Grosvenor’s confirmation statement filed with Companies
House on 24 May 2021 also lists Individual B as a shareholder as at that date.
Links to Renaissance
4.11
The Authority issued a First Supervisory Notice to Renaissance on 7 December
2021 due to:
1)
Its apparent connections to firms that may not be fit and proper and which
the Authority has taken regulatory action against, including Grosvenor.
2)
Failing to deal with the Authority in an open and cooperative manner.
Renaissance provided inaccurate information about its controllers and
intended business at authorisation and did not respond to the Authority’s
communications seeking clarity on its business model and activities.
4.12
Information filed on Companies House shows that Falcon and Renaissance share
a common associate. According to Companies House records Individual A as the
Company Secretary of Falcon. On 2 May 2021, Renaissance filed on Companies
House a confirmation statement. This listed Individual A as a shareholder of
Renaissance as at that date. Individual A is also connected to Sentor (see above).
Falcon’s response to the Authority’s initial information requirement
Falcon’s response regarding its links to other firms
4.13
On 3 December 2021, the Authority wrote to Falcon setting out concerns that it
appeared to be connected to Sentor and may be conducting investment related
activities without relevant permissions. The Authority required Falcon to clarify
whether it had any links to Sentor, Texmoore, Fabcourt and other firms of
concern. The Authority also separately requested Falcon to provide its availability
for a video meeting to discuss its response.
4.14
Falcon responded by email on 4 December 2021 stating that it had no
connections to Sentor, Texmoore, Fabcourt, Cavendish and Grosvenor.
4.15
Following Falcon’s failure to revert to the Authority’s email of 6 December 2021,
which repeated the request for Falcon to provide its availability to attend a video
meeting, the Authority wrote to Falcon on 10 December 2021 setting out the
links it had established between Falcon and its director to Sentor, Cavendish and
Grosvenor. Supervision also informed Falcon that it had recently taken
regulatory action against Renaissance.
4.16
In the letter of 10 December 2021, the Authority required Falcon to explain why
it had failed to disclose accurately its links to the firms and also to clarify whether
it had any connections to Renaissance. Falcon was warned that it would be an
offence to provide false or misleading information in purported compliance with
the Authority’s information requirement.
4.17
Falcon has provided no explanation for the information which appears to
contradict its claim of having no connections to Sentor, Cavendish and
Grosvenor. Falcon did not respond to the Authority’s letter of 10 December 2021
or subsequent information requirements (see below) about its links to other
firms.
Falcon’s response regarding the use of its credit broking permissions
4.18
In the Authority’s letter of 3 December 2021, Falcon was also required to
describe its current business model, and confirm whether it undertook any credit
broking activity and had used its credit broking permissions in the last 12
months.
4.19
In response to both questions, Falcon stated in its email on 4 December 2021
that it has never traded and does not currently trade. It did not provide any
further details about its business model or activities, or when it was likely to
start trading and undertake credit broking activity.
4.20
Falcon submitted a Regulatory Report for the year ended 31 December 2020.
This indicated that it had generated total revenue of £11,935, including £6,420
from credit related activities. Falcon has not previously informed the Authority
that it ceased trading after it was authorised on 13 January 2020, and the
Regulatory Report appears to contradict the claim that it has never traded.
4.21
In order to ascertain the appropriateness of Falcon remaining authorised, the
Authority wrote to Falcon on 10 December 2021, requiring its future plans for
use of its credit broking permissions and the timescale it anticipated doing so.
The Authority highlighted that Falcon may wish to submit an application to cancel
its authorisation if it does not intend to use its permissions in the next three
months.
4.22
Falcon did not respond to the Authority’s letter of 10 December 2021 or
subsequent information requirements (see below) on whether it intends to use
its credit broking permissions, and the Authority has received no cancellation
application from Falcon.
Falcon’s response regarding the identity of its director
4.23
On 3 December 2021, the Authority wrote to Falcon setting out concerns that it
appeared to be connected to Sentor through a potentially associated company
with a similar name. According to Companies House records for Firm B, Falcon’s
director was its significant controller between 1 November 2019 and 1 June
2020, and a director from 1 June 2020 until 31 January 2021. In Falcon’s
response email on 4 December 2021, it stated that its director did not consent
7
to being a director of Firm B and had applied to have his details removed from
Companies House records.
4.24
The Authority has separately received information indicating that Falcon’s
director sought to open an account with a third party but was unable to pass the
identity verification process. It is alleged that he attempted three times to pass
the checks by using a fake photo instead of supplying a “selfie” that was
required.
4.25
Given the indications that the identity of Falcon’s director may have been
misused, the Authority has sought to verify that he is a genuine individual. In
the Authority’s emails on 10 December 2021, 15 December 2021 and 20
December 2021, Falcon was asked to provide its availability for a video meeting,
as well as proof of identity for its director in the form of:
1)
A current photo identification (such as a passport or driving licence).
2)
A selfie taken after receipt of the emails or later with a hand-held written
note with the date on which the photo was taken.
4.26
The Authority remains unclear on the identity of Falcon’s director. Falcon has
failed to respond to the Authority’s requests for a video meeting and to provide
proof of identity for its director. The Authority has also attempted to contact
Falcon’s director by telephone on five occasions using two different contact
numbers but has been unable to reach him. The Authority has been unable to
see or speak to Falcon’s director directly to verify his identity.
Further information requirements to Falcon
4.27
On 3 December 2021, the Authority sent Falcon an initial information
requirement under section 165 of the Act for information about its links to a list
of firms, business model and activities, with a response deadline of 8 December
2021. This was sent to its postal address as recorded on the Financial Services
Register. The accompanying email also asked Falcon to provide its availability
for a video meeting on 8 or 9 December 2021. Falcon responded by email on 4
December 2021 denying any involvement with the firms and indicating that it
was not trading. Falcon did not respond to the request for a video meeting.
4.28
On 6 December 2021, the Authority emailed Falcon to acknowledge receipt of its
response and asking again for its availability to attend a video meeting on 8 or
9 December 2021. Falcon did not respond to this request.
4.29
On 10 December 2021, the Authority sent Falcon a follow up information
requirement under section 165 of the Act to obtain clarity on its response of 4
December 2021. This was sent to Falcon’s postal address and email address. The
Authority set a response deadline of 14 December 2021 and explained the
potential consequences of not responding, including cancellation of Falcon’s
permission. The email also requested Falcon to confirm its availability for a video
meeting between 13 and 15 December 2021. No response was received.
4.30
On 15 December 2021, the Authority sent Falcon a second follow up information
requirement under section 165 of the Act. This was sent to its postal address
and email address. This stated that the Authority had not received a response to
the previous information requirement and was requiring the same information
again. The Authority also drew attention to the consequences of failure to reply
without reasonable excuse and set a response deadline of 17 December 2021.
The email also asked Falcon to indicate its availability to attend a video meeting
on 20 December 2021. No response was received.
4.31
On 20 December 2021, the Authority sent a third follow up information
requirement to Falcon under section 165 of the Act. This was sent to its postal
address and email address. This letter repeated that the Authority had not
received a response to the previous two information requirements and was
requiring the same information again. It reiterated the consequence of failure to
comply and set a response deadline of 23 December 2021. The email also
requested Falcon to provide its availability for a video meeting on 23 or 24
December 2021. No response was received.
4.32
The Authority has attempted to call Falcon on five occasions through the phone
number listed on the Financial Services Register and mobile number given in its
authorisation application for its director, twice on 16 December 2021, once on 4
January 2022 and twice on 5 January 2022. On each occasion, there was no
answer from Falcon and the calls were forwarded to voicemail. On two occasions,
the Authority left a message with contact details and asking for a call back.
Falcon did not return these calls. The number listed for Falcon’s director did not
connect and registered as unavailable.
4.33
In addition, the Authority has asked Falcon to provide its availability to attend a
video meeting on five occasions. Falcon did not respond to these requests.
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 comply with the Threshold Conditions
5.2
The Authority has serious concerns about Falcon’s compliance with the Threshold
Conditions. The Authority considers that Falcon is failing, or is likely to fail, to
satisfy the Suitability Threshold Condition because:
1)
Falcon appears to have connections to four firms that may not be fit and
proper:
a)
Information filed on Companies House records that Cavendish’s
director is a shareholder of Falcon.
b)
Information filed on Companies House records that Falcon and Sentor
share a common associate who is also connected to Renaissance.
Falcon and Sentor’s respective directors also have a linked history
through a previous company.
c)
Information filed on Companies House records that Falcon and
Grosvenor share a common shareholder.
d)
Information filed on Companies House records that Falcon and
Renaissance share a common associate who is also connected to
Sentor.
2)
Falcon is not engaging with the Authority in an open and cooperative
manner or complying with the Authority’s requirements in potential breach
of Principle 11 (Relations with regulators):
a)
It did not notify the Authority when it ceased trading and has failed
to provide information about its future plans for use of its credit
broking permissions.
b)
It has failed to respond to the Authority’s requests to provide proof
of identity for its director.
c)
It provided misleading information in response to the Authority’s
questions about its links to other firms and has failed to respond to
three further information requirements issued under section 165 of
the Act seeking clarity on its response.
5.3
As a result of these matters, it appears to the Authority that Falcon:
1)
Is connected to firms that have been the subject of regulatory actions (sub-
paragraph (a) of paragraph 2E of Schedule 6 to the Act).
2)
Has not complied, and is not complying, with requirements imposed by the
Authority in the exercise of its functions relating to the provision of
information (sub-paragraph (d) of paragraph 2E of Schedule 6 to the Act).
The Authority’s operational objective of consumer protection
5.4
The Authority’s operational objective of consumer protection requires the
Authority to ensure an appropriate degree of protection for consumers (section
1C(1) of the Act). Falcon may be part of a network of firms that obtained
authorisation for credit broking but have been conducting, or intending to
conduct, investment activities beyond the scope of their permissions which could
expose consumers to the risk of significant loss.
5.5
Falcon has links to Cavendish and Sentor. These firms have engaged in
investment activities without relevant permissions and misled consumers about
the extent of their regulated status. Falcon also appears to be connected to
Grosvenor and Renaissance. They have been the subject of regulatory action
due to their apparent links to firms the Authority has warned about for engaging
in unauthorised business or which may not be fit and proper, and for failing to
provide accurate information about their controllers and intended business at
authorisation. Given Falcon’s apparent links to these firms, there are serious
concerns that Falcon may also be seeking to misuse its regulated status as a
credit broker to take advantage of consumers.
5.6
In addition, Falcon appears to have misled the Authority about its links to the
firms and has failed to engage with the Authority to provide information to
confirm the identity of its director and clarify its activities. Falcon’s actions to
date cast serious doubts on its ability and willingness to observe regulatory
requirements and demonstrate that it poses a significant risk of harm to
consumers.
5.7
On the basis of the facts and matters set out, it appears to the Authority that it
is desirable to exercise the power under section 55J(1)(c)(i) of the Act in order
to advance the consumer protection objective.
Timing and duration of the Variation
5.8
The Authority considers it is necessary to impose the Variation to take immediate
effect given the seriousness of the risks and the need to protect consumers. The
Authority has identified the following concerns:
1)
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 (EG 8.3.3(3)).
2)
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 (EG 8.3.3(4)).
5.9
The Authority will consider the full circumstances of each case when it decides
whether an urgent variation is appropriate. The Authority has identified the
following relevant factors:
1)
The nature and extent of any false or inaccurate information provided by
the firm (EG 8.3.4(3)).
2)
The seriousness of any suspected breach of the requirements of the
legislation or the rules and the steps that need to be taken to correct that
breach (EG 8.3.4(4)).
3)
The impact that use of the Authority’s own-initiative powers will have on
the firm’s business and on its customers (EG 8.3.4(9)).
5.10
The Authority considers that it is necessary for the Variation to remain in place
indefinitely.
6
PROCEDURAL MATTERS
Decision-maker
6.1
The decision which gave rise to the obligation to give this First Supervisory Notice
was made by an Authority staff member under executive procedures according
to DEPP 2.3.7G and DEPP 4.1.7G.
6.2
This First Supervisory Notice is given to Falcon under section 55Y(4) and in
accordance with section 55Y(5) of the Act.
6.3
The following statutory rights are important.
Representations
6.4
Falcon has the right to make written representations to the Authority (whether
or not it refers this matter to the Tribunal). Falcon may also request to make
oral representations but the Authority will only consider this in exceptional
circumstances according to DEPP 2.3.1AG. The deadline for providing written
representations and notifying the Authority that Falcon wishes to make oral
representations is 11 February 2022 or such later date as may be permitted by
the Authority. Any notification or representations should be sent to David
Watkins (david.watkins@fca.org.uk) and the SPC Decision Making Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
The Tribunal
6.5
Falcon 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, Falcon has 28 days from the date on which this First
Supervisory Notice is given to it to refer the matter to the Tribunal.
6.6
A reference to the Tribunal can be made by way of a reference notice (Form
FTC3) signed by or on behalf of Falcon 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).
6.7
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
6.8
Falcon 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 David Watkins
(david.watkins@fca.org.uk)
and
the
SPC
Decision
Making
Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
Confidentiality and publicity
6.9
Falcon 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).
6.10
Falcon 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
6.11
For more information concerning this matter generally, contact David Watkins
(david.watkins@fca.org.uk).
6.12
Any questions regarding the executive procedures decision-making process
should
be
directed
to
the
SPC
Decision
Making
Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
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 55J of the Act allows the Authority to vary 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 55J(1)(a)), or it is
desirable to exercise the power in order to advance one or more of the Authority’s
operational objectives (section 55J(1)(c)(i)). This power is referred to as the
Authority’s own-initiative power.
3.
Section 55Y(3) of the Act allows a variation of permission imposed under the own-
initiative 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
power, reasonably considers that it is necessary for the variation to take effect
immediately (or on that date).
4.
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) 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 was proposed to be taken),
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.”
5.
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.
6.
The Suitability Threshold Condition in paragraph 2E of Schedule 6 to the Act stated
that:
“A must be a fit and proper person having regard to all the circumstances, including-
(a)
A’s connection with any person.
…
(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 complying, the manner of that compliance.”
RELEVANT REGULATORY PROVISIONS
The Principles for Businesses
7.
The Principles for Business (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.
8.
Principle 11 (Relations with regulators) is of particular relevance. This 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.
The Threshold Conditions
9.
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.
10.
COND 2.5.1AUK reflects the provisions of the Act (Paragraph 2E of Schedule 6) to
the effect that a firm must be a fit and proper person having regard to all the
circumstances. These include the firm’s connection with any person (COND
2.5.1AUK(1)(a) and whether the firm has complied and is complying with the
Authority’s requirements (COND 2.5.1AUK(1)(d).
11.
COND 2.5.4G(2) provides examples of the kind of general considerations 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
12.
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.
13.
EG 8.1.1 reflects the provisions of section 55J of the Act by stating that the Authority
may use its own-initiative power to vary an authorised person’s Part 4A permission
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)).
14.
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)).
15.
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 vary a firm’s permission 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)).
16.
EG 8.3.1 states that the Authority may impose a variation of permission so that it
takes effect immediately or on a specified date if it reasonably considers it necessary
for the variation to take effect immediately (or on the date specified), having regard
to the ground on which it is exercising its own-initiative powers.
17.
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.
18.
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: 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; and 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.
19.
EG 8.3.4 states that the Authority will consider the full circumstances of each case
when it decides whether an imposition of a requirement is appropriate and sets out
a non-exhaustive list of factors the Authority may consider, these include: the nature
and extent of any false or inaccurate information provided by the firm (EG 8.3.4(3);
and the seriousness of any suspected breach of the requirements of the legislation
or the rules and the steps that need to be taken to correct the breach (EG 8.3.4(4).
20.
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.
FIRST SUPERVISORY NOTICE
_______________________________________________________________
To:
Falcon Financial Solutions Ltd
Reference Number:
918276
Address:
109 George Lane
London
E18 1AN
Date:
28 January 2022
1
ACTION
1.1
For the reasons given in this First Supervisory Notice, and pursuant to sections
55J(2)(a)(ii) of the Act, the Authority has decided to vary with immediate effect
the Part 4A permission granted to Falcon by removing the following regulated
activities:
1)
Secondary credit broking; and
2)
Agreeing to carry on a regulated activity.
1.2
The effect of the Variation is that Falcon no longer has permission to conduct
any regulated activities.
2
REASONS FOR ACTION
Summary
2.1
The Authority has concluded, on the basis of the facts and matters described
below that, that it is appropriate to exercise its power under sections 55J(1)(a)
and (c) of the Act to vary Falcon’s permission because it is failing, or is likely to
fail, to satisfy the Suitability Threshold Condition and to advance the Authority’s
consumer protection objectives (section 1C of the Act).
2.2
The Authority has identified serious concerns relating to Falcon in that its conduct
appears to demonstrate that it is not fit and proper and poses a significant risk
of harm to consumers. Specifically:
1)
Falcon appears to be linked to firms that the Authority has taken regulatory
action against, either through the imposition of requirements or variation
of permissions to stop them conducting regulated activities, including:
a)
Cavendish to whom the Authority issued a First Supervisory Notice
on 2 August 2021 for carrying out investment activities outside the
scope of its permissions and misleading investors over the extent of
its regulated status. Information filed on Companies House records
that Cavendish’s director is a shareholder of Falcon.
b)
Sentor to whom the Authority issued a First Supervisory Notice on 8
September 2021 for facilitating investments in companies that the
Authority has warned about for engaging in unauthorised business.
Information filed on Companies House records that Falcon and Sentor
share a common associate who is also connected to Renaissance.
Falcon and Sentor’s respective directors also have a linked history
through a previous company.
c)
Grosvenor to whom the Authority issued a First Supervisory Notice
on 30 November 2021 due to its apparent links to firms that the
Authority has warned about for undertaking unauthorised business,
and for providing misleading information about its controllers and
intended business at authorisation. Information filed on Companies
House records that Falcon and Grosvenor share a common
shareholder.
d)
Renaissance to whom the Authority issued a First Supervisory Notice
on 7 December 2021 due to its connections to firms that may not be
fit and proper, and for failing to provide accurate information about
its controllers and intended business at authorisation. Information
filed on Companies House records that Falcon and Renaissance share
a common associate who is also connected to Sentor.
Given Falcon’s apparent links to other firms that also appear to share
further connections, there are serious concerns that Falcon may be seeking
to misuse its regulated status as a credit broker to take advantage of
consumers.
2)
Falcon is failing to deal with the Authority in an open and cooperative way:
a)
Falcon has stated that it is not currently trading. However, it has
failed to respond to the Authority’s requests for information about its
future plans for use of its credit broking permissions.
b)
The Authority is unclear on the identity of Falcon’s director. Falcon
has failed to respond to the Authority’s requests to provide proof of
identity for its director.
c)
Apart from an initial response where it provided misleading
information, Falcon has failed to respond to three follow-up
information requirements issued under section 165 of the Act
requiring clarity on its links to other firms and about its business
activities and plans. Falcon has also not answered or returned any
calls from the Authority.
2.3
The Authority considers that Falcon is failing, or is likely to fail, to satisfy the
3
Suitability Threshold Condition (paragraph 2E of Schedule 6 to the Act) because
of its apparent connections to firms that have been the subject of regulatory
actions (as summarised at 2.2.(1)), and potential breach of Principle 11
(Relations with regulators) of the Authority’s Principles for Businesses (as
summarised at 2.2(2)). The Authority considers that Variation of Falcon’s
permission with immediate effect is desirable to protect consumers.
3
DEFINITIONS
3.1
The definitions below are used in this First Supervisory Notice:
“the Act” means the Financial Services and Markets Act 2000;
“the Authority” means the Financial Conduct Authority;
“Cavendish” means Cavendish Incorporated Ltd;
“DEPP” means the Decision Procedure and Penalties Manual in Authority’s online
handbook of rules and guidance (as in force from time to time);
“Fabcourt” means Fabcourt Developments Limited;
“Falcon” means Falcon Financial Solutions Ltd;
“Grosvenor” means Grosvenor Associates Ltd;
“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;
“Renaissance” means Renaissance Advisory Ltd;
“Sentor” means Sentor Solutions Commercial Ltd;
“SMF” means senior management function;
“Texmoore” means Texmoore Limited;
“Threshold Conditions” are the minimum requirements that firms need to meet in
order to be authorised and to continue carrying on regulated activities as set out
in Schedule 6 to the Act;
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber); and
“Variation” means the variation of Falcon’s Part 4A permission set out in
paragraph 1.1. above.
4
FACTS AND MATTERS
Background
4.1
Falcon was incorporated on 9 December 2019. It was authorised on 13 January
2020 as a limited permission credit broker with secondary broking permission.
Falcon is not permitted to hold client money.
4.2
Falcon has one approved person who holds the SMF29 limited scope function.
According to Companies House records he is the sole director and significant
controller of Falcon.
Failings and risks identified
Falcon’s links to other firms
4.3
Falcon and its director appear to have connections to firms that the Authority
has taken regulatory action against. These firms were all authorised as limited
permission credit brokers. The Authority has either imposed requirements or
varied the permissions of these firms to stop them conducting regulated
activities.
Links to Cavendish
4.4
The Authority issued a First Supervisory Notice to Cavendish on 2 August 2021
for:
1)
Failing to conduct its affairs in an appropriate manner having due regard
to the interests of consumers. Cavendish made misleading statements to
consumers to influence their investment decisions and provided investment
services outside the scope of its permitted regulated activities.
2)
Failing to comply with requirements imposed by the Authority. Cavendish
did not provide accurate information to the Authority about issues
impacting its business or respond to the Authority’s communications.
4.5
Information filed on Companies House records that Cavendish’s director is a
shareholder of Falcon. On 25 January 2021, Falcon filed on Companies House a
confirmation statement. This listed Cavendish’s director as a shareholder of
Falcon as at 8 December 2020.
Links to Sentor
4.6
The Authority issued a First Supervisory Notice to Sentor on 8 September 2021
for:
1)
Facilitating consumer investments in Texmoore and Fabcourt, companies
that the Authority has warned about for engaging in unauthorised business.
Sentor provided investment services beyond its permissions and misled
consumers about its regulated status.
2)
Failing to comply with requirements imposed by the Authority. Sentor
provided misleading information about its involvement with Texmoore and
Fabcourt, and failed to respond to the Authority’s further communications.
4.7
Information filed on Companies House shows that Falcon and Sentor share a
common associate. According to Companies House records Individual A is the
Company Secretary of Falcon. On 26 January 2021, Sentor filed on Companies
House a confirmation statement. This listed Individual A as a shareholder of
Sentor as at 11 November 2020. Individual A is also connected to Renaissance
(see below).
4.8
Falcon and Sentor’s respective directors also have a linked history through a
previous company. According to Companies House records, Sentor’s director was
associated with Firm A from 6 February 2020 as the director until 10 March 2020
and the significant controller until 23 March 2020. Falcon’s director became the
significant controller of Firm A on 1 March 2020, when Sentor’s director was still
Firm A’s director and significant controller.
Links to Grosvenor
4.9
The Authority issued a First Supervisory Notice to Grosvenor on 30 November
2021 due to:
1)
Its apparent links to firms that may not be fit and proper and which the
Authority has warned about for undertaking unauthorised business,
including Texmoore and Fabcourt.
2)
Failing to engage with the Authority in an open and cooperative way.
Grosvenor provided misleading information about its controllers and
intended business at authorisation and failed to respond to the Authority’s
information requirements.
4.10
Information filed on Companies House records that Falcon and Grosvenor share
a common shareholder. On 25 January 2021, Falcon filed on Companies House
a confirmation statement. This listed Individual B as a shareholder of Falcon as
at 8 December 2020. Grosvenor’s confirmation statement filed with Companies
House on 24 May 2021 also lists Individual B as a shareholder as at that date.
Links to Renaissance
4.11
The Authority issued a First Supervisory Notice to Renaissance on 7 December
2021 due to:
1)
Its apparent connections to firms that may not be fit and proper and which
the Authority has taken regulatory action against, including Grosvenor.
2)
Failing to deal with the Authority in an open and cooperative manner.
Renaissance provided inaccurate information about its controllers and
intended business at authorisation and did not respond to the Authority’s
communications seeking clarity on its business model and activities.
4.12
Information filed on Companies House shows that Falcon and Renaissance share
a common associate. According to Companies House records Individual A as the
Company Secretary of Falcon. On 2 May 2021, Renaissance filed on Companies
House a confirmation statement. This listed Individual A as a shareholder of
Renaissance as at that date. Individual A is also connected to Sentor (see above).
Falcon’s response to the Authority’s initial information requirement
Falcon’s response regarding its links to other firms
4.13
On 3 December 2021, the Authority wrote to Falcon setting out concerns that it
appeared to be connected to Sentor and may be conducting investment related
activities without relevant permissions. The Authority required Falcon to clarify
whether it had any links to Sentor, Texmoore, Fabcourt and other firms of
concern. The Authority also separately requested Falcon to provide its availability
for a video meeting to discuss its response.
4.14
Falcon responded by email on 4 December 2021 stating that it had no
connections to Sentor, Texmoore, Fabcourt, Cavendish and Grosvenor.
4.15
Following Falcon’s failure to revert to the Authority’s email of 6 December 2021,
which repeated the request for Falcon to provide its availability to attend a video
meeting, the Authority wrote to Falcon on 10 December 2021 setting out the
links it had established between Falcon and its director to Sentor, Cavendish and
Grosvenor. Supervision also informed Falcon that it had recently taken
regulatory action against Renaissance.
4.16
In the letter of 10 December 2021, the Authority required Falcon to explain why
it had failed to disclose accurately its links to the firms and also to clarify whether
it had any connections to Renaissance. Falcon was warned that it would be an
offence to provide false or misleading information in purported compliance with
the Authority’s information requirement.
4.17
Falcon has provided no explanation for the information which appears to
contradict its claim of having no connections to Sentor, Cavendish and
Grosvenor. Falcon did not respond to the Authority’s letter of 10 December 2021
or subsequent information requirements (see below) about its links to other
firms.
Falcon’s response regarding the use of its credit broking permissions
4.18
In the Authority’s letter of 3 December 2021, Falcon was also required to
describe its current business model, and confirm whether it undertook any credit
broking activity and had used its credit broking permissions in the last 12
months.
4.19
In response to both questions, Falcon stated in its email on 4 December 2021
that it has never traded and does not currently trade. It did not provide any
further details about its business model or activities, or when it was likely to
start trading and undertake credit broking activity.
4.20
Falcon submitted a Regulatory Report for the year ended 31 December 2020.
This indicated that it had generated total revenue of £11,935, including £6,420
from credit related activities. Falcon has not previously informed the Authority
that it ceased trading after it was authorised on 13 January 2020, and the
Regulatory Report appears to contradict the claim that it has never traded.
4.21
In order to ascertain the appropriateness of Falcon remaining authorised, the
Authority wrote to Falcon on 10 December 2021, requiring its future plans for
use of its credit broking permissions and the timescale it anticipated doing so.
The Authority highlighted that Falcon may wish to submit an application to cancel
its authorisation if it does not intend to use its permissions in the next three
months.
4.22
Falcon did not respond to the Authority’s letter of 10 December 2021 or
subsequent information requirements (see below) on whether it intends to use
its credit broking permissions, and the Authority has received no cancellation
application from Falcon.
Falcon’s response regarding the identity of its director
4.23
On 3 December 2021, the Authority wrote to Falcon setting out concerns that it
appeared to be connected to Sentor through a potentially associated company
with a similar name. According to Companies House records for Firm B, Falcon’s
director was its significant controller between 1 November 2019 and 1 June
2020, and a director from 1 June 2020 until 31 January 2021. In Falcon’s
response email on 4 December 2021, it stated that its director did not consent
7
to being a director of Firm B and had applied to have his details removed from
Companies House records.
4.24
The Authority has separately received information indicating that Falcon’s
director sought to open an account with a third party but was unable to pass the
identity verification process. It is alleged that he attempted three times to pass
the checks by using a fake photo instead of supplying a “selfie” that was
required.
4.25
Given the indications that the identity of Falcon’s director may have been
misused, the Authority has sought to verify that he is a genuine individual. In
the Authority’s emails on 10 December 2021, 15 December 2021 and 20
December 2021, Falcon was asked to provide its availability for a video meeting,
as well as proof of identity for its director in the form of:
1)
A current photo identification (such as a passport or driving licence).
2)
A selfie taken after receipt of the emails or later with a hand-held written
note with the date on which the photo was taken.
4.26
The Authority remains unclear on the identity of Falcon’s director. Falcon has
failed to respond to the Authority’s requests for a video meeting and to provide
proof of identity for its director. The Authority has also attempted to contact
Falcon’s director by telephone on five occasions using two different contact
numbers but has been unable to reach him. The Authority has been unable to
see or speak to Falcon’s director directly to verify his identity.
Further information requirements to Falcon
4.27
On 3 December 2021, the Authority sent Falcon an initial information
requirement under section 165 of the Act for information about its links to a list
of firms, business model and activities, with a response deadline of 8 December
2021. This was sent to its postal address as recorded on the Financial Services
Register. The accompanying email also asked Falcon to provide its availability
for a video meeting on 8 or 9 December 2021. Falcon responded by email on 4
December 2021 denying any involvement with the firms and indicating that it
was not trading. Falcon did not respond to the request for a video meeting.
4.28
On 6 December 2021, the Authority emailed Falcon to acknowledge receipt of its
response and asking again for its availability to attend a video meeting on 8 or
9 December 2021. Falcon did not respond to this request.
4.29
On 10 December 2021, the Authority sent Falcon a follow up information
requirement under section 165 of the Act to obtain clarity on its response of 4
December 2021. This was sent to Falcon’s postal address and email address. The
Authority set a response deadline of 14 December 2021 and explained the
potential consequences of not responding, including cancellation of Falcon’s
permission. The email also requested Falcon to confirm its availability for a video
meeting between 13 and 15 December 2021. No response was received.
4.30
On 15 December 2021, the Authority sent Falcon a second follow up information
requirement under section 165 of the Act. This was sent to its postal address
and email address. This stated that the Authority had not received a response to
the previous information requirement and was requiring the same information
again. The Authority also drew attention to the consequences of failure to reply
without reasonable excuse and set a response deadline of 17 December 2021.
The email also asked Falcon to indicate its availability to attend a video meeting
on 20 December 2021. No response was received.
4.31
On 20 December 2021, the Authority sent a third follow up information
requirement to Falcon under section 165 of the Act. This was sent to its postal
address and email address. This letter repeated that the Authority had not
received a response to the previous two information requirements and was
requiring the same information again. It reiterated the consequence of failure to
comply and set a response deadline of 23 December 2021. The email also
requested Falcon to provide its availability for a video meeting on 23 or 24
December 2021. No response was received.
4.32
The Authority has attempted to call Falcon on five occasions through the phone
number listed on the Financial Services Register and mobile number given in its
authorisation application for its director, twice on 16 December 2021, once on 4
January 2022 and twice on 5 January 2022. On each occasion, there was no
answer from Falcon and the calls were forwarded to voicemail. On two occasions,
the Authority left a message with contact details and asking for a call back.
Falcon did not return these calls. The number listed for Falcon’s director did not
connect and registered as unavailable.
4.33
In addition, the Authority has asked Falcon to provide its availability to attend a
video meeting on five occasions. Falcon did not respond to these requests.
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 comply with the Threshold Conditions
5.2
The Authority has serious concerns about Falcon’s compliance with the Threshold
Conditions. The Authority considers that Falcon is failing, or is likely to fail, to
satisfy the Suitability Threshold Condition because:
1)
Falcon appears to have connections to four firms that may not be fit and
proper:
a)
Information filed on Companies House records that Cavendish’s
director is a shareholder of Falcon.
b)
Information filed on Companies House records that Falcon and Sentor
share a common associate who is also connected to Renaissance.
Falcon and Sentor’s respective directors also have a linked history
through a previous company.
c)
Information filed on Companies House records that Falcon and
Grosvenor share a common shareholder.
d)
Information filed on Companies House records that Falcon and
Renaissance share a common associate who is also connected to
Sentor.
2)
Falcon is not engaging with the Authority in an open and cooperative
manner or complying with the Authority’s requirements in potential breach
of Principle 11 (Relations with regulators):
a)
It did not notify the Authority when it ceased trading and has failed
to provide information about its future plans for use of its credit
broking permissions.
b)
It has failed to respond to the Authority’s requests to provide proof
of identity for its director.
c)
It provided misleading information in response to the Authority’s
questions about its links to other firms and has failed to respond to
three further information requirements issued under section 165 of
the Act seeking clarity on its response.
5.3
As a result of these matters, it appears to the Authority that Falcon:
1)
Is connected to firms that have been the subject of regulatory actions (sub-
paragraph (a) of paragraph 2E of Schedule 6 to the Act).
2)
Has not complied, and is not complying, with requirements imposed by the
Authority in the exercise of its functions relating to the provision of
information (sub-paragraph (d) of paragraph 2E of Schedule 6 to the Act).
The Authority’s operational objective of consumer protection
5.4
The Authority’s operational objective of consumer protection requires the
Authority to ensure an appropriate degree of protection for consumers (section
1C(1) of the Act). Falcon may be part of a network of firms that obtained
authorisation for credit broking but have been conducting, or intending to
conduct, investment activities beyond the scope of their permissions which could
expose consumers to the risk of significant loss.
5.5
Falcon has links to Cavendish and Sentor. These firms have engaged in
investment activities without relevant permissions and misled consumers about
the extent of their regulated status. Falcon also appears to be connected to
Grosvenor and Renaissance. They have been the subject of regulatory action
due to their apparent links to firms the Authority has warned about for engaging
in unauthorised business or which may not be fit and proper, and for failing to
provide accurate information about their controllers and intended business at
authorisation. Given Falcon’s apparent links to these firms, there are serious
concerns that Falcon may also be seeking to misuse its regulated status as a
credit broker to take advantage of consumers.
5.6
In addition, Falcon appears to have misled the Authority about its links to the
firms and has failed to engage with the Authority to provide information to
confirm the identity of its director and clarify its activities. Falcon’s actions to
date cast serious doubts on its ability and willingness to observe regulatory
requirements and demonstrate that it poses a significant risk of harm to
consumers.
5.7
On the basis of the facts and matters set out, it appears to the Authority that it
is desirable to exercise the power under section 55J(1)(c)(i) of the Act in order
to advance the consumer protection objective.
Timing and duration of the Variation
5.8
The Authority considers it is necessary to impose the Variation to take immediate
effect given the seriousness of the risks and the need to protect consumers. The
Authority has identified the following concerns:
1)
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 (EG 8.3.3(3)).
2)
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 (EG 8.3.3(4)).
5.9
The Authority will consider the full circumstances of each case when it decides
whether an urgent variation is appropriate. The Authority has identified the
following relevant factors:
1)
The nature and extent of any false or inaccurate information provided by
the firm (EG 8.3.4(3)).
2)
The seriousness of any suspected breach of the requirements of the
legislation or the rules and the steps that need to be taken to correct that
breach (EG 8.3.4(4)).
3)
The impact that use of the Authority’s own-initiative powers will have on
the firm’s business and on its customers (EG 8.3.4(9)).
5.10
The Authority considers that it is necessary for the Variation to remain in place
indefinitely.
6
PROCEDURAL MATTERS
Decision-maker
6.1
The decision which gave rise to the obligation to give this First Supervisory Notice
was made by an Authority staff member under executive procedures according
to DEPP 2.3.7G and DEPP 4.1.7G.
6.2
This First Supervisory Notice is given to Falcon under section 55Y(4) and in
accordance with section 55Y(5) of the Act.
6.3
The following statutory rights are important.
Representations
6.4
Falcon has the right to make written representations to the Authority (whether
or not it refers this matter to the Tribunal). Falcon may also request to make
oral representations but the Authority will only consider this in exceptional
circumstances according to DEPP 2.3.1AG. The deadline for providing written
representations and notifying the Authority that Falcon wishes to make oral
representations is 11 February 2022 or such later date as may be permitted by
the Authority. Any notification or representations should be sent to David
Watkins (david.watkins@fca.org.uk) and the SPC Decision Making Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
The Tribunal
6.5
Falcon 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, Falcon has 28 days from the date on which this First
Supervisory Notice is given to it to refer the matter to the Tribunal.
6.6
A reference to the Tribunal can be made by way of a reference notice (Form
FTC3) signed by or on behalf of Falcon 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).
6.7
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
6.8
Falcon 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 David Watkins
(david.watkins@fca.org.uk)
and
the
SPC
Decision
Making
Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
Confidentiality and publicity
6.9
Falcon 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).
6.10
Falcon 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
6.11
For more information concerning this matter generally, contact David Watkins
(david.watkins@fca.org.uk).
6.12
Any questions regarding the executive procedures decision-making process
should
be
directed
to
the
SPC
Decision
Making
Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
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 55J of the Act allows the Authority to vary 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 55J(1)(a)), or it is
desirable to exercise the power in order to advance one or more of the Authority’s
operational objectives (section 55J(1)(c)(i)). This power is referred to as the
Authority’s own-initiative power.
3.
Section 55Y(3) of the Act allows a variation of permission imposed under the own-
initiative 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
power, reasonably considers that it is necessary for the variation to take effect
immediately (or on that date).
4.
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) 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 was proposed to be taken),
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.”
5.
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.
6.
The Suitability Threshold Condition in paragraph 2E of Schedule 6 to the Act stated
that:
“A must be a fit and proper person having regard to all the circumstances, including-
(a)
A’s connection with any person.
…
(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 complying, the manner of that compliance.”
RELEVANT REGULATORY PROVISIONS
The Principles for Businesses
7.
The Principles for Business (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.
8.
Principle 11 (Relations with regulators) is of particular relevance. This 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.
The Threshold Conditions
9.
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.
10.
COND 2.5.1AUK reflects the provisions of the Act (Paragraph 2E of Schedule 6) to
the effect that a firm must be a fit and proper person having regard to all the
circumstances. These include the firm’s connection with any person (COND
2.5.1AUK(1)(a) and whether the firm has complied and is complying with the
Authority’s requirements (COND 2.5.1AUK(1)(d).
11.
COND 2.5.4G(2) provides examples of the kind of general considerations 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
12.
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.
13.
EG 8.1.1 reflects the provisions of section 55J of the Act by stating that the Authority
may use its own-initiative power to vary an authorised person’s Part 4A permission
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)).
14.
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)).
15.
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 vary a firm’s permission 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)).
16.
EG 8.3.1 states that the Authority may impose a variation of permission so that it
takes effect immediately or on a specified date if it reasonably considers it necessary
for the variation to take effect immediately (or on the date specified), having regard
to the ground on which it is exercising its own-initiative powers.
17.
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.
18.
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: 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; and 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.
19.
EG 8.3.4 states that the Authority will consider the full circumstances of each case
when it decides whether an imposition of a requirement is appropriate and sets out
a non-exhaustive list of factors the Authority may consider, these include: the nature
and extent of any false or inaccurate information provided by the firm (EG 8.3.4(3);
and the seriousness of any suspected breach of the requirements of the legislation
or the rules and the steps that need to be taken to correct the breach (EG 8.3.4(4).
20.
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.