FIRST SUPERVISORY NOTICE

Address:
J Savickio Str.
4 Vilnius
Vilnius
LITHUANIA

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ACTION

1.1
For the reasons given in this First Supervisory Notice, and pursuant to regulation
11(1) of the Electronic Money Regulations 2011 (the “Regulations”) applicable to
the Firm by virtue of paragraph 2 of Schedule 3 of the Electronic Money, Payment
Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit)
Regulations 2018 (“the TPR Regulations”), the Financial Conduct Authority (“the
Authority”) has decided to impose the following requirements (“the Requirements”)
on UAB Finolita Unio (“the Firm”):

1)
The Firm must not, without the prior written consent of the Authority, issue
any electronic money or accept any funds in consideration for the issue of
electronic money.

2)
The Firm must not, without the prior written consent of the Authority, carry out
any payment services (as defined in regulation 2(1) of the Payment Services
Regulations 2017 (“the PSRs”)).

3)
Any monies received by the Firm in contravention of the requirement in sub-
paragraph (1) or (2) must be immediately returned to the customer.

4)
Where, as at the time of the imposition of these Requirements, e-money issued
by the Firm to clients who are resident in the United Kingdom has been
redeemed for the purposes of a payment transaction by the client to whom the
e-money was issued, Relevant Funds in respect of these transactions must be
used to settle the transactions by 5pm on 11 June 2021.

5)
As soon as practicable and by no later than 3pm on 17 June 2021, the Firm
must pay, to a bank or payment account held in the customer’s name, all
Relevant Funds held by the Firm in respect of electronic money issued to that
customer or payment services provided to that customer in the United
Kingdom, except where the Firm is subject to a legal requirement or regulatory
requirement preventing it from doing so.

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6)
The Firm must, as soon as practicable and by no later than 3pm on 17 June
2021, return to a bank or payment account held in the customer’s name any
Funds held by the Firm in respect of electronic money that the Firm was unable
to issue or payment service the Firm was unable to provide.

7)
The Firm must confirm to the Authority in writing by 5pm on 17 June 2021 that
it has complied with the requirements at sub-paragraphs (5) and (6).

8)
By 12pm on 11 June 2021, the Firm must provide the Authority with details of
all safeguarding accounts in which Relevant Funds are held.

9)
The Firm must not, without the prior written consent of the Authority and save
as is necessary to comply with these requirements, in any way dispose of,
withdraw, transfer, deal with or diminish the value of any of its own assets,
and any funds it holds for, or to the order of, its customers (whether in the
United Kingdom or elsewhere).

10) By 12pm on 11 June 2021 the Firm must display in a prominent place on all
websites used by it in the course of providing electronic money services and/or
payment services, including finolita.com, a notice that it no longer permitted
to issue electronic money or provide payment services. The wording and format
of this notice is to be approved by the Authority before the Firm displays it on
any website.

11) By 5pm on 11 June 2021 the Firm must notify all of its customers who are
resident in the United Kingdom by email that it is no longer permitted to provide
electronic money services or payment services to them and that it will taking
all reasonable steps to return all balances of Relevant Funds held by the Firm
on their behalf. The form of this notification is to be agreed by the Authority in
advance of its being sent.

12) The Firm must confirm to the Authority in writing by 12pm on 12 June 2021
that it has complied with the requirement at sub-paragraph (11).

13) The Firm must secure all books and records and preserve all information and
systems relating to electronic money and must retain these in a form and at a
location, within the United Kingdom, such that they can be provided to the
Authority promptly on its request. The form and location is to be notified to the
Authority in writing by 5pm on 11 June 2021.

1.2
These Requirements shall take immediate effect and remain in force unless and
until varied or cancelled by the Authority (either on the application of the Firm or
of the Authority’s own volition).

1.3
These Requirement apply in respect of e-money issued and payments services
provided in the United Kingdom.

1.4
In these Requirements references to time are to British Summer Time.

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REASONS FOR ACTION

2.1
The Firm is an electronic money institution that was authorised by the Bank of

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Lithuania until 8 June 2021. It issues electronic money and provides payment
services on behalf of corporate clients.

2.2
The Firm has temporary permission to issue electronic money and provider payment
services in the United Kingdom under the TPR Regulations. While subject to the
Temporary Permissions Regime, it is to be taken as an authorised electronic money
institution under the Regulations and references to authorised electronic money
institutions in the Regulations are to be read as including the Firm.

2.3
The Authority has concluded, on the basis of the facts and matters described below
that, in respect of the Firm, that it is necessary to exercise its power under
regulation 11 of the Regulations to impose the Requirements on the Firm because
it no longer meets the conditions set out in regulation 6 of the Regulations and
because the Firm failed to inform the Authority of a major change in circumstance,
of which it was required to notify the Authority under regulation 37 of the
Regulations.

2.4
The Authority considers that imposition of the Requirements should take immediate
effect because the matters set out in this First Supervisory Notice demonstrate that
the Firm is unable to manage its affairs in a sound and prudent manner and is
putting e-money holders and payment service users at risk.

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DEFINITIONS

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

“the Act” means the Financial Services and Markets Act 2000, as applied and
modified by regulation 62 and Schedule 3 of the Regulations;

“AML” means anti-money laundering;

“the Authority” means the Financial Conduct Authority;

“CTF” means counter-terrorist financing;

“the Firm” means UAB Finolita Unio;

“the PSRs” means the Payment Services Regulations 2017;

“Regulations” means the Electronic Money Regulations 2011;

“Relevant Funds” has the meaning given in regulation 20(1) of the Regulations (for
electronic money services) and regulation 23(1) of the PSRs (for payment services);

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

“Temporary Permissions Regime” means the regime set out at Schedule 3, Part 1 of
the TPR Regulations;

“TPR Regulations” means The Electronic Money, Payment Services and Payment
Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018; and

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

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FACTS AND MATTERS

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4.1
The Firm is an authorised electronic money institution that is based in Vilnius,
Lithuania. Until 8 June 2021 the Firm had an e-money institution licence, which was
issued by the Bank of Lithuania, the Lithuanian central bank and financial services
regulator. It is a subsidiary of Senjo Group Pte. Ltd., a Singaporean company.

4.2
The Firm previously provided e-money and payment services to customers in the
United Kingdom pursuant to passporting arrangements. It currently provides
services to customers in the United Kingdom under the Temporary Permissions
Regime. This regime applied from 11pm on 31 December 2020, as a result of the
end of the transitional period that followed the United Kingdom’s withdrawal from
the European Union.

Failings and risks identified

Anti-Money Laundering and Counter-Terrorist Financing

4.3
On 8 June 2021 the Bank of Lithuania announced that it had revoked the Firm’s
licence, as a result of severe infringement of anti-money laundering (“AML”) and
counter-terrorist financing (“CTF”) requirements. This followed an investigation that
the Bank of Lithuania started in autumn 2020. The Bank of Lithuania found that
“[the Firm] failed to assess money laundering and terrorist financing risks of its
customers, acted with negligence when establishing and checking [the] identity of
its customers and beneficial owners, failed to identify the nature of activities of legal
entities, improperly monitored business relationships and operations of customers
and failed to comply with the requirements related to the implementation of
international financial sanctions and enforcement measures. It also inadequately
monitored the operations performed by the persons related to the company and did
not analyse the grounds and objectives of large transactions made by these
persons.”

4.4
In addition to this, prior to the announcement by the Bank of Lithuania, the
Authority sought information about the Firm’s AML and CTF controls. The Authority
issued an information requirement to the Firm under section 165 of the Act on 3
June 2021. This required the Firm, by 8 June 2021, to tell the Authority the current
number of UK customers and current safeguarded balance for UK customers and to
provide information about its AML and CTF processes and procedures. The Firm
failed to comply with this requirement by 8 June 2021 and did not respond until 9
June 2021.

Relations with the FCA

4.5
The Firm failed to inform the FCA of the investigation by the Bank of Lithuania into
its AML and CTF systems and controls. It also failed to inform the Authority of the
departure of its Chief Compliance and Risk Officer.

Customers and customer assets

4.6
Following the announcement by the Bank of Lithuania, on 8 June 2021 the Firm
contacted the Authority to inform it of the Bank of Lithuania’s findings. The
Authority contacted the Firm and asked it again to provide to the Authority with the
current number of UK customers and current safeguarded balance for UK

customers. The Firm informed the Authority that it could not immediately provide
this information. It asked for an extension of time to provide this information until
11 June 2021 and subsequently provided the information on 9 June 2021, following
further intervention by the Authority.

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CONCLUSION

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

Analysis of failings and risks

5.2
As a result of the above, the Authority considers that the Firm has failed to operate
adequate AML and CTF systems and controls. The Authority also considers that the
Firm does not have adequate systems to enable it to identify the number of UK
customers and the safeguarded balances for UK customers. Therefore, the
Authority considers that the Firm has breached the following:

•
Regulation 6(5)(a) of the Regulations, in that the firm does not have
effective procedures to identify and control the money laundering and
terrorist financing risks to which it is exposed;

•
Regulation 6(5)(c) of the Regulations, in that the firm does not have
sound administrative and accounting procedures to enable it to comply
with information requirements or readily to identify the number of UK
customers and those customers’ safeguarded balances;

•
Regulation 6(6)(b) of the Regulations, in that – as a result of the
conclusions reached by the Bank of Lithuania following its investigation
- the directors and persons responsible for the management of its e-
money and payment services are not of good repute; and

•
Regulation 37 of the Regulations, in that the Firm failed to inform the
Authority without undue delay of the investigation by the Bank of
Lithuania.

5.3
The Authority also considers that the Firm has breached the following of the
Authority’s Principles for Businesses:

•
Principle 2 of the Authority’s Principles for Businesses (Skill, care and
diligence), in that the firm does not have sound administrative and
accounting procedures to enable it to comply with information
requirements or readily to identify the number of UK customers and
those customers’ safeguarded balances;

•
Principle 3 of the Authority’s Principles for Businesses (Management and
control), in that the firm does not have effective procedures to identify
and control the money laundering and terrorist financing risks to which
it is exposed;

•
Principle 11 of the Authority’s Principles for Businesses (Relations with
regulators), in that the Firm failed to inform the Authority without undue
delay of the investigation by the Bank of Lithuania.

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5.4
The Authority has concluded, in light of the matters set out above, that it is
necessary to exercise its own-initiative power under regulation 11 of the
Regulations by imposing the Requirements to stop the Firm conducting regulated
activities because the Firm no longer meets the conditions of authorisation as set
out in this First Supervisory Notice. In addition, we consider it necessary to take
this action in order to ensure the stability of and trust in payment systems and to
protect the interests of money holders and payment service users.

5.5
The Authority considers that the Requirements are a proportionate and appropriate
means to address the current and immediate risks, and are desirable in order to
advance the Authority’s operational objective of consumer protection.

Timing and duration of the Requirements

5.6
It is necessary to impose the Requirements on an urgent basis given the
seriousness of the risks and the need to protect consumers.

5.7
The Authority considers that it is necessary for the Requirements to remain in place
indefinitely.

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PROCEDURAL MATTERS

6.1
This First Supervisory Notice is given under regulation 11(6) of the Regulations and
in accordance with regulation 11(7) of the Regulations.

Decision-maker

6.2
The decision which gave rise to the obligation to give this First Supervisory Notice
was made by David Geale. David Geale is a Director in the Retail Banking and
Payments Division. This First Supervisory Notice is issued in accordance with the
Authority’s Urgent supervisory notice cases procedure (DEPP 3.4.3G). For the
reasons set out above the Authority considers this to be an exceptionally urgent
case.

6.3
The following statutory rights are important.

Representations

6.4
The Firm 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 providing
written representations and/or notifying the Authority that the Firm wishes to make
oral representations is 24 June 2021 or such later date as may be permitted by the
Authority. The address for doing so is:

Paul Ullah
The Financial Conduct Authority
12 Endeavour Square
London
E20 1JN
Email: paul.ullah@fca.org.uk

The Tribunal

6.5
The Firm 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

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Authority. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper
Tribunal) Rules 2008, the Firm 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 the Firm 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/froms/hmcts/tax-and-chancery-upper-tribunal

6.8
The Firm 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 [Supervisor] at the Financial Conduct
Authority, 12 Endeavour Square, London, E20 1JN.

Confidentiality and publicity

6.9
The Firm 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 The Firm should note that section 391(5) of the Act requires the Authority, when
this First Supervisory Notice takes effect, to publish such information about the
matter to which the notice relates as it considers appropriate.

Authority contact

6.11 For more information concerning this matter generally, contact Paul Ullah at the
Authority (paul.ullah@fca.org.uk; (020) 7066 5104).

David Geale
Director, Retail Banking and Payments Division

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RELEVANT STATUTORY PROVISIONS

1.
Regulation 7(1) of the Regulations provides that the Authority may include in the
authorisation of an authorised electronic money institution such requirements as it
considers appropriate. Regulation 7(2) of the Regulations provides that a
requirement may, in particular, be imposed so as to require the person concerned to
take a specified action or to refrain from taking a specified action.

2.
Regulation 8 of the Regulations provides that the Authority may, on the application
of an authorised electronic money institution, vary that person’s authorisation by,
among other things, imposing a requirement such as may, under regulation 7 of the
Regulations, be imposed in an authorisation.

3.
Regulation 11(1) of the Regulations provides that the Authority may vary the
authorisation of an electronic money institution in any of the ways mentioned in
regulation 8 if it appears to the Authority that the variation is desirable in order to
protect the interests of consumers.

4.
Regulation 11(2) of the Regulations provides that a variation takes effect
immediately if the notice given under regulation 11(6) states that this is the case.
Regulation 11(3) of the Regulations provides that a variation may be expressed to
take effect immediately only if the Authority, having regard to the ground on which
it is exercising the power under paragraph 11(1), reasonably considers that it is
necessary for the variation to take effect immediately.

5.
Regulation 11(6) of the Regulations provides that, where the Authority proposes to
vary a person’s authorisation, it must give the person notice.

6.
Section 391 of the Act, as applied in modified form by paragraph 8 of schedule 3 to
the Regulations, 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.

7.
Under paragraph 2 of Schedule 3 of the TPR Regulations, the Firm is to be taken to
be an authorised electronic money institution whose authorisation under Regulation
9 of the Regulations relates to the services it was entitled to provide in the UK in the
exercise of a passport right as an EEA authorised electronic money institution. As
such, references in the Regulations (subject to exclusions in paragraph 7 of Schedule
3 of the TPR Regulations), including under those provisions above, are to be read as
including the Firm.

RELEVANT REGULATORY PROVISIONS

Principles for Businesses

8.
Principle 2 of the Authority’s Principles for Businesses states that a firm must conduct
its business with due skill, care and diligence.

9.
Principle 3 of the Authority’s Principles for Businesses states that a firm must take
reasonable care to organise and control its affairs responsibly and effectively, with
adequate risk management systems.

10.
Principle 11 of the Authority’s Principles for Businesses states that a firm must deal
with its regulators in an open and cooperative way, and must disclose to
the FCA appropriately anything relating to the firm of which that regulator would
reasonably expect notice.

Decision Procedure and Penalties Manual (DEPP)

11.
DEPP 3.4.3G states that, In an exceptionally urgent case the decision to give
a supervisory notice may be taken by a member of the FCA's executive of at least
director of division level if FCA staff consider that the action should be taken before
a recommendation to the Chairman or a Deputy Chairman of the RDC can be made
and an urgent decision on the proposed action is necessary to protect the interests
of consumers.

The Enforcement Guide

12.
The Authority's approach in relation to its enforcement powers is set out in Chapter
8 of the Enforcement Guide (EG), certain provisions of which are summarised below.

13.
EG 19.23 outlines the Authority’s approach to enforcing the provisions of the
Regulations. EG 19.23.4 provides that the Regulations, for the most part, mirror the
Authority’s investigative, sanctioning and regulatory powers under the Act and that
the Authority has decided to adopt procedures and policies in relation to the use of
those powers akin to those it has under the Act.

14.
The Authority considers that the powers under regulation 11(1) of the Regulations
are similar to those under sections 55L of the Act and that the provisions of EG 8:
“Variation and cancellation of permission and imposition of requirements on the
FCA’s own initiative and intervention against incoming firms” are applicable.

15.
EG 8.2.1 states 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 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 (EG 8.2.1(2)).

16.
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 55L of the Act
to impose a requirement 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)).

17.
EG 8.3.1 states 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.

18.
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.

19.
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; 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.

20.
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:

a. The extent of any risk of loss or other adverse effect on consumers;

b. The extent to which customer assets appear to be at risk;

c. The seriousness of any suspected breach of the requirements of the
legislation or rules;

d. The risk that the firm's business may be used or has been used to
facilitate financial crime, including money laundering;

e. The risk that the firm's conduct or business presents to the financial
system and to confidence in the financial system; and

f. The firm’s conduct, including whether the firm brought the issue promptly
to the FCA’s attention.

21.
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.