Supervisory Notice
On , the Financial Conduct Authority issued a Supervisory Notice to Vector Wealth Limited
1
FIRST SUPERVISORY NOTICE
1.1
For the reasons given in this First Supervisory Notice (“First Supervisory Notice”),
and pursuant to section 55L(3)(a) of the Financial Services and Markets Act 2000
(“the Act”), the Financial Conduct Authority (“the Authority”) has decided to impose
the following requirements (“the Requirements”) on Vector Wealth Limited (“Firm”).
1)
With immediate effect, the Firm must cease all regulated activities for which it
has Part 4A permission, without the prior written consent of the Authority.
2)
With immediate effect, the Firm must cease all unregulated activities relating
to unlisted bonds without the prior written consent of the Authority and must
remove the financial promotions for unlisted bonds from the Firm’s websites
including but not limited to www.vectorwealth.co.uk.
3)
The Firm must not, without the prior written consent of the Authority, 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).
4)
Within 5 working days of this First Supervisory Notice, the Firm must secure
all records and preserve all information and systems and must retain these in
a form and at a location within the United Kingdom, to be notified to the
Authority in writing within 5 working days, such that they can be provided to
the Authority, or to a person named by the Authority, promptly on its request.
2
1.2
Paragraph 1.1(3) does not apply to monetary payments or the disposal of assets
made by the Firm in the ordinary course of business, amounting to no more than
£1,000, whether as a single transaction or a combination of related transactions.
The requirement in paragraph 1.1(3) also does not apply to:
1)
Transactions giving effect to instructions initiated by customers.
2)
Payments of funds to the Firm’s suppliers or other third parties in the ordinary
course of business and in satisfaction of the Firm’s contractual and legal
obligations.
3)
Usual and proper salary payments made by the Firm.
1.3
For the purposes of paragraph 1.2, the following payments would not be regarded
as payments made in the ordinary course of business:
1)
Payments of unusual or significant amounts to the Firm’s controllers,
shareholders, directors, officers, employees or any connected persons.
2)
Payments of dividends.
3)
The making of any capital distribution.
4)
The making of any gift or loan by the Firm to any party.
5)
Payments made as part of any financial restructuring or reorganisation of its
business, of from the sale of any part of the Firm’s business (whether share or
asset based).
1.4
These Requirements shall remain in force unless and until varied or cancelled by
the Authority (either on the successful application of the Firm or of the Authority’s
own volition).
2
REASONS FOR ACTION
Summary
2.1
The Authority has concluded, on the basis of the facts and matters described below
that, in respect of the Firm, it is necessary to exercise its power under section
55L(3)(a) of the Act to impose the Requirements on the Firm because it is failing,
or is likely to fail, to satisfy the Threshold Conditions and it is desirable in order to
advance one or more of the Authority’s operational objectives, which includes
securing an appropriate degree of protection for consumers.
2.2
The Authority has serious concerns relating to the Firm’s business following
admission by Mr A, the Firm’s CEO and controller, that he cannot control his
business. Furthermore, the Firm’s website offers financial promotions which may
induce retail investors to invest in unsuitable products.
2.3
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, it is unlikely
that the Authority will receive adequate information from the Firm and the Firm
appears to have inadequate non-financial resources.
3
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;
“Connect” is the Authority’s online regulatory reporting system used by regulated
firms to upload required regulatory information to the Authority;
“the Firm” means Vector Wealth Ltd;
“the
Firm’s
websites”
include
www.vectorwealth.co.uk
and
https://forex.vectorwealth.co.uk;
“Handbook” means the Authority’s online handbook of rules and guidance (as in force
from time to time);
“MLRO” means Money Laundering and Reporting Officer;
“Mr A” is the SMF1 (Chief Executive Officer) and majority shareholder of the Firm;
“Mr B” is an individual who holds a 19.9% shareholding in the Firm;
“Mr C” is an employee of the Firm and SMF16 (Compliance Oversight) applicant for
the Firm;
“Mr D” is an SMF3 (Executive Director) of the Firm;
“Requirements” means the terms imposed on the Firm by this First Supervisory
Notice as outline in section 1 above;
“SIS” means speculative unlisted securities, as defined by the Handbook;
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);
“unlisted bonds” means the bonds promoted on the Firm’s website: Vector Wealth
Absolute Return Forex Bond 2; a bond for Firm Y; a bond for Firm Z; and Fixed
Income Opportunity;
“Firm X” means a firm that holds a 19.9% shareholding in the Firm;
“Firm Y” means an unauthorised firm that Vector Wealth were promoting an unlisted
bond investment opportunity for;
“Firm Z” means an unauthorised firm that Vector Wealth were promoting an unlisted
bond investment opportunity for; and
“voluntary requirements” mean the requirements the Firm was invited to apply for
by the Authority on 10 December 2021;
4
FACTS AND MATTERS
Background
4.1
Vector Wealth was incorporated on 25 November 2009 and Mr A was appointed
Director and sole shareholder on 25 November 2009.
4.2
It was authorised by the Authority on 5 March 2013 to conduct investment
activities. Vector Wealth holds the following Part 4A permissions:
•
Arranging (bringing about) deals in investments
•
Making arrangements with a view to transactions in investments
•
Agreeing to carry on a regulated activity
4.3 The Firm previously traded as Fifth Quarter Asset Management (UK) Limited from
23 March 2012 to 24 October 2019 and as Vanguard Capital Group Limited from 24
October 2019 to 11 March 2020 before it changed its name to Vector Wealth Limited
on 11 March 2020.
4.4 The Firm changed its registered office from First Floor Devonshire House, One
Mayfair Place, London W1J 8AJ to 8-10 Hill Street, London W1J 5NG on 11 June
2021.
4.5 The current Directors at the Firm are Mr A and Mr D.
Approved persons
4.6
Vector Wealth has 2 approved persons which hold SMF functions.
•
Mr A holds SMF1 Chief Executive, SMF3 Executive Director, the SMF16
Compliance Oversight, and SMF17 MLRO functions. He has held these
since 9 December 2019 and their equivalent under the prior approved
persons regime since the firm was authorised on 5 March 2013.
•
Mr D holds the SMF3 Executive Director function. He was approved by
the Authority to hold this function on 6 September 2021.
4.7 Vector Wealth currently has a further approved person application being assessed
by the AUTHORITY for Mr C for the SMF16 Compliance Oversight role currently held
by Mr A.
Controllers
4.8 Mr A is currently a controller of the Firm as he has a 20% or more shareholding).
20% is the threshold at which a shareholder would need to register with the
Authority as a controller and be assessed under the Authority’s change in control
regime.
4.9 On 10 March 2020 the firm changed its name to Vector Wealth Ltd. Shortly
thereafter on 13 May 2020 Firm X acquired shares in the Firm although Mr A
remained majority shareholder:
•
80.1% Mr A
•
19.9% Firm X
4.10
On 13 May 2021 the number of shareholders increased again but Mr A remains
majority shareholder:
5
•
50.2%: Mr A
•
19.9%: Mr B
•
19.9%: Firm X
•
10%: Mr D
Failings and risks identified
Roles of SMF1 (Chief Executive) and majority shareholder
4.11 On 7 September 2021 Mr A copied Authorisations into an email that he sent to
“X”. In this email Mr A stated:
“I would have replied earlier but I was down in SA doing some bird shooting and
just now going through my emails. I have no clue who this [Mr B] character is. I
know it is your company to distribute as you see fit but a heads up would have
been nice. Anyway it is what it is and hopefully you did your due diligence and
none of these characters will do anything to cause us or myself in particular to
have egg on my face…”
4.12 This email gave the Authority two serious concerns. Firstly, Mr A admits to not
knowing who [Mr B] is, despite him owning 19.9% of Vector Wealth (the Firm Mr
A is the majority shareholder of). Secondly, Mr A suggests (“…I know it is your
company to distribute as you see fit…”) that the Firm is not run and controlled by
Mr A.
4.13 On 20 October 2021 Supervision spoke with Mr A on the phone. Mr A stated that
•
had no control over the Firm;
•
did not know Mr C and Mr D; and
•
did not have access to Vector Wealth’s new office since it was relocated
on 11 June 2021.
4.14 Authorised firms upload information to the Authority through the Connect online
reporting system in order to comply with regulatory reporting requirements but
each user is allocated a unique login. On the 20 October 2021 call, Mr A asserted
that third parties had used the personal Connect login details belonging to Mr A
but did not elaborate.
4.15 On 11 November 2021 Supervision sent an information requirement under s165
of the Act to the Firm. On 3 December 2021 Mr A responded on behalf of the Firm.
"Outline the roles and responsibilities (or proposed roles and
responsibilities) of:
[…]
ii.
Mr [C] (applicant SMF 16 Compliance Oversight)
I cannot speak for that since as mentioned earlier I am not
brought in on the day to day activities of the Company. Heck I
don’t even have a key for the building and the one time I went
there I had to be admitted by the reception and only got to the
meeting room…
6
iii.
Mr [B]
I have never met and spoken with him and have no idea what his
role is.
iv.
Mr [D] (SMF3 Executive Director)
I have never met and spoken with him and have no idea what his
role is”
4.16 Due to concerns that Mr A was no longer in control of the Firm, Supervision invited
Mr A to sign a voluntary application on behalf of the Firm for the imposition of
requirements on 10 December 2021. The voluntary requirements included for the
firm to cease all regulated activity, to notify all customers of the voluntary
requirements, and make a statement in a prominent place on their website of the
voluntary requirements.
4.17 On 13 December 2021 Mr A spoke to Supervision. Supervision reminded Mr A of
his obligations as an SMF who is responsible for the Firm to be clear and
transparent with the Authority.
4.18 On 14 December 2021 Mr A sent an email to Supervision refusing to apply for
voluntary requirements. The entirety of this email was “Please note that at this
time I do NOT wish to sign any voluntary requirement”.
4.19 On 14 December 2021 Supervision sent an information requirement to Mr A. On
19 January 2022 the Firm’s response identified contradictions in assertions made
by Mr A that were a cause for concern with the Authority. For example, the Firm
indicated that Mr A was familiar with Mr C and Mr D because he submitted the SMF
applications for them on Connect. The Firm also indicated that Mr A submitted the
changes of address to the Authority on Connect on 18 May 2021 and on 9 June
2021, which runs counter to Mr A assertions that he was not involved with the
day-to-day activities of the Firm and did not possess an office key.
Financial promotions on the Firm’s website
4.20 Currently two unlisted bonds (that fall under the Authority’s definition of a SIS)
are
marketed
on
the
Firm’s
main
landing
page
of
its
website
(www.vectorwealth.co.uk/investments). If a customer clicks on one of these
promotions they are taken to a screen where they are asked to “Create an
account”.
•
Vector Wealth Absolute Return Forex Bond 2 which is described as
“Offering the potential for returns of 15%. REGISTER TO SEE FULL
DETAILS”.
•
A bond for Firm Y, which is described as “Property Bond offering 11%
per annum return paid half yearly. REGISTER TO SEE FULL DETAILS.”
4.1
There are two further unlisted bonds (also SIS) marketed on the Firm’s website.
•
A bond for Firm Z, which is described as “offering high fixed returns utilising
strong relationships in the property market” and offers a “12% fixed return
per annum”. (https://forex.vectorwealth.co.uk/property-invest/)
•
A “Fixed Income Opportunity” bond, which offers a “15% fixed return”.
(https://forex.vectorwealth.co.uk/opportunity/)
7
4.2
Retail customers would be able to see a significant amount of detail about these
four Unlisted Bonds which, given the high rate of returns being advertised, could
entice them to invest in an extremely high-risk investments and could result in
them losing all the money invested.
4.3
Furthermore none of the Unlisted Bonds includes the specific risk warnings required
when promoting a SIS.
5
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
Pursuant to paragraph 2C of Schedule 6 of the Act, the Firm must be capable of
being effectively supervised by the Authority having regard to all the circumstances
including the way in which the Firm’s business is organised. The admission by Mr A
as CEO and controller that he cannot control the Firm, that he is unfamiliar with
fellow senior managers and significant shareholders, and that he cannot access the
office support Supervision’s concern that the Firm is not organised in such a way
that it can be capably supervised. The Firm’s responses contradict information
provided by Mr A which further gives rise to Supervision’s concerns about the way
in which the Firm’s business is organised and that the Firm cannot be effectively
supervised. As a result the Firm appears to be failing to meet the Effective
Supervision Threshold Condition.
5.3
Pursuant to paragraph 2D of Schedule 6 of the Act, the Firm’s resources must be
appropriate in relation to the regulated activities that the Firm carries on. Matters
which are relevant in determining whether A has appropriate non-financial
resources include whether the Firm’s non-financial resources are sufficient to enable
the Firm to comply with requirements imposed by the Authority in the course of the
exercise of its functions. The admission by Mr A as CEO and controller that he
cannot control the Firm, that he is unfamiliar with fellow senior managers and
significant shareholders, and that he cannot access the office support Supervision’s
concern that the Firm may not comply with requirements imposed by the Authority
in the exercise of its functions and is likely to fail to meet its Appropriate Resources
Threshold Condition.
5.4
Pursuant to paragraph 2E to Schedule 6 of the Act, the Firm must be fit and proper,
having regard to all the circumstances including the need to ensure the Firm’s
affairs are conducted in an appropriate manner, having regard in particular to the
interests of consumers; whether the Firm 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 the Firm has so complied or is so complying, the manner of that compliance;
and whether the Firm’s business is being, or is to be, managed in such a way as to
ensure that its affairs will be conducted in a sound and prudent manner. The
admission by Mr A as CEO and controller that he cannot control the Firm, that he is
unfamiliar with fellow senior managers and significant shareholders, and that he
cannot access the office support Supervision’s concerns that the affairs of the Firm
cannot be managed in a sound and prudent manner. The Firm’s responses
contradict information provided by Mr A which further gives rise to Supervision’s
concerns about the Firm being able to conduct its affairs in a sound and prudent
manner. The Firm therefore appears to be failing to meet its Suitability Threshold
Condition.
5.5
SIS’s are extremely high risk and complicated investment products which are
unsuitable for retail customers because they are unlikely to understand the
investment they are making, the risks involved, and the potential to lose all of the
money invested.
5.6
The financial promotions on the Firm’s website are accessible to retail investors and
as a result appear to breach COBS Rule 4.14.5R(1) of the Handbook which requires
that the Firm must not communicate or approve a financial promotion in relation to
a SIS, where that financial promotion is addressed to or disseminated in such a way
that it is likely to be received by a retail investor.
5.7
Furthermore the financial promotions also appear to breach COBS 4.14.9R(1) of
the Handbook because they do not include specific risk warnings that must be
contained within financial promotions of SIS.
5.8
These apparent COBS breaches pose a serious risk that retail investors may suffer
loss because they are able to view the products on the Firm’s websites including
the promise of high returns on investment. Furthermore the website lacks warnings
that may otherwise dissuade retail investors about investing in these high-risk
products.
5.9
The lack of appropriate non-financial resources and the inability to effectively
supervise the Firm’s activities in order to assess how they are impacting retail
investors increases the Authority’s concerns of the risk of harm to existing and
potential retail investors. The Authority is unable to assess the amount that may
already be invested in these SIS and the nature of the client base. By seeking an
assets restriction, the Authority will be able to gather further information from the
Firm about its activities while preventing the potential investment from retail
investors and payments out to SIS.
5.10 The Authority has concluded, in light of the matters set out above, that it is
necessary to exercise its own-initiative power under section 55L(3)(a) of the Act by
imposing the Requirements to stop the Firm conducting regulated activities,
unregulated activities relating to SIS and the dissipation of assets in order to protect
the interests of consumers.
5.11 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
5.12 It is necessary to impose the Requirements on an urgent basis given the
seriousness of the risks and the need to protect consumers.
5.13 The Authority considers that it is necessary for the Requirements to remain in place
indefinitely.
6
PROCEDURAL MATTERS
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 of the Handbook.
6.2
This First Supervisory Notice is given under section 55Y(4) of the Act and in
accordance with section 55Y(5) of the Act.
6.3
The following statutory rights are important.
Representations
6.4
The Firm has the right to make written representations to the Authority (whether
or not it refers this matter to the Tribunal). The Firm may also request to make oral
representations but the Authority will only consider this in exceptional
circumstances, according to DEPP 2.3.1AG of the Handbook. The deadline for
providing written representations and notifying the Authority that the Firm wishes
to make oral representations is 2 March 2022 or such later date as may be
permitted by the Authority. Any notification or representations should be sent to
David Watkins at David.Watkins@Authority.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 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, 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/forms/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
David
Watkins
at
David.Watkins@Authority.org.uk .
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
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 at
David.Watkins@Authority.org.uk.
6.12 Any questions regarding the executive procedures decision-making process should
be directed to David Watkins at David.Watkins@Authority.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, and protecting and
enhancing the integrity of the UK financial system.
2.
Section 55L of the Act allows the Authority to impose a new requirement on an
authorised person if it appears to the Authority that the authorised person is failing,
or likely to fail to satisfy the Threshold Conditions (section 55L(2)(a)), or it is
desirable to exercise the power in order to advance one or more of the Authority’s
operational objectives (section 55L(2)(c)).
3.
Section 55N of the Act allows a requirement to be imposed under section 55L of the
Act so as to require the person concerned to take specified action (section
55N(1)(a)), or to refrain from taking specified action (section 55N(1)(b)).
4.
Section 55P of the Act allows a requirement to be imposed under section 55L of the
Act prohibiting the disposal of, or other dealing with, any of an authorised person’s
assets (whether in the UK or elsewhere), or restricting such disposals or dealings.
5.
Section 55Y(3) of the Act allows a requirement to take effect immediately (or on a
specified date) if the Authority, having regard to the ground on which it is exercising
its own-initiative power, reasonably considers that it is necessary for the requirement
to take effect immediately (or on that date).
6.
Section 391 of the Act provides that:
“[…]
(5) When a supervisory notice takes effect, the Authority must publish such
information about the matter to which the notice relates as it considers
appropriate.
(6) But the Authority may not publish information under this section if in its
opinion, publication of the information would, be unfair to the person with
respect to whom the action was taken or proposed to be taken [or]
prejudicial to the interests of consumers or detrimental to the stability of the
UK financial system.
(7) Information is to be published under this section in such manner as
the Authority considers appropriate.”
7. Paragraph 2C of Schedule 6 to the Act provides that (1) the firm must be capable
of being effectively supervised by the Authority having regard to all the
circumstances including (a) the nature (including the complexity) of the regulated
activities that the firm carries on or seeks to carry on; (b) the complexity of any
products that the firm provides or will provide in carrying on those activities; (c)
the way in which the firm’s business is organised; (d) if the firm is a member of a
group, whether membership of the group is likely to prevent the Authority’s
effective supervision of the firm; (e) whether the firm is subject to consolidated
supervision required under any relevant implementing provisions; (f) if the firm
has close links with another person (“CL”) (i) the nature of the relationship between
the firm and CL, (ii)whether those links are or that relationship is likely to prevent
the Authority’s effective supervision of the for,, and (iii) if CL is subject to the laws,
regulations or administrative provisions of a country or territory outside the United
Kingdom (“the foreign provisions”), whether those foreign provisions, or any
deficiency in their enforcement, would prevent the Authority’s effective supervision
of the firm.
(1A) Paragraphs (a), (b) and (e) of sub-paragraph (1) do not apply where the only
regulated activities that the person carries on, or seeks to carry on, are (a) relevant
credit activities, and (b) if any, activities to which, by virtue of section 39(1D),
sections 20(1) and (1A) and 23(1A) do not apply when carried on by the person.
(2) The firm has close links with CL if (a) CL is a parent undertaking of the firm,
(b) CL is a subsidiary undertaking of the firm, (c) CL is a parent undertaking of a
subsidiary undertaking of the firm, (d) CL is a subsidiary undertaking of a parent
undertaking of the firm, (e) CL owns or controls 20% or more of the voting rights
or capital of the firm, or (f) the firm owns or controls 20% or more of the voting
rights or capital of CL.
8. Paragraph 2D of Schedule 6 to the Act provides that (1) the resources of the firm
must be appropriate in relation to the regulated activities that the firm carries on
or seeks to carry on.
(2) The matters which are relevant in determining whether the firm has appropriate
resources include (a) the nature and scale of the business carried on, or to be
carried on, by the firm; (b) the risks to the continuity of the services provided by,
or to be provided by, the firm; (c) the firm’s membership of a group and any effect
which that membership may have.
(3) Except in a case within sub-paragraph (3A), the matters which are relevant in
determining whether the firm has appropriate financial resources include (a) the
provision the firm makes and, if the firm is a member of a group, which other
members of the group make, in respect of liabilities; (b) the means by which the
firm manages and, if the firm is a member of a group, by which other members of
the group manage, the incidence of risk in connection with the firm’s business.
(3A) Where the only regulated activities that A carries on or seeks to carry on are
(a) relevant credit activities, and (b) if any, activities to which, by virtue of section
39(1D), sections 20(1) and (1A) and 23(1A) do not apply when carried on by the
firm, the firm has adequate financial resources if the firm is capable of meeting A’s
debts as they fall due.
(4) The matters which are relevant in determining whether A has appropriate non-
financial resources include (a) the skills and experience of those who manage the
firm’s affairs; (b) whether the firm’s non-financial resources are sufficient to enable
the firm to comply with (i)requirements imposed or likely to be imposed on the firm
by the Authority in the exercise of its functions, or (ii)any other requirement in
relation to whose contravention the Authority would be the appropriate regulator
for the purpose of any provision of Part 14 of this Act.
9. Paragraph 2E of Schedule 6 to the Act provides that the firm must be a fit and
proper person having regard to all the circumstances, including (a) the firm’s
connection with any person; (b) the nature (including the complexity) of the
regulated activities that A carries on or seeks to carry on; (c) the need to ensure
that the firm’s affairs are conducted in an appropriate manner, having regard in
particular to the interests of consumers and the integrity of the UK financial
system; (d) whether the firm 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
the firm has so complied or is so complying, the manner of that compliance; (e)
whether those who manage the firm’s affairs have adequate skills and experience
and have acted and may be expected to act with probity; (f) whether the firm’s
business is being, or is to be, managed in such a way as to ensure that its affairs
will be conducted in a sound and prudent manner; (g) the need to minimise the
extent to which it is possible for the business carried on by the firm, or to be carried
on by the firm, to be used for a purpose connected with financial crime.
RELEVANT REGULATORY PROVISIONS
The Enforcement Guide
10.
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.
11.
EG 8.1.1 reflects the provisions of section 55L of the Act by stating that the Authority
may use its own-initiative power to impose requirements on an authorised person
where, amongst other factors, the person is failing or is likely to fail to satisfy the
threshold conditions for which the Authority is responsible (EG 8.1.1(1)), or it is
desirable to exercise the power in order to advance one or more of its operational
objectives (EG 8.1.1(3)).
12.
EG 8.2.1 states that when the Authority considers how it should deal with a concern
about a firm, it will have regard to its statutory objectives and the range of regulatory
tools that are available to it. It will also have regard to the principle that a restriction
imposed on a firm should be proportionate to the objectives the Authority is seeking
to achieve (EG 8.2.1(2)).
13.
EG 8.2.3 states that in the course of its supervision and monitoring of a firm or as
part of an enforcement action, the Authority may make it clear that it expects the
firm to take certain steps to meet regulatory requirements. In the vast majority of
cases the Authority will seek to agree with a firm those steps the firm must take to
address the Authority’s concerns. However, where the Authority considers it
appropriate to do so, it will exercise its formal powers under section 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)).
14.
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.
15.
EG 8.3.2 states that the Authority will consider exercising its own-initiative power as
a matter of urgency where: 1) the information available to it indicates serious
concerns about the firm or its business that need to be addressed immediately; and
2) circumstances indicate that it is appropriate to use statutory powers immediately
to require and/or prohibit certain actions by the firm in order to ensure the firm
addresses these concerns.
16.
EG 8.3.3 states that it is not possible to provide an exhaustive list of the situations
that will give rise to such serious concerns, but they are likely to include one or more
of four listed characteristics, these include: 1) information indicating significant loss,
risk of loss or other adverse effects for consumers, where action is necessary to
protect their interests; 2) information indicating that a firm’s conduct has put it at
risk of being used for the purposes of financial crime, or of being otherwise involved
in crime; 3) evidence that the firm has submitted to the Authority inaccurate or
misleading information so that the Authority becomes seriously concerned about the
firm’s ability to meet its regulatory obligations; 4) circumstances suggesting a
serious problem within a firm or with a firm’s controllers that calls into question the
firm’s ability to continue to meet the threshold conditions.
17.
EG 8.3.4 states that the Authority will consider the full circumstances of each case
when it decides whether an imposition of a requirement is appropriate and sets out
a non-exhaustive list of factors the Authority may consider, these include (1) The
extent of any loss, or risk of loss, or other adverse effect on consumers. The more
serious the loss or potential loss or other adverse effect, the more likely it is that
the Authority’s exercise of own-initiative powers will be appropriate, to protect the
consumers' interests. (2) The extent to which customer assets appear to be at risk.
Exercise of the Authority’s own-initiative power may be appropriate where the
information available to the Authority suggests that customer assets held by, or to
the order of, the firm may be at risk (3) The nature and extent of any false or
inaccurate information provided by the firm. Whether false or inaccurate information
warrants the Authority’s exercise of its own-initiative powers will depend on matters
such as: (a) the impact of the information on the Authority’s view of
the firm's compliance with the regulatory requirements to which it is subject,
the firm's suitability to conduct regulated activities, or the likelihood that
the firm's business may be being used in connection with financial crime;
(b) whether the information appears to have been provided in an attempt knowingly
to mislead the Authority, rather than through inadvertence; (c) whether the matters
to which false or inaccurate information relates indicate there is a risk
to customer assets
or
to
the
other
interests
of
the firm's actual
or
potential customers. (4) 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.
18.
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.
19.
COBS 4.14.5R states that (1) a firm or a TP firm must not communicate or approve
a financial promotion in relation to a speculative illiquid security where that financial
promotion is addressed to or disseminated n such a way that it is likely to be received
by a retail client. (2) The restriction in (1) is subject to COBS 4.14.6R.
20.
COBS 4.14.8R states that subject to COBS 4.14.5R and COBS 4.14.6R, a firm or TP
firm must not communicate or approve a financial promotion which relates to a
speculative illiquid security unless it contains (1) a risk warning that complies with
4.14(9)R; (2) if applicable, the date on which the financial promotion was approved;
and (3) statements that comply with COBS 4.14.12R disclosing all costs, charges
and commission.
21.
COBS 4.14.9R states that (1) for the purposes of COBS 4.14.8R1, and subject to
COBS 4.14.9R(2) and COBS 4.14.9R(3), the financial promotion must contain the
following risk warning: “You could lose all of your money invested in this product.
This is a high-risk investment and is much riskier than a savings account.”
FIRST SUPERVISORY NOTICE
1.1
For the reasons given in this First Supervisory Notice (“First Supervisory Notice”),
and pursuant to section 55L(3)(a) of the Financial Services and Markets Act 2000
(“the Act”), the Financial Conduct Authority (“the Authority”) has decided to impose
the following requirements (“the Requirements”) on Vector Wealth Limited (“Firm”).
1)
With immediate effect, the Firm must cease all regulated activities for which it
has Part 4A permission, without the prior written consent of the Authority.
2)
With immediate effect, the Firm must cease all unregulated activities relating
to unlisted bonds without the prior written consent of the Authority and must
remove the financial promotions for unlisted bonds from the Firm’s websites
including but not limited to www.vectorwealth.co.uk.
3)
The Firm must not, without the prior written consent of the Authority, 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).
4)
Within 5 working days of this First Supervisory Notice, the Firm must secure
all records and preserve all information and systems and must retain these in
a form and at a location within the United Kingdom, to be notified to the
Authority in writing within 5 working days, such that they can be provided to
the Authority, or to a person named by the Authority, promptly on its request.
2
1.2
Paragraph 1.1(3) does not apply to monetary payments or the disposal of assets
made by the Firm in the ordinary course of business, amounting to no more than
£1,000, whether as a single transaction or a combination of related transactions.
The requirement in paragraph 1.1(3) also does not apply to:
1)
Transactions giving effect to instructions initiated by customers.
2)
Payments of funds to the Firm’s suppliers or other third parties in the ordinary
course of business and in satisfaction of the Firm’s contractual and legal
obligations.
3)
Usual and proper salary payments made by the Firm.
1.3
For the purposes of paragraph 1.2, the following payments would not be regarded
as payments made in the ordinary course of business:
1)
Payments of unusual or significant amounts to the Firm’s controllers,
shareholders, directors, officers, employees or any connected persons.
2)
Payments of dividends.
3)
The making of any capital distribution.
4)
The making of any gift or loan by the Firm to any party.
5)
Payments made as part of any financial restructuring or reorganisation of its
business, of from the sale of any part of the Firm’s business (whether share or
asset based).
1.4
These Requirements shall remain in force unless and until varied or cancelled by
the Authority (either on the successful application of the Firm or of the Authority’s
own volition).
2
REASONS FOR ACTION
Summary
2.1
The Authority has concluded, on the basis of the facts and matters described below
that, in respect of the Firm, it is necessary to exercise its power under section
55L(3)(a) of the Act to impose the Requirements on the Firm because it is failing,
or is likely to fail, to satisfy the Threshold Conditions and it is desirable in order to
advance one or more of the Authority’s operational objectives, which includes
securing an appropriate degree of protection for consumers.
2.2
The Authority has serious concerns relating to the Firm’s business following
admission by Mr A, the Firm’s CEO and controller, that he cannot control his
business. Furthermore, the Firm’s website offers financial promotions which may
induce retail investors to invest in unsuitable products.
2.3
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, it is unlikely
that the Authority will receive adequate information from the Firm and the Firm
appears to have inadequate non-financial resources.
3
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;
“Connect” is the Authority’s online regulatory reporting system used by regulated
firms to upload required regulatory information to the Authority;
“the Firm” means Vector Wealth Ltd;
“the
Firm’s
websites”
include
www.vectorwealth.co.uk
and
https://forex.vectorwealth.co.uk;
“Handbook” means the Authority’s online handbook of rules and guidance (as in force
from time to time);
“MLRO” means Money Laundering and Reporting Officer;
“Mr A” is the SMF1 (Chief Executive Officer) and majority shareholder of the Firm;
“Mr B” is an individual who holds a 19.9% shareholding in the Firm;
“Mr C” is an employee of the Firm and SMF16 (Compliance Oversight) applicant for
the Firm;
“Mr D” is an SMF3 (Executive Director) of the Firm;
“Requirements” means the terms imposed on the Firm by this First Supervisory
Notice as outline in section 1 above;
“SIS” means speculative unlisted securities, as defined by the Handbook;
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);
“unlisted bonds” means the bonds promoted on the Firm’s website: Vector Wealth
Absolute Return Forex Bond 2; a bond for Firm Y; a bond for Firm Z; and Fixed
Income Opportunity;
“Firm X” means a firm that holds a 19.9% shareholding in the Firm;
“Firm Y” means an unauthorised firm that Vector Wealth were promoting an unlisted
bond investment opportunity for;
“Firm Z” means an unauthorised firm that Vector Wealth were promoting an unlisted
bond investment opportunity for; and
“voluntary requirements” mean the requirements the Firm was invited to apply for
by the Authority on 10 December 2021;
4
FACTS AND MATTERS
Background
4.1
Vector Wealth was incorporated on 25 November 2009 and Mr A was appointed
Director and sole shareholder on 25 November 2009.
4.2
It was authorised by the Authority on 5 March 2013 to conduct investment
activities. Vector Wealth holds the following Part 4A permissions:
•
Arranging (bringing about) deals in investments
•
Making arrangements with a view to transactions in investments
•
Agreeing to carry on a regulated activity
4.3 The Firm previously traded as Fifth Quarter Asset Management (UK) Limited from
23 March 2012 to 24 October 2019 and as Vanguard Capital Group Limited from 24
October 2019 to 11 March 2020 before it changed its name to Vector Wealth Limited
on 11 March 2020.
4.4 The Firm changed its registered office from First Floor Devonshire House, One
Mayfair Place, London W1J 8AJ to 8-10 Hill Street, London W1J 5NG on 11 June
2021.
4.5 The current Directors at the Firm are Mr A and Mr D.
Approved persons
4.6
Vector Wealth has 2 approved persons which hold SMF functions.
•
Mr A holds SMF1 Chief Executive, SMF3 Executive Director, the SMF16
Compliance Oversight, and SMF17 MLRO functions. He has held these
since 9 December 2019 and their equivalent under the prior approved
persons regime since the firm was authorised on 5 March 2013.
•
Mr D holds the SMF3 Executive Director function. He was approved by
the Authority to hold this function on 6 September 2021.
4.7 Vector Wealth currently has a further approved person application being assessed
by the AUTHORITY for Mr C for the SMF16 Compliance Oversight role currently held
by Mr A.
Controllers
4.8 Mr A is currently a controller of the Firm as he has a 20% or more shareholding).
20% is the threshold at which a shareholder would need to register with the
Authority as a controller and be assessed under the Authority’s change in control
regime.
4.9 On 10 March 2020 the firm changed its name to Vector Wealth Ltd. Shortly
thereafter on 13 May 2020 Firm X acquired shares in the Firm although Mr A
remained majority shareholder:
•
80.1% Mr A
•
19.9% Firm X
4.10
On 13 May 2021 the number of shareholders increased again but Mr A remains
majority shareholder:
5
•
50.2%: Mr A
•
19.9%: Mr B
•
19.9%: Firm X
•
10%: Mr D
Failings and risks identified
Roles of SMF1 (Chief Executive) and majority shareholder
4.11 On 7 September 2021 Mr A copied Authorisations into an email that he sent to
“X”. In this email Mr A stated:
“I would have replied earlier but I was down in SA doing some bird shooting and
just now going through my emails. I have no clue who this [Mr B] character is. I
know it is your company to distribute as you see fit but a heads up would have
been nice. Anyway it is what it is and hopefully you did your due diligence and
none of these characters will do anything to cause us or myself in particular to
have egg on my face…”
4.12 This email gave the Authority two serious concerns. Firstly, Mr A admits to not
knowing who [Mr B] is, despite him owning 19.9% of Vector Wealth (the Firm Mr
A is the majority shareholder of). Secondly, Mr A suggests (“…I know it is your
company to distribute as you see fit…”) that the Firm is not run and controlled by
Mr A.
4.13 On 20 October 2021 Supervision spoke with Mr A on the phone. Mr A stated that
•
had no control over the Firm;
•
did not know Mr C and Mr D; and
•
did not have access to Vector Wealth’s new office since it was relocated
on 11 June 2021.
4.14 Authorised firms upload information to the Authority through the Connect online
reporting system in order to comply with regulatory reporting requirements but
each user is allocated a unique login. On the 20 October 2021 call, Mr A asserted
that third parties had used the personal Connect login details belonging to Mr A
but did not elaborate.
4.15 On 11 November 2021 Supervision sent an information requirement under s165
of the Act to the Firm. On 3 December 2021 Mr A responded on behalf of the Firm.
"Outline the roles and responsibilities (or proposed roles and
responsibilities) of:
[…]
ii.
Mr [C] (applicant SMF 16 Compliance Oversight)
I cannot speak for that since as mentioned earlier I am not
brought in on the day to day activities of the Company. Heck I
don’t even have a key for the building and the one time I went
there I had to be admitted by the reception and only got to the
meeting room…
6
iii.
Mr [B]
I have never met and spoken with him and have no idea what his
role is.
iv.
Mr [D] (SMF3 Executive Director)
I have never met and spoken with him and have no idea what his
role is”
4.16 Due to concerns that Mr A was no longer in control of the Firm, Supervision invited
Mr A to sign a voluntary application on behalf of the Firm for the imposition of
requirements on 10 December 2021. The voluntary requirements included for the
firm to cease all regulated activity, to notify all customers of the voluntary
requirements, and make a statement in a prominent place on their website of the
voluntary requirements.
4.17 On 13 December 2021 Mr A spoke to Supervision. Supervision reminded Mr A of
his obligations as an SMF who is responsible for the Firm to be clear and
transparent with the Authority.
4.18 On 14 December 2021 Mr A sent an email to Supervision refusing to apply for
voluntary requirements. The entirety of this email was “Please note that at this
time I do NOT wish to sign any voluntary requirement”.
4.19 On 14 December 2021 Supervision sent an information requirement to Mr A. On
19 January 2022 the Firm’s response identified contradictions in assertions made
by Mr A that were a cause for concern with the Authority. For example, the Firm
indicated that Mr A was familiar with Mr C and Mr D because he submitted the SMF
applications for them on Connect. The Firm also indicated that Mr A submitted the
changes of address to the Authority on Connect on 18 May 2021 and on 9 June
2021, which runs counter to Mr A assertions that he was not involved with the
day-to-day activities of the Firm and did not possess an office key.
Financial promotions on the Firm’s website
4.20 Currently two unlisted bonds (that fall under the Authority’s definition of a SIS)
are
marketed
on
the
Firm’s
main
landing
page
of
its
website
(www.vectorwealth.co.uk/investments). If a customer clicks on one of these
promotions they are taken to a screen where they are asked to “Create an
account”.
•
Vector Wealth Absolute Return Forex Bond 2 which is described as
“Offering the potential for returns of 15%. REGISTER TO SEE FULL
DETAILS”.
•
A bond for Firm Y, which is described as “Property Bond offering 11%
per annum return paid half yearly. REGISTER TO SEE FULL DETAILS.”
4.1
There are two further unlisted bonds (also SIS) marketed on the Firm’s website.
•
A bond for Firm Z, which is described as “offering high fixed returns utilising
strong relationships in the property market” and offers a “12% fixed return
per annum”. (https://forex.vectorwealth.co.uk/property-invest/)
•
A “Fixed Income Opportunity” bond, which offers a “15% fixed return”.
(https://forex.vectorwealth.co.uk/opportunity/)
7
4.2
Retail customers would be able to see a significant amount of detail about these
four Unlisted Bonds which, given the high rate of returns being advertised, could
entice them to invest in an extremely high-risk investments and could result in
them losing all the money invested.
4.3
Furthermore none of the Unlisted Bonds includes the specific risk warnings required
when promoting a SIS.
5
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
Pursuant to paragraph 2C of Schedule 6 of the Act, the Firm must be capable of
being effectively supervised by the Authority having regard to all the circumstances
including the way in which the Firm’s business is organised. The admission by Mr A
as CEO and controller that he cannot control the Firm, that he is unfamiliar with
fellow senior managers and significant shareholders, and that he cannot access the
office support Supervision’s concern that the Firm is not organised in such a way
that it can be capably supervised. The Firm’s responses contradict information
provided by Mr A which further gives rise to Supervision’s concerns about the way
in which the Firm’s business is organised and that the Firm cannot be effectively
supervised. As a result the Firm appears to be failing to meet the Effective
Supervision Threshold Condition.
5.3
Pursuant to paragraph 2D of Schedule 6 of the Act, the Firm’s resources must be
appropriate in relation to the regulated activities that the Firm carries on. Matters
which are relevant in determining whether A has appropriate non-financial
resources include whether the Firm’s non-financial resources are sufficient to enable
the Firm to comply with requirements imposed by the Authority in the course of the
exercise of its functions. The admission by Mr A as CEO and controller that he
cannot control the Firm, that he is unfamiliar with fellow senior managers and
significant shareholders, and that he cannot access the office support Supervision’s
concern that the Firm may not comply with requirements imposed by the Authority
in the exercise of its functions and is likely to fail to meet its Appropriate Resources
Threshold Condition.
5.4
Pursuant to paragraph 2E to Schedule 6 of the Act, the Firm must be fit and proper,
having regard to all the circumstances including the need to ensure the Firm’s
affairs are conducted in an appropriate manner, having regard in particular to the
interests of consumers; whether the Firm 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 the Firm has so complied or is so complying, the manner of that compliance;
and whether the Firm’s business is being, or is to be, managed in such a way as to
ensure that its affairs will be conducted in a sound and prudent manner. The
admission by Mr A as CEO and controller that he cannot control the Firm, that he is
unfamiliar with fellow senior managers and significant shareholders, and that he
cannot access the office support Supervision’s concerns that the affairs of the Firm
cannot be managed in a sound and prudent manner. The Firm’s responses
contradict information provided by Mr A which further gives rise to Supervision’s
concerns about the Firm being able to conduct its affairs in a sound and prudent
manner. The Firm therefore appears to be failing to meet its Suitability Threshold
Condition.
5.5
SIS’s are extremely high risk and complicated investment products which are
unsuitable for retail customers because they are unlikely to understand the
investment they are making, the risks involved, and the potential to lose all of the
money invested.
5.6
The financial promotions on the Firm’s website are accessible to retail investors and
as a result appear to breach COBS Rule 4.14.5R(1) of the Handbook which requires
that the Firm must not communicate or approve a financial promotion in relation to
a SIS, where that financial promotion is addressed to or disseminated in such a way
that it is likely to be received by a retail investor.
5.7
Furthermore the financial promotions also appear to breach COBS 4.14.9R(1) of
the Handbook because they do not include specific risk warnings that must be
contained within financial promotions of SIS.
5.8
These apparent COBS breaches pose a serious risk that retail investors may suffer
loss because they are able to view the products on the Firm’s websites including
the promise of high returns on investment. Furthermore the website lacks warnings
that may otherwise dissuade retail investors about investing in these high-risk
products.
5.9
The lack of appropriate non-financial resources and the inability to effectively
supervise the Firm’s activities in order to assess how they are impacting retail
investors increases the Authority’s concerns of the risk of harm to existing and
potential retail investors. The Authority is unable to assess the amount that may
already be invested in these SIS and the nature of the client base. By seeking an
assets restriction, the Authority will be able to gather further information from the
Firm about its activities while preventing the potential investment from retail
investors and payments out to SIS.
5.10 The Authority has concluded, in light of the matters set out above, that it is
necessary to exercise its own-initiative power under section 55L(3)(a) of the Act by
imposing the Requirements to stop the Firm conducting regulated activities,
unregulated activities relating to SIS and the dissipation of assets in order to protect
the interests of consumers.
5.11 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
5.12 It is necessary to impose the Requirements on an urgent basis given the
seriousness of the risks and the need to protect consumers.
5.13 The Authority considers that it is necessary for the Requirements to remain in place
indefinitely.
6
PROCEDURAL MATTERS
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 of the Handbook.
6.2
This First Supervisory Notice is given under section 55Y(4) of the Act and in
accordance with section 55Y(5) of the Act.
6.3
The following statutory rights are important.
Representations
6.4
The Firm has the right to make written representations to the Authority (whether
or not it refers this matter to the Tribunal). The Firm may also request to make oral
representations but the Authority will only consider this in exceptional
circumstances, according to DEPP 2.3.1AG of the Handbook. The deadline for
providing written representations and notifying the Authority that the Firm wishes
to make oral representations is 2 March 2022 or such later date as may be
permitted by the Authority. Any notification or representations should be sent to
David Watkins at David.Watkins@Authority.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 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, 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/forms/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
David
Watkins
at
David.Watkins@Authority.org.uk .
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
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 at
David.Watkins@Authority.org.uk.
6.12 Any questions regarding the executive procedures decision-making process should
be directed to David Watkins at David.Watkins@Authority.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, and protecting and
enhancing the integrity of the UK financial system.
2.
Section 55L of the Act allows the Authority to impose a new requirement on an
authorised person if it appears to the Authority that the authorised person is failing,
or likely to fail to satisfy the Threshold Conditions (section 55L(2)(a)), or it is
desirable to exercise the power in order to advance one or more of the Authority’s
operational objectives (section 55L(2)(c)).
3.
Section 55N of the Act allows a requirement to be imposed under section 55L of the
Act so as to require the person concerned to take specified action (section
55N(1)(a)), or to refrain from taking specified action (section 55N(1)(b)).
4.
Section 55P of the Act allows a requirement to be imposed under section 55L of the
Act prohibiting the disposal of, or other dealing with, any of an authorised person’s
assets (whether in the UK or elsewhere), or restricting such disposals or dealings.
5.
Section 55Y(3) of the Act allows a requirement to take effect immediately (or on a
specified date) if the Authority, having regard to the ground on which it is exercising
its own-initiative power, reasonably considers that it is necessary for the requirement
to take effect immediately (or on that date).
6.
Section 391 of the Act provides that:
“[…]
(5) When a supervisory notice takes effect, the Authority must publish such
information about the matter to which the notice relates as it considers
appropriate.
(6) But the Authority may not publish information under this section if in its
opinion, publication of the information would, be unfair to the person with
respect to whom the action was taken or proposed to be taken [or]
prejudicial to the interests of consumers or detrimental to the stability of the
UK financial system.
(7) Information is to be published under this section in such manner as
the Authority considers appropriate.”
7. Paragraph 2C of Schedule 6 to the Act provides that (1) the firm must be capable
of being effectively supervised by the Authority having regard to all the
circumstances including (a) the nature (including the complexity) of the regulated
activities that the firm carries on or seeks to carry on; (b) the complexity of any
products that the firm provides or will provide in carrying on those activities; (c)
the way in which the firm’s business is organised; (d) if the firm is a member of a
group, whether membership of the group is likely to prevent the Authority’s
effective supervision of the firm; (e) whether the firm is subject to consolidated
supervision required under any relevant implementing provisions; (f) if the firm
has close links with another person (“CL”) (i) the nature of the relationship between
the firm and CL, (ii)whether those links are or that relationship is likely to prevent
the Authority’s effective supervision of the for,, and (iii) if CL is subject to the laws,
regulations or administrative provisions of a country or territory outside the United
Kingdom (“the foreign provisions”), whether those foreign provisions, or any
deficiency in their enforcement, would prevent the Authority’s effective supervision
of the firm.
(1A) Paragraphs (a), (b) and (e) of sub-paragraph (1) do not apply where the only
regulated activities that the person carries on, or seeks to carry on, are (a) relevant
credit activities, and (b) if any, activities to which, by virtue of section 39(1D),
sections 20(1) and (1A) and 23(1A) do not apply when carried on by the person.
(2) The firm has close links with CL if (a) CL is a parent undertaking of the firm,
(b) CL is a subsidiary undertaking of the firm, (c) CL is a parent undertaking of a
subsidiary undertaking of the firm, (d) CL is a subsidiary undertaking of a parent
undertaking of the firm, (e) CL owns or controls 20% or more of the voting rights
or capital of the firm, or (f) the firm owns or controls 20% or more of the voting
rights or capital of CL.
8. Paragraph 2D of Schedule 6 to the Act provides that (1) the resources of the firm
must be appropriate in relation to the regulated activities that the firm carries on
or seeks to carry on.
(2) The matters which are relevant in determining whether the firm has appropriate
resources include (a) the nature and scale of the business carried on, or to be
carried on, by the firm; (b) the risks to the continuity of the services provided by,
or to be provided by, the firm; (c) the firm’s membership of a group and any effect
which that membership may have.
(3) Except in a case within sub-paragraph (3A), the matters which are relevant in
determining whether the firm has appropriate financial resources include (a) the
provision the firm makes and, if the firm is a member of a group, which other
members of the group make, in respect of liabilities; (b) the means by which the
firm manages and, if the firm is a member of a group, by which other members of
the group manage, the incidence of risk in connection with the firm’s business.
(3A) Where the only regulated activities that A carries on or seeks to carry on are
(a) relevant credit activities, and (b) if any, activities to which, by virtue of section
39(1D), sections 20(1) and (1A) and 23(1A) do not apply when carried on by the
firm, the firm has adequate financial resources if the firm is capable of meeting A’s
debts as they fall due.
(4) The matters which are relevant in determining whether A has appropriate non-
financial resources include (a) the skills and experience of those who manage the
firm’s affairs; (b) whether the firm’s non-financial resources are sufficient to enable
the firm to comply with (i)requirements imposed or likely to be imposed on the firm
by the Authority in the exercise of its functions, or (ii)any other requirement in
relation to whose contravention the Authority would be the appropriate regulator
for the purpose of any provision of Part 14 of this Act.
9. Paragraph 2E of Schedule 6 to the Act provides that the firm must be a fit and
proper person having regard to all the circumstances, including (a) the firm’s
connection with any person; (b) the nature (including the complexity) of the
regulated activities that A carries on or seeks to carry on; (c) the need to ensure
that the firm’s affairs are conducted in an appropriate manner, having regard in
particular to the interests of consumers and the integrity of the UK financial
system; (d) whether the firm 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
the firm has so complied or is so complying, the manner of that compliance; (e)
whether those who manage the firm’s affairs have adequate skills and experience
and have acted and may be expected to act with probity; (f) whether the firm’s
business is being, or is to be, managed in such a way as to ensure that its affairs
will be conducted in a sound and prudent manner; (g) the need to minimise the
extent to which it is possible for the business carried on by the firm, or to be carried
on by the firm, to be used for a purpose connected with financial crime.
RELEVANT REGULATORY PROVISIONS
The Enforcement Guide
10.
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.
11.
EG 8.1.1 reflects the provisions of section 55L of the Act by stating that the Authority
may use its own-initiative power to impose requirements on an authorised person
where, amongst other factors, the person is failing or is likely to fail to satisfy the
threshold conditions for which the Authority is responsible (EG 8.1.1(1)), or it is
desirable to exercise the power in order to advance one or more of its operational
objectives (EG 8.1.1(3)).
12.
EG 8.2.1 states that when the Authority considers how it should deal with a concern
about a firm, it will have regard to its statutory objectives and the range of regulatory
tools that are available to it. It will also have regard to the principle that a restriction
imposed on a firm should be proportionate to the objectives the Authority is seeking
to achieve (EG 8.2.1(2)).
13.
EG 8.2.3 states that in the course of its supervision and monitoring of a firm or as
part of an enforcement action, the Authority may make it clear that it expects the
firm to take certain steps to meet regulatory requirements. In the vast majority of
cases the Authority will seek to agree with a firm those steps the firm must take to
address the Authority’s concerns. However, where the Authority considers it
appropriate to do so, it will exercise its formal powers under section 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)).
14.
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.
15.
EG 8.3.2 states that the Authority will consider exercising its own-initiative power as
a matter of urgency where: 1) the information available to it indicates serious
concerns about the firm or its business that need to be addressed immediately; and
2) circumstances indicate that it is appropriate to use statutory powers immediately
to require and/or prohibit certain actions by the firm in order to ensure the firm
addresses these concerns.
16.
EG 8.3.3 states that it is not possible to provide an exhaustive list of the situations
that will give rise to such serious concerns, but they are likely to include one or more
of four listed characteristics, these include: 1) information indicating significant loss,
risk of loss or other adverse effects for consumers, where action is necessary to
protect their interests; 2) information indicating that a firm’s conduct has put it at
risk of being used for the purposes of financial crime, or of being otherwise involved
in crime; 3) evidence that the firm has submitted to the Authority inaccurate or
misleading information so that the Authority becomes seriously concerned about the
firm’s ability to meet its regulatory obligations; 4) circumstances suggesting a
serious problem within a firm or with a firm’s controllers that calls into question the
firm’s ability to continue to meet the threshold conditions.
17.
EG 8.3.4 states that the Authority will consider the full circumstances of each case
when it decides whether an imposition of a requirement is appropriate and sets out
a non-exhaustive list of factors the Authority may consider, these include (1) The
extent of any loss, or risk of loss, or other adverse effect on consumers. The more
serious the loss or potential loss or other adverse effect, the more likely it is that
the Authority’s exercise of own-initiative powers will be appropriate, to protect the
consumers' interests. (2) The extent to which customer assets appear to be at risk.
Exercise of the Authority’s own-initiative power may be appropriate where the
information available to the Authority suggests that customer assets held by, or to
the order of, the firm may be at risk (3) The nature and extent of any false or
inaccurate information provided by the firm. Whether false or inaccurate information
warrants the Authority’s exercise of its own-initiative powers will depend on matters
such as: (a) the impact of the information on the Authority’s view of
the firm's compliance with the regulatory requirements to which it is subject,
the firm's suitability to conduct regulated activities, or the likelihood that
the firm's business may be being used in connection with financial crime;
(b) whether the information appears to have been provided in an attempt knowingly
to mislead the Authority, rather than through inadvertence; (c) whether the matters
to which false or inaccurate information relates indicate there is a risk
to customer assets
or
to
the
other
interests
of
the firm's actual
or
potential customers. (4) 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.
18.
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.
19.
COBS 4.14.5R states that (1) a firm or a TP firm must not communicate or approve
a financial promotion in relation to a speculative illiquid security where that financial
promotion is addressed to or disseminated n such a way that it is likely to be received
by a retail client. (2) The restriction in (1) is subject to COBS 4.14.6R.
20.
COBS 4.14.8R states that subject to COBS 4.14.5R and COBS 4.14.6R, a firm or TP
firm must not communicate or approve a financial promotion which relates to a
speculative illiquid security unless it contains (1) a risk warning that complies with
4.14(9)R; (2) if applicable, the date on which the financial promotion was approved;
and (3) statements that comply with COBS 4.14.12R disclosing all costs, charges
and commission.
21.
COBS 4.14.9R states that (1) for the purposes of COBS 4.14.8R1, and subject to
COBS 4.14.9R(2) and COBS 4.14.9R(3), the financial promotion must contain the
following risk warning: “You could lose all of your money invested in this product.
This is a high-risk investment and is much riskier than a savings account.”