FIRST SUPERVISORY NOTICE

To:

ifaeye Limited

ACTION

1.
For the reasons listed below and pursuant to section 45 of the Financial Services and
Markets Act 2000 (the “Act”), the FSA has decided to vary the permission granted to
ifaeye Limited (“ifaeye”) pursuant to Part IV of the Act (“ifaeye’s Part IV
permission”), to impose requirements on ifaeye’s Part IV permission, pursuant to
section 43 of the Act, namely that ifaeye must, by 1 December 2012:

(1)
engage an independent accountant (to be agreed with the FSA) to:

(a)
investigate ifaeye’s accounts for the year ended 31 March 2012 in
order to verify and report on whether ifaeye was meeting its regulatory
capital requirement at that date; or

(b)
(if in the accountant’s opinion the accounting records of ifaeye are not
adequate to carry out such an investigation) produce a balance sheet
and regulatory capital calculation in the same format as Sections A and
D1 of the Retail Mediation Activities Return as at 30 September 2012,
in order to verify whether ifaeye was meeting its regulatory capital
requirement at that date; and

(2)
provide the FSA with a copy of the report or balance sheet and regulatory
capital calculation as appropriate.

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REASONS FOR ACTION

2.
ifaeye has provided inaccurate financial information to the FSA, and so has failed to
satisfy the FSA that it is meeting, and has been meeting, its regulatory capital
requirements.

3.
The FSA has concluded, on the facts and matters described below, that ifaeye may be
failing to satisfy the threshold conditions set out in Part 1 of Schedule 6 to the Act (the
“Threshold Conditions”). In the opinion of the FSA, ifaeye’s resources may not be
adequate in relation to the regulated activities it has permission to carry on, and so
ifaeye may be failing to meet Threshold Condition 4 (Adequate resources) and
Principle 4 (Financial prudence), and as such poses a risk to consumers.

FACTS AND MATTERS RELIED ON

4.
ifaeye was granted authorisation by the FSA on 20 May 2009 to conduct designated
investment business and regulated home finance business.

5.
On 15 February 2012, ifaeye provided to the FSA its management accounts to 10
February 2012, the balance sheet in which included items which ifaeye could not
subsequently verify, and which should not have been included in its balance sheet.
These items amount to £22,000 of ifaeye’s reported regulatory capital, which was
£53,091 in the Retail Mediation Activities Return for the period ended 30 September
2011. As such, ifaeye has previously materially overstated, and may still be
overstating, its regulatory capital position.

6.
The FSA has asked ifaeye to vary its Part IV permission to add a requirement that it
have an independent audit conducted to establish whether, in the period 1 April 2011 to
31 March 2012, ifaeye was meeting its regulatory capital requirement. ifaeye has
declined to apply for such a variation of its Part IV Permission.

FAILINGS

7.
The regulatory provisions relevant to this First Supervisory Notice are set out in the
Annex.

8.
From the facts and matters described above the FSA, having regard to its regulatory

objectives, has reached the following conclusions:

 ifaeye has provided inaccurate financial information to the FSA, and so has

breached SUP 15.6.1R. ifaeye has therefore also breached Principle 11 (Relations
with regulators);

 in providing inaccurate financial information to the FSA, ifaeye has failed to

satisfy the FSA that it is meeting, and has been meeting, its regulatory capital
requirements as required by IPRU(INV) 13.9.1R(1). ifaeye therefore may not

Page 3 of 7

have adequate resources, a failing that is material in relation to the regulated
activities for which it has permission. ifaeye therefore may be in breach of
Threshold Condition 4 (Adequate resources) and Principle 4 (Financial prudence);

 the risk of loss or other adverse effect on consumers by ifaeye’s failings, which

are material breaches of requirements imposed on it by the FSA’s rules, causes the
FSA to have very serious concerns about ifaeye such that the exercise of the
FSA’s own-initiative power to vary ifaeye’s Part IV permission with immediate
effect is an appropriate and reasonable response to those concerns;

 it is desirable to exercise the FSA’s own initiative power to vary ifaeye’s Part IV

permission with immediate effect to meet its regulatory objectives, and
specifically in relation to ifaeye, the objective of the protection of consumers; and

 the variation of ifaeye’s Part IV permission should take immediate effect to

address the FSA’s serious concern that ifaeye may not have adequate financial
resources.

PROCEDURAL MATTERS

Decision Maker

9.
The decision which gave rise to the obligation to give this First Supervisory Notice was

made by the Regulatory Decisions Committee.

10.
This First Supervisory Notice is given to ifaeye under section 53(4) and in accordance
with section 53(5) of the Act, and is being served on ifaeye at its place of business as
last notified to the FSA. The following statutory rights are important.

The Tribunal

11.
ifaeye has the right to refer the matter to which this First Supervisory Notice relates to
the Upper Tribunal (the “Tribunal”). The Tax and Chancery Chamber is the part of the
Tribunal which, amongst other things, hears references arising from decisions of the
FSA. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper Tribunal)
Rules 2008, ifaeye has 28 days from the date on which this First Supervisory Notice is
given to ifaeye to refer the matter to the Tribunal.

12.
A reference to the Tribunal can be made by way of a reference notice (Form FTC3)
signed by ifaeye and filed with a copy of this First Supervisory Notice. The Tribunal’s
contact details are: The Upper Tribunal, Tax and Chancery Chamber, 45 Bedford
Square,
London
WC1B
3DN
(telephone:
020
7612
9700;
email:

financeandtaxappeals@tribunals.gsi.gov.uk).

13.
Further details are contained in “Making a Reference to the Upper Tribunal (Tax and
Chancery Chamber)” which is available from the Tribunal website:

Page 4 of 7

14.
ifaeye should note that a copy of the reference notice (Form FTC3) must also be sent to
the FSA at the same time as filing a reference with the Tribunal. A copy of the
reference notice should be sent to Kathryn Willis at the FSA, 25 The North Colonnade,
Canary Wharf, London E14 5HS.

Representations

15.
ifaeye has the right to make written and oral representations to the FSA (whether or not
it refers this matter to the Tribunal). If ifaeye wishes to make written representations it
must do so by 13 November 2012 or such later date as may be permitted by the FSA.
Written representations should be made to the Regulatory Decisions Committee and
sent to Emma Wotton, Regulatory Decisions Committee Professional Support Services.
The Regulatory Decisions Committee Professional Support Services' address is: 25 The
North Colonnade, Canary Wharf, London E14 5HS. If ifaeye wishes to make oral
representations, it should inform the FSA of its intention to do so by 22 October 2012.
If ifaeye does not notify the FSA by 22 October 2012, it will not, other than in
exceptional circumstances, be able to make oral representations.

16.
ifaeye should note that section 391 of the Act requires the FSA when the First
Supervisory Notice takes effect (and this First Supervisory Notice takes immediate
effect), to publish such information about the matter as it considers appropriate.

FSA contacts

17.
For more information concerning this matter generally, ifaeye should contact Kathryn
Willis at the FSA (direct line: 020 7066 2098 / fax: 020 7066 2099).

18.
If ifaeye has any questions regarding the procedures of the Regulatory Decisions
Committee, it should contact Emma Wotton (direct line: 020 7066 7684).

Andrew Long
Acting Chairman, Regulatory Decisions Committee

Page 5 of 7

ANNEX TO THE FIRST SUPERVISORY NOTICE ISSUED BY THE FINANCIAL
SERVICES AUTHORITY TO IFAEYE LIMITED ON 10 OCTOBER 2012


RELEVANT STATUTORY PROVISIONS

1.
The FSA’s regulatory objectives established in section 2(2) of the Act include the

protection of consumers.

2.
Section 43(1) of the Act provides that a Part IV permission may include such
requirements as the FSA considers appropriate. Section 43(2)(a) provides that a
requirement can require a firm to take a specified action.

3.
The FSA is authorised by section 45 of the Act to exercise the following powers:

 to vary an authorised person’s permission where it appears to the FSA that

such person is failing to satisfy the Threshold Conditions;

 to vary an authorised person’s permission where it is desirable to do so to meet

any of its regulatory objectives;

 to vary such a permission by removing a regulated activity from those for

which the permission is given; and

 to include any provision in the permission as varied that could be included if a

fresh permission were being given in response to an application under section
40 of the Act, including the imposition pursuant to section 43 of the Act of
such requirements as the FSA considers appropriate.

4.
Section 53(3) of the Act allows such a variation to take effect immediately if the FSA

reasonably considers that it is necessary for the variation to take effect immediately.

5.
Paragraph 4 of Schedule 6 to the Act sets out Threshold Condition 4 which provides
that:

“(1) The resources of the person concerned must, in the opinion of the
Authority, be adequate in relation to the regulated activities that he seeks to
carry on, or carries on.”

RELEVANT HANDBOOK PROVISIONS

6.
In exercising its power to vary a Part IV permission, the FSA must have regard to
guidance published in the FSA Handbook of rules and guidance (the “Handbook”).
The relevant main considerations in relation to the action specified above are set out
below.

Page 6 of 7

Relevant rules

7.
Principle 4 (Financial prudence) requires a firm to maintain adequate financial
resources.

8.
Principle 11 (Relations with regulators) requires a firm to be open and co-operative
with the FSA, and to disclose to the FSA appropriately anything relating to the firm of
which the FSA would reasonably expect notice.

9.
Rule 15.6.1R in the Supervision Manual (“SUP”), which forms part of the FSA’s
Handbook of Rules and Guidance (the “Handbook”), requires a firm to take
reasonable steps to ensure that all information given to the FSA is in accordance with
any rule in the Handbook, including Principle 11, and is factually accurate.

10.
Rule 13.9.1R(1) in the Interim Prudential Sourcebook for Investment Businesses
(“IPRU(INV)”) in the Handbook, requires a Category B firm to meet the Financial
Resources Test 1 (Own funds Test) as calculated in IPRU(INV) 13.10.1R.

11.
Rule 13.10.1R in IPRU(INV) in the Handbook requires that a Category B firm’s own
funds be £10,000 at all times.

Guidance concerning the relevant Threshold Condition

12.
Guidance on the Threshold Conditions is set out in the part of the Handbook entitled
Threshold Conditions (“COND”).

13.
COND 2.4.1UK reproduces the relevant statutory provisions that the resources of the
person concerned must, in the opinion of the FSA, be adequate in relation to the
regulated activities that he seeks to carry on, or carries on.

14.
COND 2.4.2.G(1) provides that Threshold Condition 4 requires the FSA to ensure
that a firm has adequate resources in relation to the specific regulated activity or
regulated activities which it seeks to carry on, or carries on.

15.
The guidance at COND 2.4.2G(2) provides that in determining whether a firm has
adequate resources, the FSA will interpret the term ‘adequate’ to include meaning
sufficient in terms of quantity, quality and availability, and 'resources' as including all
financial resources; for example, capital, provisions against liabilities, holdings of or
access to cash and other liquid assets.

16.
The guidance at COND 2.4.4G(3) provides that in the context of Threshold
Condition 4 (Adequate resources), the FSA will only take into account relevant
matters which are material, and the FSA will consider the materiality of each
relevant matter in relation to the regulated activities for which the firm has, or will
have, permission, having regard to the regulatory objectives in section 2 of the Act.

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OTHER RELEVANT REGULATORY PROVISIONS

17.
The FSA's policy in relation to its enforcement powers is set out in the Enforcement
Guide (EG), certain provisions of which are summarised below.

18.
EG 8.1(1) reflects the provisions of section 45 of the Act that the FSA may use its
own-initiative power to vary or cancel the permission of an authorised firm to meet
any of its regulatory objectives.

Varying a firm’s Part IV permission on the FSA’s own-initiative

19.
EG 8.1B provides that the FSA will have regard to its regulatory 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.

20.
EG 8.3 provides that the FSA will exercise its formal powers under section 45 of the
Act, where the FSA considers it is appropriate to ensure a firm meets its regulatory
requirements. EG 8.3(2) specifies that the FSA may consider it appropriate to
exercise its powers where it is concerned that the consequences of a firm not taking
the desired steps is serious, and EG 8.3(3) specifies that the FSA may consider it
appropriate to exercise its powers where the imposition of a formal statutory
requirement reflects the importance the FSA attaches to the firm addressing its
concerns.

21.
EG 8.5(1)(a) specifies that one circumstance where the FSA will consider using its
power to vary a permission is where a firm’s material resources appear inadequate.

Use of the own-initiative power in urgent cases

22. E.G 8.6 states that the FSA may impose a variation of permission so that it takes effect

immediately or on a specified date if it reasonably considers it necessary for the
variation to take effect immediately (or on the date specified), having regard to the
ground on which it is exercising its own-initiative power.

23.
The FSA’s policy for its use of the own-initiative power in urgent cases is set out at
EG 8.7(1) and (2) which specify the circumstances in which the FSA will consider
exercising its own-initiative power as a matter of urgency. One such circumstance is
where the circumstances indicate it is appropriate to use statutory powers immediately
to require certain actions by a firm to address serious FSA concerns.

24.
EG 8.8 provides a list of situations which will give rise to such serious concerns.
Specifically, EG 8.8(1) includes circumstances suggesting a risk of loss or other
adverse effect for consumers, where action is necessary to protect their interests.

25.
EG 8.9 sets out the factors the FSA may consider in addition to the full circumstances
of each case when it decides whether an urgent variation of Part IV permission is
appropriate. In particular, EG 8.9(1) states a factor is the extent of any loss, or risk of
loss, or other adverse effect on consumers.