Supervisory Notice
On , the Financial Conduct Authority issued a Supervisory Notice to KBFS Financial Limited
FIRST SUPERVISORY NOTICE
To:
KBFS Financial Limited
1
ACTION
1.1
For the reasons given in this First Supervisory Notice, and pursuant to sections
55J(2)(a), 55J(1)(a) and (c) and 55L(3)(a) of the Financial Services and Markets
Act 2000 (“the Act”), the Financial Conduct Authority (“the Authority”) has decided
to vary with immediate effect the Part 4A permission granted to KBFS Financial
Limited (“Firm”) by removing all of its regulated activities, and has also decided to
impose the following requirements on the Firm (the “Requirements”) with
immediate effect.
Assets requirement
(1)
Save as set out in Requirement (2), the Firm must not, without the prior
written consent of the Authority, take any action which has, or may have the
effect of disposing of, withdrawing, transferring, dealing with or diminishing
the value of any assets it holds or receives, for itself or on behalf of another
(whether in the United Kingdom or elsewhere).
(2)
The Firm may continue dealing with or disposing of any of its own assets in
the ordinary and proper course of business provided that the sum or value
of such dealings or disposals, whether as a single transaction or a
combination of related transactions, does not exceed £1,000 (or £3,000 in
the case of legal expenses).
(3)
For the purposes of Requirement (1) above, the following would be in the
ordinary and proper course of business:
a. Any and all fees incurred or paid in exchange for professional advisory
services;
b. Any amounts due to be paid to legitimate creditors for sums incurred
prior to the imposition of the Requirements, including but not limited to
suppliers’ fees and sums owing to HMRC;
c. Any income or sums collected and received by the Firm on behalf of any
third parties and which are to be paid to such third parties;
d. Any and all salaries of the Firm’s staff, including to its directors,
contractors or any other employees, where such salaries have been
agreed prior to the imposition of the Requirements.
(4)
For the avoidance of doubt, for the purposes of Requirement (1) above, the
following would not be in the ordinary and proper course of business:
a. The making of any distribution to the Firm’s shareholders whether by
way of capital distribution or dividends;
b. Subject to Requirement (3) above, any payment to the Firm’s
shareholders, directors, officers, employees, and/or any connected
entities or persons;
c. The making of any gift or loan by the Firm to any party; or
d. The entry into any financial reconstruction, sale of any part of the Firm
(whether share or asset based) or reorganisation.
Notification requirements
(5)
The Firm must, within 14 days of service of this Notice, write to all of its
clients informing them of the imposition of these Requirements and their
effects. The wording of this communication is to be first agreed with the
Authority. The method of delivery must be agreed in advance by the
Authority.
(6)
Once the notifications referred to at Requirement (5) above have been made,
within 24 hours, the Firm must supply to the Authority:
a. Copies of the template notifications sent to all recipients;
b. A list of all parties to whom notifications have been sent; and
c. Confirmation that, to the best of its knowledge, the Firm has sent the
specified notifications to all relevant parties.
Records retention
(7)
The Firm must secure all books and records and preserve all information,
including material held via online/cloud-based systems to which the Firm has
access, in relation to regulated activities carried on by it. These include but
are not limited to all: (i) client lists; (ii) communications with clients; (iii)
financial records.
(8)
The Authority must be notified within 24 hours of receipt of this Notice that
the Firm has secured these books and records, which must be retained in a
form and at a location within the UK. This is so that the records can be
provided to the Authority, or to a person named by the Authority, promptly
upon its request.
1.2
The Requirements set out at paragraphs (1) to (4) above comprise an asset
requirement within the meaning of section 55P(4) of the Act.
1.3
The effect of the Variation is that the Firm no longer has permission to conduct any
regulated activities.
2
REASONS FOR ACTION
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 powers under section
55J(2)(a) and section 55L(3)(a) of the Act to vary the permission granted to the
Firm and 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 to advance the
Authority’s operational objective of securing an appropriate degree of protection for
consumers.
The Threshold Conditions
2.2
The Threshold Conditions are minimum requirements that firms need to meet to be
authorised and to continue carrying on regulated activities. Sections 55J of the Act
permits the Authority to vary the permission granted to the Firm, and section 55L
of the Act permits the Authority to impose requirements on the Firm’s Part 4A
permission, because the Firm:
1)
is failing, or is likely to fail, to satisfy the Appropriate Resources Threshold
Condition pursuant to section 2D of Schedule 6 of the Act;
2)
is failing, or is likely to fail, to satisfy the Effective Supervision Threshold
Condition pursuant to section 2C of Schedule 6 of the Act; and
3)
is failing, or is likely to fail, to satisfy the Suitability Threshold Condition
pursuant to section 2E of Schedule 6 of the Act.
2.3
The Authority considers that the Firm is failing, or likely to fail, to meet the
Appropriate Resources and Effective Supervision Threshold Condition. Specifically:
1)
The Firm has repeatedly failed to respond to the Authority, including failing to
respond to an information requirement. The Firm has been given an extension
and multiple reminders to provide the information as required.
The
information requirement relates specifically to the Firm’s preparation for the
British Steel Pension Scheme (“BSPS”) consumer redress scheme and the
Firm’s financial position.
2)
The Firm has failed to submit financial regulatory returns since November
2021, which it should have provided such that it could, among other things,
share details relating to its financial position with the Authority.
2.4
The Authority considers therefore that the Firm cannot be effectively supervised,
nor can the Authority be satisfied that it has appropriate financial resources.
2.5
The Authority also considers that the Firm is failing, or likely to fail, to meet the
Suitability Threshold Condition. Specifically:
1)
It appears that the Firm has failed to pay redress awarded by the Financial
Ombudsman Service (“FOS”) in relation to unsuitable pension-transfer advice
given to 5 clients with a defined-benefit (“DB”) occupational pension scheme
with British Steel. It also appears that the Firm has failed to engage with
these 5 clients in relation to the FOS awards.
2)
Supervision is very concerned that the Firm has not been open and cooperative
with the Authority. The Firm failed (without explanation) to respond to the
Authority’s information requirement, and in addition failed to disclose to the
Authority appropriately matters relating to the Firm of which the Authority would
reasonably expect notice, namely the decisions of the FOS. Notwithstanding the
Firm’s failure to engage with the Authority for a prolonged period, the Firm’s
directors applied to the Registrar of Companies House for striking-off and
dissolution, without notifying the Authority. This failure by the Firm to notify the
Authority of such matters is particularly concerning in the context of the
Authority’s repeated attempts to engage the Firm in relation to its concerns, and
requests from its own clients and the FOS.
2.6
The Authority therefore has reason to believe that the Firm is failing (or is likely to
fail) to satisfy the Suitability Threshold Condition, pursuant to paragraph 2E of
Schedule 6 to the Act. Supervision considers that the Firm’s repeated failure to
comply with an information requirement, its repeated failure to engage with those
clients in relation to their FOS awards, and its failure to notify the Authority that it
had applied to be struck off and dissolved means the Firm is not a fit and proper
person.
2.7
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.
2.8
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 consumers at risk.
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;
“BSPS” means the British Steel Pension Scheme;
“the Firm” means KBFS Financial Limited;
“FOS” refers to the Financial Ombudsman Service;
“Handbook” means the Authority’s online handbook of rules and guidance (as in force
from time to time);
“Requirements” means the requirements imposed on the Firm’s Part 4A Permission
pursuant to this First Supervisory Notice and as contained in section 1 above; and
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).
4
FACTS AND MATTERS
4.1
The Firm is an advisory firm, with permissions to advise on investments (except on
pension transfers and pension opt outs), advise on pension transfers and pension
opt outs (limited pension transfer activity), arrange deals in investments, make
arrangements with a view to transactions in investments and to advise on peer-to-
peer agreements. The Firm was incorporated on 23 March 2017.
4.2
The Firm was authorised by the Authority on 1 July 2019. Between 1 October 2015
and 31 July 2019, the Firm’s Senior Manager Function holder (“the Firm’s Director”)
provided defined-benefit pension transfer advice to clients under permissions as a
sole trader. On 22 January 2019, the Firm’s Director applied for a change of legal
status to transfer her sole trader permissions to the Firm, and the Firm signed a
Deed Poll Declaration, accepting any liabilities that may arise from the past business
of the sole trader.
Failings and risks identified
The Authority’s information request
4.3 In May 2023, the Authority sought information from the Firm regarding its
preparations for the BSPS redress scheme.
The Firm did not respond to the
Authority’s original contact and so, on 12 July 2023, the Authority sent an
information requirement to the Firm under section 165 of the Act. The Authority’s
letter explained that the Authority was exercising statutory powers to obtain the
information sought from the Firm and referred to certain of the consequences for
the Firm should it fail to respond without reasonable excuse.
4.4 The Firm was required to provide:
(1)
Further details of the Deed Poll Declaration signed on 31 July 2019.
(2)
Details of what the Firm has done to prepare for the BSPS consumer redress
scheme, and of what the Firm has been doing since its implementation.
(3)
Confirmation of the Firm’s latest financial position to meet its potential
liabilities under the BSPS, including:
a. Financial accounts as at 31 March 2023, including a profit and loss,
balance sheet and a cash flow statement, and Management accounts (if
the Firm is deemed to be a “micro” entity).
b. 2 years financial forecast factoring in any potential redress liabilities
under the BSPS.
(4)
Copies of the Firm’s:
a.
complaints register for BSPS consumers; and
b.
register of any offers of settlements made to BSPS consumers who have
not complained.
(5)
Details of the remedial work the Firm has undertaken following the complaints
received concerning its regulated activities.
(6)
A copy of the Firm's latest professional indemnity insurance policy cover and
proposal form, and confirmation of whether the cover includes the BSPS.
(7)
Confirmation of what additional capital was the Firm holding in relation to any
exclusions imposed on the Firm’s professional indemnity cover.
(8)
An explanation of why the Firm has not submitted its Retail Mediation
Activities (“RMA”) report since 30 September 2021, together with all relevant
RMA reports.
(9)
Confirmation of whether the Firm has received or is in the process of receiving
insolvency advice. The Firm is required to provide evidence of any relevant
correspondence received to date.
(10) The Firm’s assessment of its solvency position.
(11) A copy of the Firm’s updated wind-down plan and confirmation of the date on
which it was last reviewed.
4.5 The Authority requested that the information be provided by 26 July 2023 and sent
the letter by email to the Firm’s stated email address for correspondence held by
the Authority. The Authority explained the consequences of failing to comply with
the information requirement without reasonable excuse, including being found to
be in contempt of Court under the Act and / or the risk of disciplinary action under
the Authority’s Principles for Businesses.
4.6
No response was received from the Firm and no information was provided by the
Firm in response to any of the items requested. On 27 July 2023, the Authority sent
a reminder to the Firm as to the need to respond to the information request and of
the potential consequences of failing to. The Authority asked the Firm to provide
the information by no later than 31 July 2023.
4.7
On 7 August 2023, the Authority wrote to the Firm to obtain the information
requested on 12 July 2023. The Authority noted that the Firm’s failure to respond
raised concerns that the Firm was not meeting the Threshold Conditions. The
Authority also invited the Firm’s Director to consider applying voluntarily for the
imposition of conditions on their approval. The Authority requested a response by
18 August 2023. No response was received.
4.8
On 26 September 2023, the Firm’s Director sent an email to the email address
“firm.queries@fca.org.uk", requesting an up-to-date redress calculator for the
quarter. In this email, there was no reference to the Authority’s request for
information of 12 July 2023 or subsequent correspondence. The email from the
Firm’s Director was sent from the same email address to which the information
requirement had been sent by the Authority.
4.9
On 27 September 2023, the Authority spoke with an individual understood to be
connected to the Firm’s Director and who the Authority also understands to be a
former adviser engaged by the Firm. The individual informed the Authority that the
Firm’s Director had travelled abroad a few days previous and was not expected to
return until the middle of October 2023. There was no explanation provided during
this conversation as to why the Firm’s Director had, despite this, contacted the
Authority via email on the previous day (see paragraph 4.8).
4.10 On 13 October 2023, On 13 October 2023, the Authority sent the Firm an email
attaching the BSPS Redress calculator for Q4. On 20 October 2023, the Firm’s
Director called the Authority’s Firm Helpline and stated that the Firm had not
received this calculator. Ms Brown followed up her call with an email to the email
address “bspsnotifications@fca.org.uk” stating that she had repeatedly asked for
an updated calculator and requested that this be sent urgently. The Authority have
checked their records and have confirmed that the email was sent on 13 October
to the email address understood by the Authority to be the address typically used
by the Firm.
4.11 As of the date of this Notice, the Authority has received no response from the Firm
to its information request or subsequent attempts to establish contact with the Firm
and obtain the information sought. The Authority notes that this is despite the Firm
making contact with the Authority on 26 September 2023, in which the Firm
requested provision of a redress calculator, and despite the Authority also
establishing contact with an individual connected to the Firm’s Director who
indicated that they would seek to bring the matter to the Firm’s Director’s attention.
Further, the Authority notes that the contact email address provided by the Firm to
the Authority, and which the Authority has used to send its correspondence to, is
the same address that the Firm’s Director used when communicating with the
Authority on 26 September 2023.
The Firm’s application to be dissolved and struck off
4.12 On 21 August 2023, the Firm applied to the Registrar of Companies House for it to
be dissolved and struck off the Register of Companies. On 9 September 2023, the
Registrar suspended the application for striking off and dissolution of the Firm,
having received an objection to the application.
4.13 A firm is required to provide the Authority with a wide range of information to enable
the Authority to meet its responsibilities for monitoring a firm’s compliance with
requirements imposed by or under the Act. This includes an expectation that a firm
must notify the Authority immediately if an application is made to dissolve the firm
or to strike it off the Register of Companies. The Firm did not notify the Authority
of its application to the Registrar of Companies.
Concerns relating to FOS awards made against the Firm
4.14 On 26 June 2023, the Authority became aware of that the FOS had made awards
against the Firm in which the FOS had awarded redress to certain of the Firm’s
customers. The Authority expects a firm to notify the Authority immediately of any
such awards, particularly in circumstances where the amount awarded is potentially
significant in relation to the firm’s financial resources. The Firm has not, as at the
date of this Notice, notified the Authority of the fact that these awards had been
made against it.
4.15 The Authority also has serious concerns that the Firm may have failed to pay
redress owed to clients in relation to these awards by the FOS.
Failure to submit regulatory returns
4.16 The last regulatory returns from the Firm were filed on 21 November 2021.
However, as of the date of this application, the Firm has failed to submit regulatory
returns since November 2021. As a result of the Firm’s failure to submit its returns,
the Authority has been unable to assess whether the Firm has the appropriate
financial resources.
4.17 The Authority considers that the failure to submit these regulatory returns is
exacerbated by the Firm’s subsequent failure to respond to the Authority’s
questions about the Firm’s financial position.
5
CONCLUSION
5.1
The regulatory provisions relevant to this First Supervisory Notice are set out in the
Annex.
Analysis of failings and risks
Breach of Threshold Conditions
5.2
The Authority has concluded, on the basis of the facts and matters described above
that it is necessary to exercise the powers under sections 55J and 55L of the Act to
vary the permission granted to the Firm and impose requirements on the Firm
because it is failing or is likely to fail, to satisfy the Threshold Conditions.
5.3
The Threshold Conditions are minimum requirements that firms need to meet to be
authorised and to continue carrying on regulated activities. Section 55J of the Act
permits the Authority to vary the Firm’s Part 4A permission and section 55L of the
Act permits the Authority to impose requirements a Firm’s Part 4A permission,
because the Firm:
1)
is failing, or is likely to fail, to satisfy the Appropriate Resources Threshold
Condition pursuant to section 2D of Schedule 6 of the Act;
2)
is failing, or is likely to fail, to satisfy the Effective Supervision Threshold
Condition pursuant to section 2C of Schedule 6 of the Act; and
3)
is failing, or is likely to fail, to satisfy the Suitability Threshold Condition
pursuant to section 2E of Schedule 6 of the Act.
5.4
The Authority considers that the Firm is failing, or is likely to fail, to meet the
Appropriate Resources and Effective Supervision Threshold Condition. Specifically:
1)
The Firm has consistently failed to respond to an information requirement
issued by the Authority. The information requested specifically relates to its
financial resources in light of concerns about the Firm’s ability to pay redress
to its clients.
2)
The Firm has failed to submit financial regulatory returns outstanding since
November 2021. Those regulatory returns ought to contain sufficient
information for the Authority to be able to ascertain more about the adequacy
of a firm’s financial resources. The Firm’s failure to submit these regulatory
returns is therefore preventing the Authority from assessing the adequacy of
the Firm’s financial resources.
3)
The Firm has been given a number of opportunities to respond to the
Authority’s information request and attempts to obtain information, over the
course of several months.
The Firm has failed to respond to that
correspondence and has provided no explanation for this.
5.5
The Authority considers therefore that the Firm cannot be effectively supervised,
nor can the Authority be satisfied that the Firm has appropriate financial resources.
5.6
The Authority also considers that the Firm is failing, or is likely to fail, to meet the
Suitability Threshold Condition. Specifically:
1)
It appears that the Firm has failed to pay redress awarded by the FOS in
respect of 5 of the Firm’s clients.
2)
Supervision is very concerned that the Firm has not been open and
cooperative with the Authority. The Firm failed (without explanation) to
respond to the Authority’s information requirement, and in addition failed to
disclose to the Authority appropriately anything relating to the Firm of which
the Authority would reasonably expect notice, namely the decisions of the
FOS. Notwithstanding the Firm’s failure to engage with the Authority over a
prolonged period, the Firm’s directors took the step of applying to the
Registrar for strike-off and dissolution, without notifying the Authority.
3)
Given the above, Supervision is concerned that the Firm is no longer meeting
the Threshold Condition that it be a fit and proper person, and it is concerned
that the Firm may be in breach of Principle 11 of the Authority’s Principles for
Businesses (the “Principles”) by failing to deal with Authority in an open and
cooperative way and failing to disclose to the Authority appropriately anything
relating to the Firm of which the Authority would reasonably expect notice
5.7
The Authority has concluded, in light of the matters set out above, that it is
necessary to exercise its own-initiative power:
•
by varying the permission granted to the Firm by removing all its regulated
activities under section 55J(2) of the Act; and
•
by imposing the Requirements under section 55L(3)(a) of the Act.
5.8
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 and the variation
5.9
It is necessary to impose the Requirements and to seek the variation of the Firm’s
Part 4A permission, given the seriousness of the risks and the need to protect
consumers.
5.10 The Authority considers that it is necessary for the Requirements to remain in place
until such time as the Authority is satisfied that they can be lifted.
6
PROCEDURAL MATTERS
Decision-maker
6.1
The decision which gave rise to the obligation to give this First Supervisory Notice
was made by an Authority staff member under executive procedures according to
DEPP 2.5.7G and DEPP 4.1.7G.
6.2
This First Supervisory Notice is given under section 55Y(4) and in accordance with
section 55Y(5) of the Act.
6.3
The following statutory rights are important.
Representations
6.4
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. The deadline for providing written
representations and notifying the Authority that the Firm wishes to make oral
representations is 8 November 2023 or such later date as may be permitted by the
Authority. Any notification or representations should be sent to:
Supervision, Policy and Competition Decision Making Secretariat
The Financial Conduct Authority
12 Endeavour Square
London
E20 1JN
Email: SPCDecisionMakingSecretariat@fca.org.uk and Gemma.Barnett@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 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
Gemma
Barnett
(Gemma.Barnett@fca.org.uk)
and
the
SPC
Decision
Making
Secretariat
(SPCDecisionMakingSecretariat@fca.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 Any questions regarding the executive procedures decision-making process should
be
directed
to
the
SPC
Decision
Making
Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
Camille Blackburn
Director, Wholesale Buy-Side Asset Management – Supervision, Policy & Competition
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.”
RELEVANT REGULATORY PROVISIONS
The Enforcement Guide
7.
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.
8.
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)).
9.
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)).
10.
EG 8.2.3 states that in the course of its supervision and monitoring of a firm or as
part of an enforcement action, the Authority may make it clear that it expects the
firm to take certain steps to meet regulatory requirements. In the vast majority of
cases the Authority will seek to agree with a firm those steps the firm must take to
address the Authority’s concerns. However, where the Authority considers it
appropriate to do so, it will exercise its formal powers under section 55J of the Act
to vary a firm’s permission and/or 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)).
11.
EG 8.3.1 states that the Authority may impose a variation of permission or 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.
12.
EG 8.3.2 states that the Authority will consider exercising its own-initiative power
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.
13.
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.
14.
EG 8.3.4 states that the Authority will consider the full circumstances of each case
when it decides whether a variation of a Part 4A permission under or an imposition
of a requirement is appropriate and sets out a non-exhaustive list of factors the
Authority may consider, these include:
a. EG 8.3.4(4) concerning 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.
b. EG 8.3.4(8) concerning the firm’s conduct. The Authority will take into
account whether the firm identified the issue, brought it promptly to the
Authority’s attention and what steps the firm has taken or is taking to
address the issue.
15.
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.
Threshold Conditions
16.
The section of the Handbook entitled “Threshold Conditions” (COND) gives guidance
on threshold conditions. COND 1.2.3G provides that the Authority may exercise its
own-initiative powers under section 55L and/or section 55J of the Act if, among other
things, a firm is failing to satisfy any of the Threshold Conditions or is likely to do
so.
17.
COND 1.3.2G states that the Authority will consider whether a firm satisfies, and will
continue to satisfy, the Threshold Conditions in the context of the size, nature, scale
and complexity of the business which the firm carries on or will carry on if the relevant
application is granted.
7.
COND 2.3.1A (para 2C, Sch. 6) states that the firm:
(1) […] must be capable of being effectively supervised by the FCA having
regard to all the circumstances including – […]
(c) The way in which the firm’s business is organised; […]
(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
FCA’s effective supervision of the Firm; […]
18.
COND 2.3.3G states that in assessing the Threshold Conditions set out in paragraphs
2C and 3B of Schedule 6 to the Act (which includes the Effective Supervision
Threshold Condition), factors which the FCA will take into consideration include,
among other things, whether:
(1) it is likely that the FCA will receive adequate information from the firm, and
those persons with whom the firm has close links, to enable it to determine
whether the firm is complying with the requirements and standards under the
regulatory system for which the FCA is responsible and to identify and assess the
impact on its statutory objectives; this will include consideration of whether the
firm is ready, willing and organised to comply with Principle 11 (Relations with
regulators) and the rules in SUP on the provision of information to the FCA; […]
19.
COND 2.4.1A (para 2D, Sch. 6 of the Act) states that:
(1) The resources of [a firm] must be appropriate in relation to the regulated
activities that it 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
[a firm];
(b) the risks to the continuity of the services provided by, or to be provided
by [a firm].
(3) Financial resources – […] 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; and
(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.
20.
COND 2.5.6G states that the FCA may have regard to include, but are not limited to,
whether:
1.
the firm has been open and co-operative in all its dealings with
the FCA and any other regulatory body (see Principle 11 (Relations with
regulators)) and is ready, willing and organised to comply with the
requirements and standards under the regulatory system (such as the
detailed requirements of SYSC and, in relation to a firm not carrying on, or
seeking to carry on, a PRA-regulated activity only, the Prudential Standards
part of the FCA Handbook) in addition to other legal, regulatory and
professional obligations; the relevant requirements and standards will
depend on the circumstances of each case, including the regulated
activities which the firm has permission, or is seeking permission, to carry on
[…]
Principles for Businesses (“PRIN”)
21.
Principle 11 of PRIN states that a firm must deal with its regulators in an open and
cooperative way, and must disclose to the Authority appropriately anything relating
to the firm of which that regulator would reasonably expect notice.
Supervision Manual (“SUP”)
22.
Chapter 15 of SUP sets out the Authority’s rules on events and changes in condition
that a firm must notify, usually as soon as possible, if the Authority is to be able to
carry out its monitoring function effectively and react in good time to developments
that may require a regulatory response.
23.
SUP 15.3.1 R states that a firm must notify the Authority immediately if it becomes
aware, or has information which reasonably suggests, that any of the following has
occurred, may have occurred or may occur in the foreseeable future:
1.
the firm failing to satisfy one or more of the threshold conditions; or
2.
any matter which could have a significant adverse impact on the firm’s
reputation; or
3.
any matter which could affect the firm’s ability to continue to provide adequate
services to its customers and which could result in serious detriment to a
customer of the firm.
24.
SUP 15.3.21R requires that a firm must notify the Authority immediately of any of
the following events:
1.
the calling of a meeting to consider a resolution for winding up the firm; or
2.
an application to dissolve the firm or to strike it off the Register of
Companies;
25.
SUP 15.6.1R requires that a firm must take reasonable steps to ensure that all
information it gives to the Authority in accordance with a rule in any part of the
Handbook (including Principle 11) is:
1.
factually accurate, or in the case of estimates and judgements, fairly and
properly based after appropriate enquiries have been made by the firm; and
2.
complete, in that it should include anything of which the FCA would reasonably
expect notice.
26.
Chapter 15.7 of SUP specifies the form and method of notification. SUP 15.7.1R
requires a notification to be given in writing. SUP 15.7.4R specifies the methods of
notification from a firm under this rule must be given to or addressed for the
attention of the firm’s usual supervisory contact at the Authority and delivered to the
Authority by one of the methods in SUP 15.7.5AR.
To:
KBFS Financial Limited
1
ACTION
1.1
For the reasons given in this First Supervisory Notice, and pursuant to sections
55J(2)(a), 55J(1)(a) and (c) and 55L(3)(a) of the Financial Services and Markets
Act 2000 (“the Act”), the Financial Conduct Authority (“the Authority”) has decided
to vary with immediate effect the Part 4A permission granted to KBFS Financial
Limited (“Firm”) by removing all of its regulated activities, and has also decided to
impose the following requirements on the Firm (the “Requirements”) with
immediate effect.
Assets requirement
(1)
Save as set out in Requirement (2), the Firm must not, without the prior
written consent of the Authority, take any action which has, or may have the
effect of disposing of, withdrawing, transferring, dealing with or diminishing
the value of any assets it holds or receives, for itself or on behalf of another
(whether in the United Kingdom or elsewhere).
(2)
The Firm may continue dealing with or disposing of any of its own assets in
the ordinary and proper course of business provided that the sum or value
of such dealings or disposals, whether as a single transaction or a
combination of related transactions, does not exceed £1,000 (or £3,000 in
the case of legal expenses).
(3)
For the purposes of Requirement (1) above, the following would be in the
ordinary and proper course of business:
a. Any and all fees incurred or paid in exchange for professional advisory
services;
b. Any amounts due to be paid to legitimate creditors for sums incurred
prior to the imposition of the Requirements, including but not limited to
suppliers’ fees and sums owing to HMRC;
c. Any income or sums collected and received by the Firm on behalf of any
third parties and which are to be paid to such third parties;
d. Any and all salaries of the Firm’s staff, including to its directors,
contractors or any other employees, where such salaries have been
agreed prior to the imposition of the Requirements.
(4)
For the avoidance of doubt, for the purposes of Requirement (1) above, the
following would not be in the ordinary and proper course of business:
a. The making of any distribution to the Firm’s shareholders whether by
way of capital distribution or dividends;
b. Subject to Requirement (3) above, any payment to the Firm’s
shareholders, directors, officers, employees, and/or any connected
entities or persons;
c. The making of any gift or loan by the Firm to any party; or
d. The entry into any financial reconstruction, sale of any part of the Firm
(whether share or asset based) or reorganisation.
Notification requirements
(5)
The Firm must, within 14 days of service of this Notice, write to all of its
clients informing them of the imposition of these Requirements and their
effects. The wording of this communication is to be first agreed with the
Authority. The method of delivery must be agreed in advance by the
Authority.
(6)
Once the notifications referred to at Requirement (5) above have been made,
within 24 hours, the Firm must supply to the Authority:
a. Copies of the template notifications sent to all recipients;
b. A list of all parties to whom notifications have been sent; and
c. Confirmation that, to the best of its knowledge, the Firm has sent the
specified notifications to all relevant parties.
Records retention
(7)
The Firm must secure all books and records and preserve all information,
including material held via online/cloud-based systems to which the Firm has
access, in relation to regulated activities carried on by it. These include but
are not limited to all: (i) client lists; (ii) communications with clients; (iii)
financial records.
(8)
The Authority must be notified within 24 hours of receipt of this Notice that
the Firm has secured these books and records, which must be retained in a
form and at a location within the UK. This is so that the records can be
provided to the Authority, or to a person named by the Authority, promptly
upon its request.
1.2
The Requirements set out at paragraphs (1) to (4) above comprise an asset
requirement within the meaning of section 55P(4) of the Act.
1.3
The effect of the Variation is that the Firm no longer has permission to conduct any
regulated activities.
2
REASONS FOR ACTION
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 powers under section
55J(2)(a) and section 55L(3)(a) of the Act to vary the permission granted to the
Firm and 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 to advance the
Authority’s operational objective of securing an appropriate degree of protection for
consumers.
The Threshold Conditions
2.2
The Threshold Conditions are minimum requirements that firms need to meet to be
authorised and to continue carrying on regulated activities. Sections 55J of the Act
permits the Authority to vary the permission granted to the Firm, and section 55L
of the Act permits the Authority to impose requirements on the Firm’s Part 4A
permission, because the Firm:
1)
is failing, or is likely to fail, to satisfy the Appropriate Resources Threshold
Condition pursuant to section 2D of Schedule 6 of the Act;
2)
is failing, or is likely to fail, to satisfy the Effective Supervision Threshold
Condition pursuant to section 2C of Schedule 6 of the Act; and
3)
is failing, or is likely to fail, to satisfy the Suitability Threshold Condition
pursuant to section 2E of Schedule 6 of the Act.
2.3
The Authority considers that the Firm is failing, or likely to fail, to meet the
Appropriate Resources and Effective Supervision Threshold Condition. Specifically:
1)
The Firm has repeatedly failed to respond to the Authority, including failing to
respond to an information requirement. The Firm has been given an extension
and multiple reminders to provide the information as required.
The
information requirement relates specifically to the Firm’s preparation for the
British Steel Pension Scheme (“BSPS”) consumer redress scheme and the
Firm’s financial position.
2)
The Firm has failed to submit financial regulatory returns since November
2021, which it should have provided such that it could, among other things,
share details relating to its financial position with the Authority.
2.4
The Authority considers therefore that the Firm cannot be effectively supervised,
nor can the Authority be satisfied that it has appropriate financial resources.
2.5
The Authority also considers that the Firm is failing, or likely to fail, to meet the
Suitability Threshold Condition. Specifically:
1)
It appears that the Firm has failed to pay redress awarded by the Financial
Ombudsman Service (“FOS”) in relation to unsuitable pension-transfer advice
given to 5 clients with a defined-benefit (“DB”) occupational pension scheme
with British Steel. It also appears that the Firm has failed to engage with
these 5 clients in relation to the FOS awards.
2)
Supervision is very concerned that the Firm has not been open and cooperative
with the Authority. The Firm failed (without explanation) to respond to the
Authority’s information requirement, and in addition failed to disclose to the
Authority appropriately matters relating to the Firm of which the Authority would
reasonably expect notice, namely the decisions of the FOS. Notwithstanding the
Firm’s failure to engage with the Authority for a prolonged period, the Firm’s
directors applied to the Registrar of Companies House for striking-off and
dissolution, without notifying the Authority. This failure by the Firm to notify the
Authority of such matters is particularly concerning in the context of the
Authority’s repeated attempts to engage the Firm in relation to its concerns, and
requests from its own clients and the FOS.
2.6
The Authority therefore has reason to believe that the Firm is failing (or is likely to
fail) to satisfy the Suitability Threshold Condition, pursuant to paragraph 2E of
Schedule 6 to the Act. Supervision considers that the Firm’s repeated failure to
comply with an information requirement, its repeated failure to engage with those
clients in relation to their FOS awards, and its failure to notify the Authority that it
had applied to be struck off and dissolved means the Firm is not a fit and proper
person.
2.7
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.
2.8
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 consumers at risk.
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;
“BSPS” means the British Steel Pension Scheme;
“the Firm” means KBFS Financial Limited;
“FOS” refers to the Financial Ombudsman Service;
“Handbook” means the Authority’s online handbook of rules and guidance (as in force
from time to time);
“Requirements” means the requirements imposed on the Firm’s Part 4A Permission
pursuant to this First Supervisory Notice and as contained in section 1 above; and
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).
4
FACTS AND MATTERS
4.1
The Firm is an advisory firm, with permissions to advise on investments (except on
pension transfers and pension opt outs), advise on pension transfers and pension
opt outs (limited pension transfer activity), arrange deals in investments, make
arrangements with a view to transactions in investments and to advise on peer-to-
peer agreements. The Firm was incorporated on 23 March 2017.
4.2
The Firm was authorised by the Authority on 1 July 2019. Between 1 October 2015
and 31 July 2019, the Firm’s Senior Manager Function holder (“the Firm’s Director”)
provided defined-benefit pension transfer advice to clients under permissions as a
sole trader. On 22 January 2019, the Firm’s Director applied for a change of legal
status to transfer her sole trader permissions to the Firm, and the Firm signed a
Deed Poll Declaration, accepting any liabilities that may arise from the past business
of the sole trader.
Failings and risks identified
The Authority’s information request
4.3 In May 2023, the Authority sought information from the Firm regarding its
preparations for the BSPS redress scheme.
The Firm did not respond to the
Authority’s original contact and so, on 12 July 2023, the Authority sent an
information requirement to the Firm under section 165 of the Act. The Authority’s
letter explained that the Authority was exercising statutory powers to obtain the
information sought from the Firm and referred to certain of the consequences for
the Firm should it fail to respond without reasonable excuse.
4.4 The Firm was required to provide:
(1)
Further details of the Deed Poll Declaration signed on 31 July 2019.
(2)
Details of what the Firm has done to prepare for the BSPS consumer redress
scheme, and of what the Firm has been doing since its implementation.
(3)
Confirmation of the Firm’s latest financial position to meet its potential
liabilities under the BSPS, including:
a. Financial accounts as at 31 March 2023, including a profit and loss,
balance sheet and a cash flow statement, and Management accounts (if
the Firm is deemed to be a “micro” entity).
b. 2 years financial forecast factoring in any potential redress liabilities
under the BSPS.
(4)
Copies of the Firm’s:
a.
complaints register for BSPS consumers; and
b.
register of any offers of settlements made to BSPS consumers who have
not complained.
(5)
Details of the remedial work the Firm has undertaken following the complaints
received concerning its regulated activities.
(6)
A copy of the Firm's latest professional indemnity insurance policy cover and
proposal form, and confirmation of whether the cover includes the BSPS.
(7)
Confirmation of what additional capital was the Firm holding in relation to any
exclusions imposed on the Firm’s professional indemnity cover.
(8)
An explanation of why the Firm has not submitted its Retail Mediation
Activities (“RMA”) report since 30 September 2021, together with all relevant
RMA reports.
(9)
Confirmation of whether the Firm has received or is in the process of receiving
insolvency advice. The Firm is required to provide evidence of any relevant
correspondence received to date.
(10) The Firm’s assessment of its solvency position.
(11) A copy of the Firm’s updated wind-down plan and confirmation of the date on
which it was last reviewed.
4.5 The Authority requested that the information be provided by 26 July 2023 and sent
the letter by email to the Firm’s stated email address for correspondence held by
the Authority. The Authority explained the consequences of failing to comply with
the information requirement without reasonable excuse, including being found to
be in contempt of Court under the Act and / or the risk of disciplinary action under
the Authority’s Principles for Businesses.
4.6
No response was received from the Firm and no information was provided by the
Firm in response to any of the items requested. On 27 July 2023, the Authority sent
a reminder to the Firm as to the need to respond to the information request and of
the potential consequences of failing to. The Authority asked the Firm to provide
the information by no later than 31 July 2023.
4.7
On 7 August 2023, the Authority wrote to the Firm to obtain the information
requested on 12 July 2023. The Authority noted that the Firm’s failure to respond
raised concerns that the Firm was not meeting the Threshold Conditions. The
Authority also invited the Firm’s Director to consider applying voluntarily for the
imposition of conditions on their approval. The Authority requested a response by
18 August 2023. No response was received.
4.8
On 26 September 2023, the Firm’s Director sent an email to the email address
“firm.queries@fca.org.uk", requesting an up-to-date redress calculator for the
quarter. In this email, there was no reference to the Authority’s request for
information of 12 July 2023 or subsequent correspondence. The email from the
Firm’s Director was sent from the same email address to which the information
requirement had been sent by the Authority.
4.9
On 27 September 2023, the Authority spoke with an individual understood to be
connected to the Firm’s Director and who the Authority also understands to be a
former adviser engaged by the Firm. The individual informed the Authority that the
Firm’s Director had travelled abroad a few days previous and was not expected to
return until the middle of October 2023. There was no explanation provided during
this conversation as to why the Firm’s Director had, despite this, contacted the
Authority via email on the previous day (see paragraph 4.8).
4.10 On 13 October 2023, On 13 October 2023, the Authority sent the Firm an email
attaching the BSPS Redress calculator for Q4. On 20 October 2023, the Firm’s
Director called the Authority’s Firm Helpline and stated that the Firm had not
received this calculator. Ms Brown followed up her call with an email to the email
address “bspsnotifications@fca.org.uk” stating that she had repeatedly asked for
an updated calculator and requested that this be sent urgently. The Authority have
checked their records and have confirmed that the email was sent on 13 October
to the email address understood by the Authority to be the address typically used
by the Firm.
4.11 As of the date of this Notice, the Authority has received no response from the Firm
to its information request or subsequent attempts to establish contact with the Firm
and obtain the information sought. The Authority notes that this is despite the Firm
making contact with the Authority on 26 September 2023, in which the Firm
requested provision of a redress calculator, and despite the Authority also
establishing contact with an individual connected to the Firm’s Director who
indicated that they would seek to bring the matter to the Firm’s Director’s attention.
Further, the Authority notes that the contact email address provided by the Firm to
the Authority, and which the Authority has used to send its correspondence to, is
the same address that the Firm’s Director used when communicating with the
Authority on 26 September 2023.
The Firm’s application to be dissolved and struck off
4.12 On 21 August 2023, the Firm applied to the Registrar of Companies House for it to
be dissolved and struck off the Register of Companies. On 9 September 2023, the
Registrar suspended the application for striking off and dissolution of the Firm,
having received an objection to the application.
4.13 A firm is required to provide the Authority with a wide range of information to enable
the Authority to meet its responsibilities for monitoring a firm’s compliance with
requirements imposed by or under the Act. This includes an expectation that a firm
must notify the Authority immediately if an application is made to dissolve the firm
or to strike it off the Register of Companies. The Firm did not notify the Authority
of its application to the Registrar of Companies.
Concerns relating to FOS awards made against the Firm
4.14 On 26 June 2023, the Authority became aware of that the FOS had made awards
against the Firm in which the FOS had awarded redress to certain of the Firm’s
customers. The Authority expects a firm to notify the Authority immediately of any
such awards, particularly in circumstances where the amount awarded is potentially
significant in relation to the firm’s financial resources. The Firm has not, as at the
date of this Notice, notified the Authority of the fact that these awards had been
made against it.
4.15 The Authority also has serious concerns that the Firm may have failed to pay
redress owed to clients in relation to these awards by the FOS.
Failure to submit regulatory returns
4.16 The last regulatory returns from the Firm were filed on 21 November 2021.
However, as of the date of this application, the Firm has failed to submit regulatory
returns since November 2021. As a result of the Firm’s failure to submit its returns,
the Authority has been unable to assess whether the Firm has the appropriate
financial resources.
4.17 The Authority considers that the failure to submit these regulatory returns is
exacerbated by the Firm’s subsequent failure to respond to the Authority’s
questions about the Firm’s financial position.
5
CONCLUSION
5.1
The regulatory provisions relevant to this First Supervisory Notice are set out in the
Annex.
Analysis of failings and risks
Breach of Threshold Conditions
5.2
The Authority has concluded, on the basis of the facts and matters described above
that it is necessary to exercise the powers under sections 55J and 55L of the Act to
vary the permission granted to the Firm and impose requirements on the Firm
because it is failing or is likely to fail, to satisfy the Threshold Conditions.
5.3
The Threshold Conditions are minimum requirements that firms need to meet to be
authorised and to continue carrying on regulated activities. Section 55J of the Act
permits the Authority to vary the Firm’s Part 4A permission and section 55L of the
Act permits the Authority to impose requirements a Firm’s Part 4A permission,
because the Firm:
1)
is failing, or is likely to fail, to satisfy the Appropriate Resources Threshold
Condition pursuant to section 2D of Schedule 6 of the Act;
2)
is failing, or is likely to fail, to satisfy the Effective Supervision Threshold
Condition pursuant to section 2C of Schedule 6 of the Act; and
3)
is failing, or is likely to fail, to satisfy the Suitability Threshold Condition
pursuant to section 2E of Schedule 6 of the Act.
5.4
The Authority considers that the Firm is failing, or is likely to fail, to meet the
Appropriate Resources and Effective Supervision Threshold Condition. Specifically:
1)
The Firm has consistently failed to respond to an information requirement
issued by the Authority. The information requested specifically relates to its
financial resources in light of concerns about the Firm’s ability to pay redress
to its clients.
2)
The Firm has failed to submit financial regulatory returns outstanding since
November 2021. Those regulatory returns ought to contain sufficient
information for the Authority to be able to ascertain more about the adequacy
of a firm’s financial resources. The Firm’s failure to submit these regulatory
returns is therefore preventing the Authority from assessing the adequacy of
the Firm’s financial resources.
3)
The Firm has been given a number of opportunities to respond to the
Authority’s information request and attempts to obtain information, over the
course of several months.
The Firm has failed to respond to that
correspondence and has provided no explanation for this.
5.5
The Authority considers therefore that the Firm cannot be effectively supervised,
nor can the Authority be satisfied that the Firm has appropriate financial resources.
5.6
The Authority also considers that the Firm is failing, or is likely to fail, to meet the
Suitability Threshold Condition. Specifically:
1)
It appears that the Firm has failed to pay redress awarded by the FOS in
respect of 5 of the Firm’s clients.
2)
Supervision is very concerned that the Firm has not been open and
cooperative with the Authority. The Firm failed (without explanation) to
respond to the Authority’s information requirement, and in addition failed to
disclose to the Authority appropriately anything relating to the Firm of which
the Authority would reasonably expect notice, namely the decisions of the
FOS. Notwithstanding the Firm’s failure to engage with the Authority over a
prolonged period, the Firm’s directors took the step of applying to the
Registrar for strike-off and dissolution, without notifying the Authority.
3)
Given the above, Supervision is concerned that the Firm is no longer meeting
the Threshold Condition that it be a fit and proper person, and it is concerned
that the Firm may be in breach of Principle 11 of the Authority’s Principles for
Businesses (the “Principles”) by failing to deal with Authority in an open and
cooperative way and failing to disclose to the Authority appropriately anything
relating to the Firm of which the Authority would reasonably expect notice
5.7
The Authority has concluded, in light of the matters set out above, that it is
necessary to exercise its own-initiative power:
•
by varying the permission granted to the Firm by removing all its regulated
activities under section 55J(2) of the Act; and
•
by imposing the Requirements under section 55L(3)(a) of the Act.
5.8
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 and the variation
5.9
It is necessary to impose the Requirements and to seek the variation of the Firm’s
Part 4A permission, given the seriousness of the risks and the need to protect
consumers.
5.10 The Authority considers that it is necessary for the Requirements to remain in place
until such time as the Authority is satisfied that they can be lifted.
6
PROCEDURAL MATTERS
Decision-maker
6.1
The decision which gave rise to the obligation to give this First Supervisory Notice
was made by an Authority staff member under executive procedures according to
DEPP 2.5.7G and DEPP 4.1.7G.
6.2
This First Supervisory Notice is given under section 55Y(4) and in accordance with
section 55Y(5) of the Act.
6.3
The following statutory rights are important.
Representations
6.4
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. The deadline for providing written
representations and notifying the Authority that the Firm wishes to make oral
representations is 8 November 2023 or such later date as may be permitted by the
Authority. Any notification or representations should be sent to:
Supervision, Policy and Competition Decision Making Secretariat
The Financial Conduct Authority
12 Endeavour Square
London
E20 1JN
Email: SPCDecisionMakingSecretariat@fca.org.uk and Gemma.Barnett@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 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
Gemma
Barnett
(Gemma.Barnett@fca.org.uk)
and
the
SPC
Decision
Making
Secretariat
(SPCDecisionMakingSecretariat@fca.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 Any questions regarding the executive procedures decision-making process should
be
directed
to
the
SPC
Decision
Making
Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
Camille Blackburn
Director, Wholesale Buy-Side Asset Management – Supervision, Policy & Competition
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.”
RELEVANT REGULATORY PROVISIONS
The Enforcement Guide
7.
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.
8.
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)).
9.
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)).
10.
EG 8.2.3 states that in the course of its supervision and monitoring of a firm or as
part of an enforcement action, the Authority may make it clear that it expects the
firm to take certain steps to meet regulatory requirements. In the vast majority of
cases the Authority will seek to agree with a firm those steps the firm must take to
address the Authority’s concerns. However, where the Authority considers it
appropriate to do so, it will exercise its formal powers under section 55J of the Act
to vary a firm’s permission and/or 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)).
11.
EG 8.3.1 states that the Authority may impose a variation of permission or 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.
12.
EG 8.3.2 states that the Authority will consider exercising its own-initiative power
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.
13.
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.
14.
EG 8.3.4 states that the Authority will consider the full circumstances of each case
when it decides whether a variation of a Part 4A permission under or an imposition
of a requirement is appropriate and sets out a non-exhaustive list of factors the
Authority may consider, these include:
a. EG 8.3.4(4) concerning 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.
b. EG 8.3.4(8) concerning the firm’s conduct. The Authority will take into
account whether the firm identified the issue, brought it promptly to the
Authority’s attention and what steps the firm has taken or is taking to
address the issue.
15.
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.
Threshold Conditions
16.
The section of the Handbook entitled “Threshold Conditions” (COND) gives guidance
on threshold conditions. COND 1.2.3G provides that the Authority may exercise its
own-initiative powers under section 55L and/or section 55J of the Act if, among other
things, a firm is failing to satisfy any of the Threshold Conditions or is likely to do
so.
17.
COND 1.3.2G states that the Authority will consider whether a firm satisfies, and will
continue to satisfy, the Threshold Conditions in the context of the size, nature, scale
and complexity of the business which the firm carries on or will carry on if the relevant
application is granted.
7.
COND 2.3.1A (para 2C, Sch. 6) states that the firm:
(1) […] must be capable of being effectively supervised by the FCA having
regard to all the circumstances including – […]
(c) The way in which the firm’s business is organised; […]
(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
FCA’s effective supervision of the Firm; […]
18.
COND 2.3.3G states that in assessing the Threshold Conditions set out in paragraphs
2C and 3B of Schedule 6 to the Act (which includes the Effective Supervision
Threshold Condition), factors which the FCA will take into consideration include,
among other things, whether:
(1) it is likely that the FCA will receive adequate information from the firm, and
those persons with whom the firm has close links, to enable it to determine
whether the firm is complying with the requirements and standards under the
regulatory system for which the FCA is responsible and to identify and assess the
impact on its statutory objectives; this will include consideration of whether the
firm is ready, willing and organised to comply with Principle 11 (Relations with
regulators) and the rules in SUP on the provision of information to the FCA; […]
19.
COND 2.4.1A (para 2D, Sch. 6 of the Act) states that:
(1) The resources of [a firm] must be appropriate in relation to the regulated
activities that it 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
[a firm];
(b) the risks to the continuity of the services provided by, or to be provided
by [a firm].
(3) Financial resources – […] 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; and
(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.
20.
COND 2.5.6G states that the FCA may have regard to include, but are not limited to,
whether:
1.
the firm has been open and co-operative in all its dealings with
the FCA and any other regulatory body (see Principle 11 (Relations with
regulators)) and is ready, willing and organised to comply with the
requirements and standards under the regulatory system (such as the
detailed requirements of SYSC and, in relation to a firm not carrying on, or
seeking to carry on, a PRA-regulated activity only, the Prudential Standards
part of the FCA Handbook) in addition to other legal, regulatory and
professional obligations; the relevant requirements and standards will
depend on the circumstances of each case, including the regulated
activities which the firm has permission, or is seeking permission, to carry on
[…]
Principles for Businesses (“PRIN”)
21.
Principle 11 of PRIN states that a firm must deal with its regulators in an open and
cooperative way, and must disclose to the Authority appropriately anything relating
to the firm of which that regulator would reasonably expect notice.
Supervision Manual (“SUP”)
22.
Chapter 15 of SUP sets out the Authority’s rules on events and changes in condition
that a firm must notify, usually as soon as possible, if the Authority is to be able to
carry out its monitoring function effectively and react in good time to developments
that may require a regulatory response.
23.
SUP 15.3.1 R states that a firm must notify the Authority immediately if it becomes
aware, or has information which reasonably suggests, that any of the following has
occurred, may have occurred or may occur in the foreseeable future:
1.
the firm failing to satisfy one or more of the threshold conditions; or
2.
any matter which could have a significant adverse impact on the firm’s
reputation; or
3.
any matter which could affect the firm’s ability to continue to provide adequate
services to its customers and which could result in serious detriment to a
customer of the firm.
24.
SUP 15.3.21R requires that a firm must notify the Authority immediately of any of
the following events:
1.
the calling of a meeting to consider a resolution for winding up the firm; or
2.
an application to dissolve the firm or to strike it off the Register of
Companies;
25.
SUP 15.6.1R requires that a firm must take reasonable steps to ensure that all
information it gives to the Authority in accordance with a rule in any part of the
Handbook (including Principle 11) is:
1.
factually accurate, or in the case of estimates and judgements, fairly and
properly based after appropriate enquiries have been made by the firm; and
2.
complete, in that it should include anything of which the FCA would reasonably
expect notice.
26.
Chapter 15.7 of SUP specifies the form and method of notification. SUP 15.7.1R
requires a notification to be given in writing. SUP 15.7.4R specifies the methods of
notification from a firm under this rule must be given to or addressed for the
attention of the firm’s usual supervisory contact at the Authority and delivered to the
Authority by one of the methods in SUP 15.7.5AR.