FINAL NOTICE

M8’s Rates Loans Limited
Dunmurry
Belfast
County Antrim
BT17 0GX
Northern Ireland


ACTION

1. By an application dated 29 August 2014 (‘the Application’) M8’s Rates Loans
Limited (‘the Firm’) applied under section 55A of the Financial Services and
Markets Act 2000 (‘the Act’) for Part 4A permission to carry on the regulated
activities of Entering into a regulated home credit agreement as the lender and
Exercising or having the right to exercise the lender’s rights and duties under a
regulated home credit loan agreement.

2. The Application was deemed complete by the provision of further information on
17 December 2014.

3. For the reasons listed below, the Authority has refused the Application.

SUMMARY OF REASONS

4. By its Warning Notice dated 22 May 2015 (‘the Warning Notice’) the Authority
gave notice that it proposed to refuse the Application and that the Firm was
entitled to make representations to the Authority about that proposed action.

5. As no representations have been received by the Authority from the Firm within
the time allowed by the Warning Notice, the default procedures in paragraph
2.3.2 of the Authority’s Decision Procedure and Penalties Manual apply,

permitting the Authority to treat the matters referred to in its Warning Notice as
undisputed and, accordingly, to give a Decision Notice.

6. By its Decision Notice dated 19 June 2015 (‘the Decision Notice’), the Authority
gave the Firm notice that it had decided to take the action described above.

7. The Firm had 28 days from the date the Decision Notice was given to refer the
matter to the Upper Tribunal (formerly known as the Financial Services and
Markets Tribunal). No referral was made to the Upper Tribunal within this period
of time or to date.

8. Under section 390(1) of the Act, the Authority, having decided to refuse the
Application and there having been no reference of that decision to the Tribunal,
must give the Firm Final Notice of its refusal.

DEFINITIONS

9. The definitions below are used in this Final Notice.

‘the Act’ means the Financial Services and Markets Act 2000

‘the Authority’ means the body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the Financial Conduct
Authority

FACTS AND MATTERS

10. The Firm is a limited company with one director: Mr Neil Green. The Firm has held
interim permission since 1 April 2014.

Appropriate resources

11. The Firm’s only credit agreement does not contain all of the information required
by the Consumer Credit (Agreements) Regulations 2010 which includes, but is
not limited to, the nature of the agreement, the total amount payable, and the
annual percentage rate of charge (APR).

12. The Firm confirmed to the Authority by email dated 10 April 2015 that it had
ceased using its credit agreement after the Authority had informed the Firm that
the agreement did not meet the regulations.

13. The Firm’s only written pre-contract (PRC) information is its advertising leaflet.

14. The Firm’s complaints procedure states that once a complaint has been received
‘the director will look into the [sic] resolving the situation.’

15. The Firm was asked for its arrears procedures in an information request but has
not provided any in its response.

16. The Firm has failed to apply for an individual to hold the Money laundering
reporting function (CF11) which is the function of acting in the capacity of the
money laundering reporting officer (MLRO) of a firm. This is required as the Firm
is subject to the requirements set down by the Money Laundering Regulations
2007.

17. In its ownership structure document, the Firm states that it has ‘only 2
owners/staff’. Mr Green is the Firm’s only day-to-day human resource.

18. The Firm’s policy on vulnerable consumers does not clearly state how the Firm
will identify these customers. The Firm’s policy explains that when making a
judgement on whether to lend to a new customer ‘If the director thinks this
person is anyway vulnerable, a loan will not be issued’ and ‘If any person that has
received a loan be classed in any way vulnerable, the director will speak to the
customer and make arrangements to close the account.’.

19. On 10 March 2015 the Authority wrote to the Firm to set out the basis of the
Authority’s current concerns about the application.

20. On 10 April 2015 in an email the Firm told the Authority that once it had collected
its remaining loans it intended to close down the business and withdraw its
application.

Skills, experience and availability of Mr Green

21. Mr Green is the only individual connected to the Firm to have applied to be an
approved person.

22. All of Mr Green’s previous professional experience is in the field of architecture
and he is currently a full-time student.

23. The Authority telephoned Mr Green on 24 November 2014 to discuss his
application and informed him that assessment of his application would include
having regard to his competence demonstrated through relevant training and
experience. He told the Authority that he has neither.

24. The Firm’s regulatory business plan also states ‘The director has no prior
experience in the financial sector but has worked as a professional for over
11 years in the architectural profession. The director is also very highly educated
and is currently doing his 2nd university degree. The financial business venture
I’ve started is a new experience to me. But I’m teaching myself all about the
financial sector by researching and reading the relevant documents.’

25. By email dated 11 November 2014, Mr Green on behalf of the Firm, requested
more time to comply with the Authority’s requests for further information due to
his university commitments, indicating that he would send ‘as I complete them’
and noting that as ‘a new company only starting up...I have to complete and
finalize some of the procedure documents your [sic] are requesting.’.

26. The Firm’s application contained a number of errors including:

i. Making the application as if the Firm was intending to engage an Appointed
Representative. Following questions from the Authority, this element of the
application was withdrawn.

ii. In its Compliance procedures, marking ‘conflicts of interest’ as ‘N/A’;
equating Appointed Representatives with ‘company’ representatives’.

iii. In its compliance monitoring programme, with regard to conflict of interest
record keeping, it is marked ‘N/A’; with regard to the fitness and propriety
of individuals, mistaking Approved Persons with potential customers.

iv. The Firm’s regulatory business plan explains that it will source customers
through advertising with flyers and states it ‘will never be holding any
financial promotions, but will comply with CONC 3 if the situation changes.
The director of the company will be in charge of making sure the company
complies if need be.’

27. When the Authority first informed the Firm of the issues identified in the
application on 24 November 2014 Mr Green asked the Authority how he could get
all the information compliant.

28. The Firm’s ‘Treating Customers Fairly Plan’ states:

i. ‘Customers will be given very flexible terms and plenty of time to repay the
debt if so required’ and

ii. ‘All new customers who seem to be having serious troubles repaying the
weekly payments will not be offered new larger loans, a more flexible plan
or time extension will be offered and then the debt will be written off and
the customer’s account closed to stop them getting into further debt.’

29. The Firm’s regulatory business plan states: ‘m8’s rates loans has a flexible
repayment policy in place which means the customer pays back what they can
afford and when they can afford it.’

30. The Firm’s credit agreement requires repayment within a longstop period of
twelve months and, if the borrower defaults, the Firm is entitled to demand
immediate repayment of the outstanding amount, plus interest.

31. The Firm has identified in its regulatory business plan that its target market are
those who are ‘unable to or reluctant to get a loan from the bank’.

32. The Authority’s report ‘Vulnerability exposed: The consumer experience of
vulnerability in financial services’ identified that, when vulnerable consumers’
needs are not met they may suffer in a range of ways including withdrawing from
the mainstream finance market.

33. The Firm’s advertising raises concerns because, for example:

i. It states that the Firm is ‘Licenced [sic] & regulated by both’ the FCA and
the OFT, and includes both logos;

ii. It does not provide a representative APR example;

iii. It only explains the benefits of the product to the consumer.

34. The OFT ceased to exist on 01 April 2014

IMPACT ON THE THRESHOLD CONDITIONS

35. The regulatory provisions relevant to this Final Notice are referred to in
Annex A.

36. The Authority cannot ensure that the Firm will satisfy, and continue to satisfy, the
following threshold conditions:

Threshold Condition 2D (Appropriate Resources)

i. By virtue of the Firm’s insufficient policies and procedures, and its
connection with Mr Green who manages the Firm’s affairs, and his current
lack of skills and experience, the Firm has failed to demonstrate that it has
appropriate non-financial resources in relation to the regulated activities it
seeks to carry on.

ii. Policies and procedures provided by the Firm with its application do not
meet the standards expected of home collected credit lenders and/or fail to
acknowledge relevant legal and regulatory requirements and standards.
These resources therefore lack sufficient quality for a regulated business of
this kind.

iii. In addition, inappropriate policies and procedures raise concerns about
whether the Firm is treating customers fairly and therefore whether it is fit
and proper.

Threshold Condition 2E (Suitability)

iv. By virtue of its connection with Mr Green who manages the Firm’s affairs,
and his current lack of skills and experience, the Firm has failed to
demonstrate that it is ready, willing and organised to comply with the
standards and requirements of the regulatory system and has failed to
demonstrate that it is fit and proper.

v. Mr Green has not demonstrated that he has sufficient time or understanding
to comply with the relevant requirements at the point of authorisation or on
an ongoing basis. For example, the Firm’s advertising falls short of the
relevant standards.

vi. The Authority considers that the Firm’s failure to demonstrate its compliance
with relevant regulatory and other legal standards indicates that:

vii. The Firm’s management lacks adequate skills and experience to understand
what is required of a regulated firm engaging in these activities.

viii. The Firm is not paying due regard to the interests of its customers as
required by Principle 6 of the Principles for Businesses.

ix. The Firm is not paying due regard to the information needs of its customers
as required by Principle 7 of the Principles for Businesses.

37. The Firm’s indication that it intends to collect its outstanding debts, close its
business and then withdraw its application suggests it does not intend to continue
to carry out regulated activities on an ongoing basis.

38. On the basis of the facts and matters described above, the Authority has
concluded that the Firm will not satisfy, and continue to satisfy, the threshold
conditions in relation to all of the regulated activities for which the Firm would
have permission if the application was granted.

IMPORTANT NOTICES

39. This Final Notice is given under section 390 (1) of the Act.

40. Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of
information about the matter to which this Notice relates. Under those provisions,
the Authority must publish such information about the matter to which this Notice
relates as the Authority considers appropriate. The information may be published
in such manner as the Authority considers appropriate. However, the Authority
may not publish information if such publication would, in the opinion of the
Authority, be unfair to you or prejudicial to the interests of consumers or
detrimental to the stability of the UK financial system.

41. The Authority intends to publish such information about the matter to which this
Final Notice relates as it considers appropriate.

Authority contacts

For more information concerning this matter generally, contact Mike Baker,
Manager, Debt Department, Credit Authorisations Division at the Authority (direct
line: 020 7066 1026 / email: mike.baker@fca.org.uk).

Nicholas Mears
Chair of the Regulatory Transactions Committee

ANNEX A – REGULATORY PROVISIONS RELEVANT TO THIS FINAL NOTICE

1.
Section 55A(1) of the Act provides for an application for permission to carry on
one or more regulated activities to be made to the appropriate regulator. Section
55A(2) defines the ‘appropriate regulator’ for different applications.

2.
Section 55B(3) of the Act provides that, in giving or varying permission, imposing
or varying a requirement, or giving consent, under any provision of Part 4A of the
Act, each regulator must ensure that the person concerned will satisfy, and
continue to satisfy, in relation to all of the regulated activities for which the
person has or will have permission, the threshold conditions for which that
regulator is responsible.

3.
The threshold conditions are set out in Schedule 6 to the Act. In brief, the
threshold conditions relate to:

(1)
Threshold condition 2B: Location of offices

(2)
Threshold condition 2C: Effective supervision

(3)
Threshold condition 2D: Appropriate resources

(4)
Threshold condition 2E: Suitability

(5)
Threshold condition 2F: Business model

4.
Regulation 3 of the Consumer Credit (Agreements) Regulations 2010 explains the
requirements for the form and content of regulated consumer credit agreements.

5.
Regulation 3(2) of the Consumer Credit (Disclosure of Information) Regulations
2010 provides that in good time before the agreement is made, the creditor must
disclose to the debtor, in the manner set out in regulation 8, the pre-contract
credit information. The pre-contract credit information is set out in regulation
3(4).

Relevant provisions of the Authority’s Handbook

6.
In exercising its powers in relation to the granting of a Part 4A permission, the
Authority must have regard to guidance published in the Authority Handbook,
including the part titled Threshold Conditions (COND). The main considerations in
relation to the action specified are set out below.

Principles for Businesses

7.
PRIN 1.1.4G states that, in substance, the Principles express the main dimensions
of the "fit and proper" standard set for firms in threshold condition 5 (Suitability),
although they do not derive their authority from that standard or exhaust its
implications. Being ready, willing and organised to abide by the Principles is
therefore a critical factor in applications for Part 4A permission, and breaching the
Principles may call into question whether a firm with Part 4A permission is still fit
and proper.

8.
Under PRIN 2.1.1R, Principle 6 states that a firm must pay due regard to the
interests of its customers and treat them fairly.

9.
Under PRIN 2.1.1R, Principle 7 states that a firm must pay due regard to the
information needs of its clients, and communicate information to them in a way
which is clear, fair and not misleading.

Threshold conditions in general

10.
COND 1.2.1G states that COND gives guidance on the threshold conditions. The
Authority’s threshold conditions represent the minimum conditions for which the
Authority is responsible, which a firm is required to satisfy, and continue to
satisfy, in order to be given and to retain Part 4A permission.

11.
COND 1.3.2G(2) provides that, in relation to threshold conditions 2D to 2F, the
Authority will consider whether a firm is ready, willing and organised to comply
on a continuing basis with the requirements and standards under the regulatory
system which will apply to the firm if it is granted Part 4A permission.

12.
Under COND 1.3.3AG, in determining the weight to be given to any relevant
matter, the Authority will consider its significance in relation to the regulated
activities for which the firm has, or will have, permission, in the context of its
ability to supervise the firm adequately, having regard to the Authority’s statutory
objectives. In this context, a series of matters may be significant when taken
together, even though each of them in isolation might not give serious cause for
concern.

13.
COND 1.3.3BG provides that, in determining whether the firm will satisfy, and
continue to satisfy, the Authority’s threshold conditions, the Authority will have
regard to all relevant matters, whether arising in the United Kingdom or
elsewhere.

14.
COND 1.3.3CG provides that, when assessing the Authority’s threshold
conditions, the Authority may have regard to any person appearing to be, or
likely to be, in a relevant relationship with the firm, in accordance with section
55R of the Act (Persons connected with an applicant). For example, a firm's
controllers, its directors or partners, other persons with close links to the firm
(see COND 2.3), and other persons that exert influence on the firm which might
pose a risk to the firm's satisfaction of the Authority’s threshold conditions, would
be in a relevant relationship with the firm.

Threshold condition 2D: Appropriate Resources

15.
COND 2.4.2G(2) states that the Authority will interpret the term 'appropriate' as
meaning sufficient in terms of quantity, quality and availability, and 'resources' as
including all financial resources (though only in the case of firms not carrying on,
or seeking to carry on, a PRA-regulated activity), non-financial resources and
means of managing its resources; for example, capital, provisions against
liabilities, holdings of or access to cash and other liquid assets, human resources
and effective means by which to manage risks.

16.
COND 2.4.2G(3) explains that high level systems and control requirements are in
SYSC. The Authority will consider whether the firm is ready, willing and organised
to comply with these and other applicable systems and controls requirements
when assessing if it has appropriate non-financial resources for the purpose of the
threshold condition set out in paragraph 2D to Schedule 6 of the Act.

17.
COND 2.4.4G(2)(d) states that relevant matters to which the Authority may have
regard when assessing whether a firm will satisfy, and continue to satisfy, this

threshold condition may include but are not limited to whether the firm has taken
reasonable steps to identify and measure any risks of regulatory concern that it
may encounter in conducting its business and has installed appropriate systems
and controls and appointed appropriate human resources to measure them
prudently at all times.

Threshold condition 2E: Suitability

18.
COND 2.5.2G(2) states that the Authority will also take into consideration
anything that could influence a firm's continuing ability to satisfy the threshold
conditions set out in paragraph 2E of Schedule 6 to the Act. Examples include the
firm's position within a UK or international group, information provided by
overseas regulators about the firm, and the firm's plans to seek to vary its
Part 4A permission to carry on additional regulated activities once it has been
granted that permission.

19.
COND 2.5.3G(1) states that the emphasis of the threshold condition set out in
paragraph 2E of Schedule 6 to the Act is on the suitability of the firm itself. The
suitability of each person who performs a controlled function will be assessed by
the Authority and/or the PRA, as appropriate, under the approved persons regime
(see SUP 10 (Approved persons) and FIT). In certain circumstances, however, the
Authority may consider that the firm is not suitable because of doubts over the
individual or collective suitability of persons connected with the firm.

20.
COND 2.5.4G(2) states that examples of the kind of general considerations to
which the Authority may have regard when assessing whether a firm will satisfy,
and continue to satisfy, the threshold condition set out in paragraph 2E of
Schedule 6 to the Act include, but are not limited to, whether the firm:

(1) conducts, or will conduct, its business with integrity and in compliance with
proper standards;

(2) has, or will have, a competent and prudent management; and

(3) can demonstrate that it conducts, or will conduct, its affairs with the
exercise of due skill, care and diligence.

21.
Under COND 2.5.6G, when assessing whether a firm will satisfy, and continue to
satisfy, threshold condition 2E, the Authority may have regard to whether:

(1) the firm is ready, willing and organised to comply with the requirements
and standards under the regulatory system. (COND 2.5.6G(1))

(2) the firm has made arrangements to put in place an adequate system of
internal
control
to
comply
with
regulatory
requirements.
(COND
2.5.6G(1A))

(3) the firm has put in place procedures which are reasonably designed to
ensure its employees and approved persons are aware of, and compliant
with, regulatory requirements, and to determine whether its employees
are acting in a way compatible with adhering to those standards, and its
approved persons are adhering to those standards. (COND 2.5.6G(7))

(4) the governing body of the firm is made up of individuals with an
appropriate range of skills and experience to understand, operate and
manage the firm's regulated activities. (COND 2.5.6G(10))

(5) the firm has in place appropriate systems and controls against financial
crime, including, for example, money laundering (COND 2.5.6G(17))

Consumer Credit sourcebook (CONC)

22.
CONC 3.3.5G(1) states a firm should ensure that each communication and each
financial promotion is accurate and, in particular, should not emphasise any
potential benefits of a product or service without also giving a fair and prominent
indication of any relevant risks.

23.
CONC 4.2.5R(1)(a) provides that before making a regulated credit agreement the
firm must provide the customer with an adequate explanation of

(1) the features of the agreement which may make the credit to be provided
under the agreement unsuitable for particular types of use

(2) how much the customer will have to pay periodically and, where the
amount can be determined, in total under the agreement

(3) the features of the agreement which may operate in a manner which
would have a significant adverse effect on the customer in a way which
the customer is unlikely to foresee

(4) the principal consequences for the customer arising from a failure to make
payments under the agreement at the times required by the agreement

(5) the effect of the exercise of any right to withdraw from the agreement and
how and when this right may be exercised

24.
CONC 4.2.5R(1)(b) provides that before making a regulated credit agreement the
firm must advise the customer

(1) to consider the information which is required to be disclosed under section
55 of the CCA; and

(2) where the information is disclosed in person, that the customer is able to
take it away

25.
CONC 7.2.1R states that a firm must establish and implement clear, effective and
appropriate policies and procedures for:

(1) dealing with customers whose accounts fall into arrears;

(2) the fair and appropriate treatment of customers, who the firm understands
or reasonably suspects to be particularly vulnerable.

Dispute Resolution: Complaints (DISP)

26.
Under DISP 1.3.1R(1), effective and transparent procedures for the reasonable
and prompt handling of complaints must be established, implemented and
maintained by a respondent.

27.
Under DISP 1.4.1R, once a complaint has been received by a respondent, it must
investigate the complaint competently, diligently and impartially, obtaining
additional information as necessary.

28.
Under DISP 1.6.1R, on receipt of a complaint, a respondent must:

(1) send the complainant a prompt written acknowledgement providing early
reassurance that it has received the complaint and is dealing with it; and

(2) ensure the complainant is kept informed thereafter of the progress of the
measures being taken for the complaint's resolution.

29.
Under DISP 1.6.2R(1), the respondent must, by the end of eight weeks after its
receipt of the complaint, send the complainant a 'final response'.