1

DECISION NOTICE

To: Markos Theodosi Markou
To: Financial Solutions (Euro) Limited

MXM01997

1.
ACTION

1.1.
For the reasons given in this Notice, the Authority has decided to:

(a) impose on Mr Markos Markou, pursuant to section 66 of the Act, a financial

penalty of £25,000;

(b) withdraw, pursuant to section 63 of the Act, Mr Markou’s approval given by the

Authority under section 59 of the Act to perform the SMF1 (Director) and SMF3

(Chief Executive) controlled functions at Financial Solutions (Euro) Limited; and

(c) make an order, pursuant to section 56 of the Act, prohibiting Mr Markou from

performing any function in relation to any regulated activity carried on by an

authorised person, exempt person or exempt professional firm.

2.
SUMMARY OF REASONS

2.1.
Mr Markou is approved by the Authority to perform the SMF1 (Director) and SMF3

(Chief Executive) controlled functions at FSE, a small mortgage and insurance

intermediary. As FSE’s sole director, Mr Markou is responsible for establishing and

Mr Markou has referred this Decision Notice to the Upper
Tribunal to determine, in the case of the decision to impose a
disciplinary sanction: what (if any) the appropriate action is
for the Authority to take, and remit the matter to the
Authority with such directions as the Tribunal considers
appropriate; and in relation to the prohibition order and
withdrawal of approval: whether to dismiss the reference or
remit it to the Authority with a direction to reconsider and
reach a decision in accordance with the findings of the
Tribunal.

Accordingly, the proposed action outlined in this Decision
Notice will have no effect pending the determination of the
case by the Tribunal. The Tribunal’s decision will be made
public on its website.

maintaining FSE’s systems and controls and the oversight of its mortgage

business.

2.2.
In the period from 24 November 2015 to 14 October 2017, Mr Markou did not have

appropriate oversight of FSE’s mortgage business. Mr Markou also failed to take

sufficient steps to prevent FSE from transacting mortgage business between 10

July 2017 and 14 October 2017, during which period he was aware that FSE did

not have professional indemnity insurance. Mr Markou’s conduct placed FSE at risk

of being used as a vehicle for financial crime and his conduct did not appropriately

protect the interests of consumers.

2.3.
Mr Markou was fully aware of the regulatory standards required in relation to FSE’s

mortgage business and the risks associated with a failure to comply with those

standards. The Authority had previously and repeatedly communicated to Mr

Markou on occasions between 2011 and 2015 serious concerns regarding FSE’s

oversight arrangements and its systems and controls relating to the prevention of

financial crime.

2.4.
While Mr Markou had, following interventions by the Authority between 2011 and

2015, satisfied the Authority for brief periods that he had addressed these

concerns, by the time of a visit by the Authority to FSE’s offices in May 2017 it was

apparent that Mr Markou had permitted FSE to revert to practices in relation to

which the Authority had previously expressed serious concerns.

2.5.
By ignoring the risks that he knew his conduct created, Mr Markou acted recklessly

and demonstrated a lack of integrity. As a result, Mr Markou:

(a) failed to comply with Statement of Principle 1 (acting with integrity) in the

Authority’s Statements of Principle and Code of Practice for Approved Persons

part of the Handbook;

(b) is not a fit and proper person to perform the SMF1 (Director) and SMF3 (Chief

Executive) controlled functions at FSE; and

(c) is not a fit and proper person to perform any function in relation to any regulated

activity carried on by an authorised person, exempt person or exempt

professional firm.

2.6.
As a result, the Authority has decided to impose a financial penalty on Mr Markou

pursuant to section 66 of the Act, to withdraw Mr Markou’s approval to perform the

SMF1 (Director) and SMF3 (Chief Executive) controlled functions at FSE pursuant

to section 63 of the Act and to make an order prohibiting Mr Markou from performing

3


any function in relation to any regulated activities carried on by an authorised

person, exempt person or exempt professional firm pursuant to section 56 of the

Act.

2.7.
This action supports the Authority’s operational objectives of securing an

appropriate degree of protection for consumers and protecting and enhancing the

integrity of the UK financial system.

3. DEFINITIONS

3.1.
The definitions below are used in this 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;

“CeMAP” means Certificate in Mortgage Advice and Practice;

“CEO” means Chief Executive Officer;

“CPD” means Continuing Professional Development;

“December 2011 Variation of Permission” means the variation by the Authority on 5
December 2011, on the application of FSE, of the permission granted to FSE pursuant
to Part IV of the Act;

“DEPP” means the part of the Handbook titled “Decision Procedure and Penalties
Manual”;

“EG” means the Authority’s Enforcement Guide;

“FSE” means Financial Solutions (Euro) Ltd;

“FSE Decision Notice” means the decision notice given by the Authority to FSE dated
23 May 2019;

“FSE Tribunal Costs Decision” means the Tribunal’s decision dated 5 August 2020 on
costs in relation to the FSE Tribunal Proceedings;

“FSE Tribunal Decision” means the Tribunal’s decision dated 22 April 2020 in respect
of the FSE Tribunal Proceedings;

“FSE Tribunal Proceedings” means the proceedings in respect of FSE’s reference of
the FSE Decision Notice to the Tribunal;

the “Handbook” means the Authority’s Handbook of rules and guidance;

“the May 2017 Visit” means the visit by the Authority to FSE on 9 May 2017;

“MCOB” means the part of the Handbook titled “Mortgages and Home Finance:
Conduct of Business Sourcebook”;

“MSP” means FSE’s Mortgage Sales Process document that Mr Markou produced to
the Authority;

“PII” means professional indemnity insurance;

“RDC” means the Regulatory Decisions Committee of the Authority (see further
under Procedural Matters below);

“Relevant Period” means the period from 24 November 2015 to 14 October 2017;

“Statement of Principle” means one of the Statements of Principle for Approved
Persons set out in chapter 2 of the Authority’s Statements of Principle and Code of
Practice for Approved Persons (known as APER), part of the Handbook;

“the Threshold Conditions” means the threshold conditions set out in Schedule 6 to
the Act; and

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


4. FACTS AND MATTERS

FSE background and structure

4.1
FSE was incorporated on 29 November 2001. Mr Markou is its sole director and

shareholder. FSE was authorised by the Authority to advise on and arrange

regulated mortgage contracts on 9 November 2004. These activities have

accounted for the majority of FSE’s business but FSE is also authorised to advise

on and arrange retail non-investment insurance contracts.

4.2
Mr Markou was approved by the Authority on 9 November 2004 to perform the CF1

(Director) and CF3 (Chief Executive) controlled functions at FSE1. Since then,

including throughout the Relevant Period, he has been responsible for establishing

and maintaining FSE’s systems and controls and for maintaining proper oversight

of FSE’s business, including in relation to the detection and prevention of financial

crime.

4.3
Mr Markou has undertaken minimal training in financial services and does not hold

the CeMAP qualification. He has several other business interests and is presently a

director of 14 other companies in the UK, some of which operate from the same

premises as FSE. His professional experience is primarily confined to the provision

of legal and dispute resolution services.

4.4
FSE’s mortgage advisers during the Relevant Period were self-employed and

generated mortgage business for FSE primarily through word-of-mouth in their

1 Mr Markou was approved to perform the CF1 (Director) and CF3 (Chief Executive)
controlled functions at FSE until 8 December 2019. Since 9 December 2019, pursuant to
the introduction of the Senior Managers and Certification Regime, he has been approved to
perform the SMF1 (Director) and SMF3 (Chief Executive) controlled functions at FSE.

local communities. Mr Markou also generated mortgage leads in the same way (and

sourced business through clients of his other companies) but to a lesser extent.

4.5
In the course of running FSE’s business during the Relevant Period, Mr Markou

should have:

(a)
established, maintained and enforced effective financial crime systems and

controls, particularly in relation to the detection and prevention of mortgage

fraud;

(b)
established and practised an appropriate level of oversight and monitoring

of FSE’s mortgage business, particularly in relation to the detection and

prevention of mortgage fraud;

(c)
ensured that FSE did not carry on mortgage business without professional

indemnity insurance in place; and

(d)
ensured that FSE’s mortgage business did not revert to previous non-

compliant practices in relation to which the Authority had previously

expressed serious concerns.

FSE’s Regulatory History

4.6
The Authority’s interventions in relation to FSE’s mortgage business date back to

February 2011. These repeated instances of close supervision of FSE by the

Authority demonstrate Mr Markou’s knowledge of the risks arising from his conduct

during the Relevant Period.

The February 2011 visit

4.7
The Authority visited FSE in February 2011 and highlighted concerns about FSE’s

financial crime systems and controls. In July 2011, the Authority notified Mr Markou

that it had opened an investigation into FSE.

4.8
On 5 December 2011, on the application of FSE, the Authority varied the permission

granted to FSE pursuant to Part IV of the Act by imposing a requirement on FSE

which prevented it from carrying on mortgage business unless all mortgage

applications that it intended to submit to lenders were reviewed by an independent

compliance consultant. The terms of the December 2011 Variation of Permission

also required FSE to obtain an independent report on its compliance systems and

controls.

4.9
In January 2012, the Authority concluded its investigation and expressed its

concerns to FSE that it had inadequate systems and controls in place to assess and

monitor the competence of its mortgage advisers, whether permanent employees

or self-employed. The Authority also raised concerns that FSE’s record keeping was

inadequate and prevented it from demonstrating that it was providing suitable

advice to its customers.

The September 2012 visit

4.10. The Authority visited FSE in September 2012 to assess the progress made in

relation to its systems and controls following the December 2011 Variation of

Permission. The Authority subsequently notified FSE and Mr Markou of areas for

improvement, emphasising its concerns regarding the adequacy of FSE’s financial

crime systems and controls and the adequacy of FSE’s assessment of mortgage

adviser competency.

4.11. In August 2014, Mr Markou admitted non-compliance with the December 2011

Variation of Permission, stating that complying with it was not commercially viable.

He again agreed not to submit any regulated business to lenders until it had first

been reviewed by an independent consultant.

4.12. In December 2014, the December 2011 Variation of Permission was lifted on the

basis that the external compliance consultant found no regulatory failings in relation

to FSE’s mortgage applications. The Authority informed Mr Markou that it

considered it appropriate for it to monitor FSE’s progress and that it therefore

intended to conduct a further review of FSE’s business in 2015.

The September and November 2015 reviews

4.13. In September 2015, the Authority carried out a desk based review of FSE’s

regulated activities and FSE’s systems and controls on financial crime, and

communicated the outcome to Mr Markou. The Authority informed Mr Markou that

it had identified non-compliance with MCOB rules, that it had concerns about the

plausibility of client income and employment details declared on some mortgage

files, and that it considered that FSE had inadequate financial crime systems and

controls which left it at risk of being used for financial crime. Mr Markou

subsequently agreed to a similar arrangement to that which was in place between

December 2011 and December 2014, such that an external compliance consultant

would review FSE’s mortgage applications before they were submitted to lenders.

4.14. On 24 November 2015, following a further review of FSE’s mortgage customer files

which demonstrated that FSE’s clients had received suitable advice, the Authority

lifted its requirement that FSE must not place any regulated mortgage business

with lenders without an external compliance check.

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Removal of FSE from lenders’ panels in October 2016 and February 2017

4.15. In October 2016, a mortgage lender notified Mr Markou that it had removed FSE

from its panel of mortgage intermediaries. The lender intended to visit FSE’s offices

but was unable to do so because Mr Markou refused to allow the lender’s monitoring

team to visit, in breach of the terms and conditions of being on the lender’s panel.

The Authority understands that the purpose of the proposed visit by the lender was

to address its concerns over potentially false documentation and unverified payslips

being provided in support of mortgage applications being submitted by FSE.

4.16. Mr Markou later stated to the Authority that he intended at the time to appeal the

lender’s decision. However, Mr Markou did not formally appeal the lender’s decision,

nor did he notify the Authority of FSE’s removal from the lender’s panel.

4.17. On 20 February 2017, another lender removed FSE from its lending panel. The

Authority understands that the removal arose from the lender suspecting mortgage

fraud was taking place at FSE. The lender’s concerns arose from its identification of

at least 48 mortgage applications submitted by FSE between 2014 and 2017, where

the income of the applicants either reduced or ceased shortly after the mortgage

was completed. Mr Markou did not notify the Authority of FSE’s removal from the

lender’s panel.

The May 2017 Visit

4.18. On 9 May 2017, the Authority visited FSE’s offices. The visit took place after the

Authority received information from the two mortgage lenders referred to above

regarding FSE’s removal from their panels. In light of the reasons cited for the panel

removals, the purpose of the visit was to assess FSE’s financial crime systems and

controls and to perform a review of FSE’s client files.

4.19. On 11 May 2017, two days after the May 2017 Visit, FSE’s PII cover lapsed and was

not subsequently renewed.

4.20. In June 2017, the Authority communicated the conclusions of its review to Mr

Markou. Among these conclusions were concerns that FSE had inadequate financial

crime systems and controls, leaving FSE exposed to being used as a vehicle for

financial crime.

4.21. On 13 February 2018, in light of the concerns arising from the May 2017 Visit, the

Authority appointed investigators to conduct an investigation into Mr Markou’s

conduct at FSE. The Authority identified the matters set out below in the course of

the investigation.

FSE’s financial crime systems and controls

Policies and procedures

4.22. Mr Markou provided the Authority with a number of general financial crime policies

and procedures such as “Anti-Bribery Policies”. The documents were not dated, and

the Authority has not seen any evidence that they were ever implemented,

monitored or reviewed by Mr Markou. Mr Markou also produced to the Authority a

“Business Risk Awareness” checklist, which should have been followed. The

Authority has not seen any evidence that this was used either by Mr Markou or

FSE’s mortgage advisers during the Relevant Period.

4.23. Mr Markou also produced FSE policies relating to “Customer Vulnerability” and

“PEPs and Enhanced Due Diligence”, but neither of these were dated and the

Authority has not seen any evidence that they were ever properly implemented,

followed, monitored or reviewed by Mr Markou or FSE’s mortgage advisers.

4.24. Mr Markou also produced a Mortgage Sales Process document, but the actions

specified in this document were not followed by the mortgage advisers. For

example, the MSP required payslips and bank statements to be collected from

customers and checked for inconsistencies. Specifically, four months of payslips

and bank statements were required but on several occasions Mr Markou did not

ensure that this process was followed. Further, the MSP stated “robust notes will

be required to be placed on file to clarify any inconsistencies”. The Authority

conducted a review of 19 client files. The results of that review showed that all 19

client files reviewed contained no notes from the mortgage advisers querying or

identifying any unusual transactions, income or documentation even though there

were inconsistencies (see paragraph 4.29 below). The MSP also obliged mortgage

advisers “to discuss the recommendation and proposed outcome to the customer

with the Firm’s CF1 Director (Markos T Markou), before the business is submitted,

which is an addition [sic] safeguard”. None of the client files reviewed contained

any evidence of such discussions and nor were there any records of meetings

between Mr Markou and the mortgage advisers to demonstrate whether such

discussions had taken place during the Relevant Period.

4.25. The Authority found that a “Mortgage Fraud Checklist” was present in all but two of

the 19 client files reviewed. Where the files contained the Mortgage Fraud Checklist

it was incomplete. For example, although the names of the mortgage advisers

appeared in all client files, the name of the reviewer was left blank. This suggests

that the files were not reviewed by Mr Markou. The Authority found no evidence

that Mr Markou conducted meetings to check mortgage applications and approve

them as correct, in accordance with the written processes he should have

implemented and maintained.

4.26. While the written policies and procedures were accessible to FSE’s mortgage

advisers, Mr Markou failed to implement and maintain them to ensure that they

were being followed. This presented a risk of mortgage fraud not being identified.

FSE’s approach to the assessment of customer affordability

4.27. The initial stages of FSE’s mortgage sales process involved FSE providing customers

with an initial disclosure document, completing the client fact find and collecting

each customer’s proof of identification and address and financial documentation

e.g. payslips and bank statements to verify income.

4.28. The process then involved carrying out the affordability checks set out in the MSP.

This was supposed to take into account the customer’s income and outgoings. In

particular, the check was supposed to “consider how plausible a customer’s income

or outgoings are, taking into account the customer’s overall circumstances. This

will involve cross-referencing the information on the fact find to any documentation

received from the customer such as the bank statement”.

4.29. The 19 client files reviewed by the Authority showed no evidence of adequate

checks being carried out in accordance with FSE’s written procedures. The

mortgage applications submitted by FSE contained obvious inconsistencies which

were not identified or queried by Mr Markou. There were inconsistencies across the

19 client files, none of which contained any notes querying unusual financial

behaviour, income or transactions. There was no record of Mr Markou having

appropriate oversight of this process. Further, there were no notes placed on the

client files by Mr Markou to clarify any inconsistencies. Examples of inconsistencies

included:

(1)
dates of salary payment on a customer’s payslips which were materially

different to the date the salary actually appeared on the customer’s bank

statement;

(2)
unexplained fluctuations in salary from one month to the next; and

(3)
a payment being made by the employee to the employer, including a

significant and large payment of £9,000.

4.30. Mr Markou’s failure to ensure that he had appropriate oversight of FSE’s mortgage

business meant that processes were not followed correctly and obvious

inconsistencies in customers’ income and outgoings were not identified or queried.

The lack of oversight meant that Mr Markou failed to identify occasions where the

plausibility of income and outgoings was not being assessed with an appropriate

degree of scrutiny.

Oversight of mortgage applications

4.31. Although all of FSE’s client files contained mortgage applications and accompanying

correspondence, none of the 19 client files seen by the Authority made any

reference to Mr Markou or FSE conducting a check of the mortgage applications.

Client file checks and compliance

4.32. Mr Markou stated to the Authority that his approach to the identification of

mortgage fraud involved file checks against the Mortgage Fraud Checklist, and that

the systems and controls in relation to these did not change during the Relevant

Period. However, the Authority has seen no evidence that the client files were

checked by Mr Markou during the Relevant Period.

Oversight of FSE’s mortgage advisers


Reporting lines and accessibility

4.33. Mr Markou operated no formal reporting process between himself and FSE’s

mortgage advisers who predominantly worked remotely away from FSE’s offices

and recorded business conducted via FSE’s electronic New Business Register.

Occasionally, FSE’s mortgage advisers would also meet clients at FSE’s offices. They

also attended FSE’s offices for meetings when requested by Mr Markou, but there

was no formal requirement for them to do so. Mr Markou was not easily accessible

to FSE’s mortgage advisers, largely because of the amount of time he spent on his

other business interests.

Approach to monitoring FSE’s mortgage advisers

4.34. Mr Markou took no formal steps to monitor FSE’s mortgage advisers and instead

simply relied on their experience and the absence of complaints from customers.

Rather than regularly monitor mortgage files, Mr Markou instead preferred to trust

that there were no issues with the work. Mr Markou had the means to oversee FSE’s

mortgage advisers because, although they worked remotely, client files were

uploaded to the FSE server to which Mr Markou had access.

4.35. Mr Markou appears to have held occasional one-to-one meetings with FSE’s

mortgage advisers of a maximum frequency of “once every two months”, but

records of these were, according to Mr Markou, “not kept strictly 100% the way it

should have been done”.

4.36. The mortgage advisers uploaded new mortgage applications to the FSE server. Mr

Markou could access and review these files but at no stage did he conduct any file

reviews or raise any concerns regarding adviser competency. For example, Mr

Markou took no proactive steps to understand or acquire any awareness of who

approved FSE’s mortgage-related correspondence, including recommendations and

suitability letters.

Assessment of mortgage adviser competence and training

4.37. Mr Markou did not establish an adequate system to monitor the competence of

FSE’s mortgage advisers, either through one-to-one assessments or any form of

appraisal system. Although Mr Markou did introduce an internal Adviser

Competency Framework, it was not implemented until after the May 2017 Visit.

4.38. Adviser competency was developed through ad hoc CPD training undertaken on the

mortgage advisers’ own initiative. CPD was not conducted at the instigation of Mr

Markou, nor was it monitored, checked or assessed by him. None of the structured

training undertaken related to matters pertaining to financial crime generally or

mortgage fraud specifically. Mr Markou took no steps to provide financial crime

training.

4.39. Mr Markou’s approach to assessing competence and training was inadequate. In

the Authority’s view, this is in part borne out by FSE’s removal from the lender

panels in 2016 and 2017, both of the lenders having had concerns about the quality

of the mortgage applications submitted by FSE and specifically the veracity of the

income and employment details of customers.

Submission of new mortgage business without PII in place

4.40. FSE held valid PII cover from 12 May 2016 until 11 May 2017 when it expired and

was not renewed. Mr Markou became aware that FSE’s PII cover would not be

renewed no later than 10 July 2017. However, despite this knowledge, Mr Markou

did not take action to ensure that FSE ceased to carry on regulated activities.

Between 15 July 2017 and 14 October 2017 FSE’s mortgage advisers processed 20

new residential mortgage applications without having PII cover in place.

4.41. By failing to prevent FSE’s mortgage advisers from submitting new mortgage

business when he was aware that FSE did not have valid PII cover, Mr Markou put

the interests of FSE’s mortgage customers at risk; this practice risked causing

consumer detriment.

5.
FAILINGS

5.1.
The statutory and regulatory provisions relevant to this Notice are referred to in
Annex A.

Failure to comply with Statement of Principle 1

5.2.
Contrary to Statement of Principle 1, Mr Markou demonstrated a lack of integrity

during the Relevant Period by recklessly failing to:

(a) establish, maintain and enforce effective financial crime systems and controls,

particularly in relation to the detection and prevention of mortgage fraud;

(b) establish and practise an appropriate level of oversight and monitoring of FSE’s

mortgage advisers, particularly in relation to the detection and prevention of

mortgage fraud; and

(c) ensure that FSE’s mortgage advisers did not carry on regulated mortgage

business beyond the date on which he knew FSE’s PII had lapsed.

5.3.
Mr Markou was aware of the regulatory standards required in relation to FSE’s

mortgage business as the Authority had, prior to the Relevant Period, repeatedly

communicated serious concerns relating to FSE’s financial crime systems and

controls and oversight arrangements. While Mr Markou had satisfied the Authority

that he had addressed these concerns on two previous occasions, by the time of

the May 2017 Visit, Mr Markou had permitted FSE to revert to practices in relation

to which the Authority had previously expressed serious concerns. In doing so, the

Authority considers that Mr Markou ignored the obvious risks created by his

conduct.

Lack of fitness and propriety


5.4.
As a result of having demonstrated a lack of integrity, as set out above, the

Authority considers that Mr Markou is not a fit and proper person to perform any

functions in relation to any regulated activities carried on by an authorised or

exempt person, or exempt professional firm.

6.
SANCTION

Financial penalty

6.1.
The Authority has decided to impose a financial penalty on Mr Markou pursuant to

section 66 of the Act in respect of his failure to comply with Statement of Principle

1. The Authority’s policy on the imposition of financial penalties is set out in Chapter

6 of DEPP. In determining the financial penalty, the Authority has had regard to

that guidance.

6.2.
In determining the financial penalty to be attributed to Mr Markou’s breach, the

Authority has had particular regard to the following matters:

(a) the seriousness of the breach;

(b) the aggravating factors relating to the breach; and

(c) the need for credible deterrence.

6.3.
The penalty calculation in relation to Mr Markou’s breach of Statement of Principle

1 is set out in Annex B to this Notice. Having regard to all the circumstances, the

Authority considers it appropriate to impose a financial penalty of £25,000 on Mr

Markou.

Withdrawal of Approval and Prohibition Order

6.4.
The Authority has the power to withdraw an individual’s approval to perform

controlled functions under section 63 of the Act and the power to make prohibition

orders in respect of individuals under section 56 of the Act. The Authority’s

approach to exercising these powers is set out at Chapter 9 of its Enforcement

Guide.

6.5.
Given the nature and seriousness of the failings outlined above, the Authority

considers that Mr Markou’s reckless conduct demonstrates that he lacks integrity.

The Authority considers that it is appropriate and proportionate in all the

circumstances to withdraw Mr Markou’s approval to perform the SMF1 (Director) and

SMF3 (Chief Executive) controlled functions at FSE and to prohibit Mr Markou from

performing any function in relation to any regulated activity carried out by an

authorised person, exempt person or exempt professional firm.

7.
REPRESENTATIONS

7.1
Annex C contains a brief summary of the key representations made by Mr Markou

and how they have been dealt with. In making the decision which gave rise to the

obligation to give this Notice, the Authority has taken into account all of the

representations made by Mr Markou, whether or not set out in Annex C.

8.
PROCEDURAL MATTERS

8.1.
This Notice is given to Mr Markou under sections 57, 63 and 67 of the Act and in

accordance with section 388 of the Act.

8.2.
The following statutory rights are important.

Decision maker

8.3.
The decision which gave rise to the obligation to give this Notice was made by the

RDC. The RDC is a committee of the Authority which takes certain decisions on

behalf of the Authority. The members of the RDC are separate to the Authority staff

involved in conducting investigations and recommending action against firms and

individuals. Further information about the RDC can be found on the Authority’s

The Tribunal

8.4
Mr Markou has the right to refer the matter to which this Notice relates to the

Tribunal. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper

Tribunal) Rules 2008, Mr Markou has 28 days from the date on which this Notice is

given to him to refer the matter to the Tribunal. A reference to the Tribunal is made

by way of a signed reference notice (Form FTC3) filed with a copy of this Notice. The

Tribunal’s contact details are: The Upper Tribunal, Tax and Chancery Chamber, Fifth

Floor, Rolls Building, Fetter Lane, London EC4A 1NL (tel: 020 7612 9730; email

fs@hmcts.gsi.gov.uk). Further information on the Tribunal, including guidance and

the relevant forms to complete, can be found on the HM Courts and Tribunal Service

8.5
A copy of the reference notice (Form FTC3) must also be sent to the Authority at the

same time as filing a reference with the Tribunal. A copy of the reference notice

should be sent to Shamsher Singh at the Financial Conduct Authority, 12 Endeavour

Square, London, E20 1JN.

8.6
Once any such referral is determined by the Tribunal and subject to that

determination, or if the matter has not been referred to the Tribunal, the Authority

will issue a final notice regarding the implementation of that decision.

Access to evidence

8.7
Section 394 of the Act applies to this Notice.

8.8
Mr Markou has the right to access:

(a) the material upon which the Authority has relied in deciding to give this Notice;
and

(b) the secondary material which, in the opinion of the Authority, might undermine
that decision.

Third party rights and interested party rights

8.9
A copy of this Notice is being given to FSE, pursuant to section 393(4) of the Act,

as a third party identified in the reasons above and to whom in the opinion of the

Authority the matter to which those reasons relate is prejudicial. As a third party,

FSE has similar rights to those mentioned in paragraphs 8.4 and 8.8 above, in

relation to the matters which identify it.

8.10
This Notice is also being given to FSE as an interested party in the withdrawal of

Mr Markou’s approval, pursuant to section 63(4) of the Act. As an interested party,

FSE has the right to access material, similar to that mentioned in paragraph 8.8

above, and the right to refer to the Tribunal the decision to withdraw Mr Markou’s

approval, pursuant to section 63(5) of the Act.

Confidentiality and publicity

8.11
This Notice may contain confidential information and should not be disclosed to a

third party (except for the purpose of obtaining advice on its contents). In

accordance with section 391 of the Act, a person to whom this Notice is given or

copied may not publish the Notice or any details concerning it unless the Authority

has published the Notice or those details.

8.12
However, the Authority must publish such information about the matter to which a

decision notice or final notice relates as it considers appropriate. The persons to

whom this Notice is given or copied should therefore be aware that the facts and

matters contained in this Notice may be made public.

Authority contacts

8.13
For more information concerning this matter generally, contact Shamsher Singh at

the Authority (direct line: 020 7066 5284).

Elizabeth France
Deputy Chair, Regulatory Decisions Committee

ANNEX A


RELEVANT STATUTORY AND REGULATORY PROVISIONS

RELEVANT STATUTORY PROVISIONS

1.
The Authority’s statutory objectives, set out in section 1B(3) of the Act, include the

consumer protection and integrity objectives.

2.
Section 56 of the Act provides that the Authority may make an order prohibiting an

individual from performing a specified function, a function falling within a specified

description or any function, if it appears to the Authority that that individual is not

a fit and proper person to perform functions in relation to a regulated activity

carried on by an authorised person, exempt person or a person to whom, as a result

of Part 20, the general prohibition does not apply in relation to that activity. Such

an order may relate to a specified regulated activity, any regulated activity falling

within a specified description, or all regulated activities.

3.
Section 63 of the Act provides that the Authority may withdraw an approval given

by the Authority under section 59 of the Act in relation to the performance by a

person of a function if the Authority considers that the person is not a fit and proper

person to perform the function.

4.
Section 66 of the Act provides that the Authority may take action against a person

if it appears to the Authority that the person is guilty of misconduct and the

Authority is satisfied that it is appropriate in all the circumstances to take action

against him/her. Misconduct includes failure, while an approved person, to comply

with a Statement of Principle issued under section 64 of the Act. The action that

may be taken by the Authority pursuant to section 66 of the Act includes the

imposition of a financial penalty on the approved person of such amount as it

considers appropriate.

RELEVANT REGULATORY PROVISIONS

5.
In exercising its powers to withdraw approval and to make a prohibition order, the

Authority must have regard to guidance published in the Handbook and in

Regulatory Guides, such as the Enforcement Guide (EG). The relevant main

considerations in relation to the action specified above are set out below.

Statements of Principle and Code of Practice for Approved Persons (APER)

6.
APER sets out the fundamental obligations of approved persons and sets out

descriptions of conduct, which, in the opinion of the Authority, does not comply

with the relevant Statements of Principle. It also sets out, in certain cases, factors

to be taken into account in determining whether an approved person’s conduct

complies with a Statement of Principle.

7.
APER 2.1A.3P, which applies from 1 April 2013, sets out Statement of Principle 1

which states that an approved person must act with integrity in carrying out his

accountable functions.

8.
APER 3.13G provides that, when establishing compliance with, or a breach of, a

Statement of Principle, account will be taken of the context in which a course of

conduct was undertaken, including the precise circumstances of the individual case,

the characteristics of the particular controlled function and the behaviour expected

in that function.

9.
APER 3.1.4G provides that an approved person will only be in breach of a Statement

of Principle if they are personally culpable, that is, where their conduct was

deliberate or where their standard of conduct was below that which would be

reasonable in all the circumstances.

10.
APER 4.1.4G sets out examples of behaviour which the Authority considers does

not comply with Statement of Principle 1 (acting with integrity).

The Fit and Proper Test for Employees and Senior Personnel

11.
The part of the Handbook titled “The Fit and Proper Test for Employees and Senior

Personnel” (FIT) sets out the criteria that the Authority will consider when assessing

the fitness and propriety of a candidate for a controlled function. FIT is also relevant

in assessing the continuing fitness and propriety of an approved person.

12.
FIT 1.3.1G states that the Authority will have regard to a number of factors when

assessing the fitness and propriety of a person. The most important considerations

will be the person’s honesty, integrity, and reputation, competence and capability

and financial soundness.

The Enforcement Guide

13.
The Enforcement Guide sets out the Authority’s approach to exercising its main

enforcement powers under the Act.


The Authority’s policy for exercising its powers to withdraw approval and to make a

prohibition order

14.
The Authority’s policy in relation to withdrawals of approval and prohibition orders

is set out in Chapter 9 of EG.

15.
EG 9.1 explains the purpose of withdrawal of approval from an approved person

and prohibition orders in relation to the Authority’s regulatory objectives. EG 9.1.2

also provides that, where it considers the withdrawal of approval to be appropriate,

the Authority may prohibit an approved person, in addition to withdrawing their

approval.

16.
EG 9.2 sets out the Authority’s general policy on making prohibition orders. In

particular:

(a)
EG 9.2.1 states that the Authority will consider all relevant circumstances,

including whether enforcement action has been taken against the individual

by other enforcement agencies, in deciding whether to make a prohibition

order;

(b)
EG 9.2.2 states that the Authority has the power to make a range of

prohibition orders depending on the circumstances of each case; and

(c)
EG 9.2.3 states that the scope of a prohibition order will depend on, among

other things, the reasons why the individual is not fit and proper and the

severity of risk he poses to consumers or the market generally.

17.
EG 9.3.1 states that when the Authority has concerns about the fitness and

propriety of an approved person, it may consider whether it should prohibit that

person from performing functions in relation to regulated activities, withdraw their

approval, or both. In deciding whether to withdraw its approval and/or make a

prohibition order, the Authority must consider in each case whether its statutory

objectives can be achieved adequately by imposing disciplinary sanctions, for

example, public censures or financial penalties, or by issuing a private warning.

18.
EG 9.3.2 states that, when the Authority decides to make a prohibition order

against an approved person and/or withdraw their approval, the Authority will

consider all the relevant circumstances of the case. These may include:

(1)
The matters set out in section 61(2) of the Act.


(2)
Whether the individual is fit and proper to perform functions in relation to

regulated activities. The criteria for assessing the fitness and propriety of

approved persons are set out in FIT (Honest, integrity and reputation); FIT

2.2 (Competence and capability) and FIT 2.3 (Financial soundness).


(3)
Whether, and to what extent, the approved person has failed to comply with

the Statements of Principle.

(4)
The relevance and materiality of any matters indicating unfitness.


(5)
The length of time since the occurrence of any matters indicating unfitness.


(6)
The particular controlled function the approved person is (or was)

performing, the nature and activities of the firm concerned and the markets

in which he operates.

(7)
The severity of the risk which the individual poses to consumers and to

confidence in the financial system.

(8)
The previous disciplinary record and general compliance history of the

individual including whether the Authority, any previous regulator,

designated professional body or other domestic or international regulator

has previously imposed a disciplinary sanction on the individual.

ANNEX B

PENALTY ANALYSIS

1. The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of DEPP.

In respect of conduct occurring on or after 6 March 2010, the Authority applies a five-

step framework to determine the appropriate level of financial penalty. DEPP 6.5B sets

out the details of the five-step framework that applies in respect of financial penalties

imposed on individuals in non-market abuse cases.

Step 1: disgorgement


2. Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual of

the financial benefit derived directly from the breach where it is practicable to quantify

this.

3. The Authority has not identified any financial benefit that Mr Markou derived directly

from his breach.

4. Step 1 is therefore £0.


Step 2: the seriousness of the breach


5. Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. That figure is based on a percentage of the individual’s

relevant income. The individual’s relevant income is the gross amount of all benefits

received by the individual from the employment in connection with which the breach

occurred, and for the period of the breach.

6. Mr Markou did not receive any income from FSE during the Relevant Period and so had

no relevant income. Step 2 is therefore £0. Nonetheless, the Authority has determined

the seriousness of Mr Markou’s breach for the purposes of Step 2.

7. In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly. DEPP 6.5B.2G(12) lists factors likely to be considered ‘level

4 or 5 factors’ (i.e. indicative of a more serious breach). Of these, the Authority

considers the following factors to be relevant:

a. Mr Markou’s breach created a significant risk that financial crime would be

facilitated, occasioned or otherwise occur;

b. Mr Markou failed to act with integrity; and


c. Mr Markou committed the breach recklessly.


8. DEPP 6.5B.2G(13) lists factors likely to be considered level 1 to 3 factors (i.e. indicative

of a less serious breach). Of these, the Authority considers the following factor to be

relevant:

a. little, or no profits were made or losses avoided as a result of the breach, either

directly or indirectly.

9. Taking all relevant factors into account, the Authority considers the seriousness of the

breach to be level 4.

Step 3: mitigating and aggravating factors


10. Pursuant to DEPP 6.5B.3G, the Authority may increase or decrease the amount of the

financial penalty arrived at after Step 2, but not including any amount to be disgorged

as set out in Step 1, to take into account factors which aggravate or mitigate the

breach.

11. The Authority considers the following factors aggravate Mr Markou’s breach:


a. The Authority had previously and repeatedly communicated to Mr Markou on

occasions prior to the Relevant Period serious concerns regarding FSE’s

oversight arrangements and its systems and controls relating to the prevention

of financial crime; and

b. The December 2011 Variation of Permission was imposed on FSE as a result of

the Authority’s concerns with FSE’s financial crime systems and controls, and

Mr Markou failed to ensure that FSE complied with the December 2011 Variation

of Permission.

12. The Authority considers that there are no factors that mitigate the breaches.

13. The Authority considers that these aggravating factors warrant an increase to the

financial penalty of 25%. However, given that the Step 2 figure is £0, the Step 3 figure

remains at £0.

Step 4: adjustment for deterrence


14. Pursuant to DEPP 6.5B.4G, if the Authority considers that the figure arrived at after

Step 3 is insufficient to deter the individual who committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the penalty.

15. Since the figure after Step 3 would result in a penalty figure of £0, the Authority

considers it appropriate to adjust the penalty level upwards to £25,000. The Authority

has had regard to the following factors in deciding to increase the penalty level to this

a. the seriousness of the breach, which the Authority considers to be level 4;


b. the aggravating factors, which the Authority considers merit a Step 3 uplift of

25%;

c. the Authority considers that a financial penalty of this level is needed for

credible deterrence. Notwithstanding the Authority’s previous interventions, Mr

Markou’s conduct exposed FSE to the risk of being used as a vehicle for

mortgage fraud, and the interests of consumers were not appropriately

protected;

d. the Authority considers it likely that, if no action was taken against Mr Markou,

similar breaches would be committed by him or other individuals in the future;

and

e. the Authority considers that a penalty based on Mr Markou’s relevant income

will not act as a deterrent, due to Mr Markou having no relevant income.

16. The penalty figure after Step 4 is therefore £25,000.


Steps 5: settlement discount


17. Pursuant to DEPP 6.5B.5G, if the Authority and the individual on whom a penalty is to

be imposed agree the amount of the financial penalty and other terms, DEPP 6.7

provides that the amount of the financial penalty which might otherwise have been

payable will be reduced to reflect the stage at which the Authority and the individual

reached agreement. The settlement discount does not apply to the disgorgement of

any benefit calculated at Step 1.

18. No settlement discount applies.


19. The penalty figure after Step 5 is therefore £25,000.


20. The Authority therefore has decided to impose a financial penalty of £25,000 on Mr

Markou, for breaching Statement of Principle 1 (acting with integrity).

REPRESENTATIONS

1.
A summary of Mr Markou’s key representations (in italics), and the Authority’s

conclusions in respect of them, are set out below.

Issue Estoppel / Abuse of Process

2.
On 23 May 2019, the Authority issued the FSE Decision Notice, which set out its

decision to cancel FSE’s Part 4A permission. The Authority decided to take this action

because it considered that FSE had not complied with rules requiring it to pay fees

and levies to the Authority and because FSE did not have PII in place, which the

Authority considered meant that FSE was failing to meet the Threshold Conditions.

3.
FSE made a reference to the Tribunal in respect of the FSE Decision Notice. Following

a hearing, on 22 April 2020 the Tribunal released the FSE Tribunal Decision, which set

out its conclusion that the action that the Authority had decided to take was

inappropriate and remitted the matter back to the Authority. On 5 August 2020, the

Tribunal released the FSE Tribunal Costs Decision, which ordered the Authority to pay

FSE’s legal costs in respect of the FSE Tribunal Proceedings.

4.
The FSE Tribunal Decision, which described Mr Markou as “an honest witness who gave

consistent and credible answers under cross-examination”, included a factual finding

that FSE ceased to carry on regulated activities when its PII cover lapsed. In the light

of this decision, the Authority is estopped on the basis of res judicata (issue estoppel)

and/or the rule in Henderson v Henderson (abuse of process) from alleging that FSE

carried out regulated business after the date Mr Markou was informed that FSE’s PII

provider was declining to renew cover.

Issue Estoppel

5.
Res judicata (issue estoppel) provides that where a cause of action is not the same in

a later action as it was in an earlier one, an issue which is necessarily common to both

and which has been decided on the earlier occasion may be binding on the parties. A

party may not bring subsequent proceedings regarding an issue that has already been

determined.

6.
It was held in the case of Arnold v National Westminster Bank plc [1991] 2 AC 93 that

“Issue estoppel may arise when a particular issue forming a necessary ingredient in a

cause of action has been litigated and decided and in subsequent proceedings between

the same parties involving a different cause of action to which the same issue is

relevant, one of the parties seeks to reopen that issue”. Case law provides that one

way of identifying precisely what was involved in an earlier decision for the purposes

of issue estoppel is to say that any determination is involved in a decision if it is a

“necessary step” to the decision or a “matter which it was necessary to decide, and

which was actually decided, as the groundwork of the decision”.

7.
Although Mr Markou was not a party to the FSE Tribunal Proceedings, issue estoppel

also applies in respect of privies. As Mr Markou is a director and the sole shareholder

of FSE, and was effectively the ultimate beneficial owner of the revenue of its trading

profit, there is a sufficient degree of identity between Mr Markou and FSE such that

Mr Markou is a privy of FSE.

8.
It was central to the case before the Tribunal whether or not FSE carried on regulated

activities after its PII cover lapsed. This is because the Authority’s case was that FSE

should have been able to pay its fees and levies and FSE’s case was that it could not

afford to do so because it had reasonably and properly chosen to cease trading until

it had PII cover in place. The Tribunal therefore had to engage directly with this issue

and made a specific finding of fact that FSE stopped carrying on regulated activities

after its PII cover lapsed. Accordingly, this was a necessary step in the FSE Tribunal

Decision and the Authority is estopped from asserting otherwise in these proceedings.

9.
Case law indicates that an issue which has been decided in previous litigation can be

reopened if there is fresh evidence, but only if that evidence entirely changes that

aspect of the case, and could not by reasonable diligence have been discovered

previously by the party wishing to put that evidence before the court. The evidence

relied on by the Authority of FSE trading after 10 July 2017 is not evidence which it

could not by reasonable diligence have discovered previously, not least because the

Authority already had part of this evidence at the time of the FSE Tribunal Proceedings.

The Authority could have introduced that evidence in the FSE Tribunal Proceedings,

and could also have requested prior to the FSE Tribunal Proceedings that the mortgage

lenders provide it with the additional evidence that it has since obtained, but did not

do so through negligence or inadvertence.

Abuse of Process

10.
The case of Henderson v Henderson [1843-1860] All ER Rep 378 established a rule of

principle preventing litigants from advancing causes of action or arguments that they

could have advanced in earlier proceedings, but did not do so due to negligence,

inadvertence or accident. The Authority could have introduced evidence in relation to

this matter in the FSE Tribunal Proceedings, and so it is an abuse of process for the

Authority now to make an allegation that is in direct conflict with the finding set out

in the FSE Tribunal Decision that FSE was not trading at the material time.

Issue Estoppel/Abuse of Process

11.
As the Authority has not taken the decision to issue this Notice following litigation of

this matter in court or Tribunal proceedings, in case there is any doubt as to whether

issue estoppel and/or abuse of process apply in respect of the issue of this Notice, the

Authority has approached Mr Markou’s submissions regarding issue estoppel and

abuse of process by considering the position should Mr Markou decide to make a

reference of this Notice to the Tribunal and the Authority decide to include the relevant

allegation in its Statement of Case. In the Authority’s view, neither res judicata (issue

estoppel) nor the rule in Henderson v Henderson (abuse of process) prevent it from

taking action in respect of Mr Markou’s failure to ensure that FSE’s mortgage advisers

did not carry on regulated mortgage business beyond the date on which he knew that

FSE’s PII had lapsed.

12.
The Authority also notes that, even if issue estoppel or abuse of process did apply

(which the Authority considers is not the case), it would only apply in respect of the

Authority’s conclusion that Mr Markou failed to ensure that FSE did not carry out

regulated mortgage business after he became aware that FSE’s PII had lapsed. In

such circumstances, the Authority would still consider it appropriate to impose a

substantial financial penalty on Mr Markou, withdraw his approvals and fully prohibit

him, on account of his other serious misconduct, summarised in paragraph 5.2(a) and

(b) of this Notice.

Issue Estoppel

13.
The Authority agrees that the Arnold case is relevant authority as to when issue

estoppel may arise. The question of privity is highly fact dependent. The Authority

acknowledges that there is a possibility that Mr Markou would be regarded as a privy

of FSE, and so has proceeded in its analysis on that basis.

14.
The finding in the FSE Tribunal Decision that FSE ceased to carry on regulated activities

when its PII cover lapsed was based on Mr Markou’s witness statement and on the

oral evidence provided by Mr Markou in the FSE Tribunal Proceedings that FSE stopped

trading when its PII policy lapsed. The Authority did not file a witness statement and

did not challenge Mr Markou’s statements. As such, the Authority considers that it is

questionable whether this issue would be regarded as having been “litigated and

decided” in the FSE Tribunal Proceedings.

15.
In any event, the Authority does not agree that this issue was a necessary ingredient

in the cause of action in the FSE Tribunal Proceedings. Whether or not FSE carried on

regulated activities between 15 July 2017 and 14 October 2017 was not an issue which

the Authority made submissions on in the FSE Tribunal Proceedings, and nor was it

fundamental to, or an essential part of the legal foundation of, the decision that the

Tribunal had to make as to whether FSE, at the time of the FSE Tribunal Decision, was

meeting the Threshold Conditions. The Authority’s case did not include the allegation

that FSE had continued to carry on regulated activities after 9 May 2017, and the

Authority did not dispute Mr Markou’s evidence that FSE had ceased trading, and so it

was not necessary for the Tribunal to reach a determination on whether or not this

actually happened. The Tribunal was instead asked to conclude that it was reasonable

for the Authority to cancel FSE’s Part 4A permission, on the basis that its PII cover

had lapsed and it had not paid outstanding fees and so at that time was not meeting

the Threshold Conditions, notwithstanding that Mr Markou believed that it had ceased

trading after 9 May 2017. Therefore, whether or not FSE carried on regulated activities

between 15 July 2017 and 14 October 2017 was not an issue which made any

difference to the Authority’s case in the FSE Tribunal Proceedings.

16.
The Authority has obtained significant new material from mortgage lenders since the

FSE Tribunal Decision regarding new mortgage applications submitted by FSE after its

PII cover lapsed. The Authority reasonably believed at the time of the FSE Tribunal

Proceedings that it was not necessary to undertake further investigation to obtain this

material. The Authority considers that it cannot be right to expect a party to obtain

and deploy in evidence material which it reasonably considered at the time was not

relevant to the matters forming the underlying cause of action. Accordingly, the

Authority considers that it is not estopped from relying on the material now in its

possession, which demonstrates that Mr Markou in fact failed to ensure that FSE’s

mortgage advisers did not carry on regulated mortgage business beyond the date on

which he knew FSE’s PII had lapsed.

17.
Although the Authority could have raised this issue in the FSE Tribunal Proceedings,

that does not mean it should have done so, and it was also not omitted by negligence,

inadvertence or accident. The FSE Tribunal Proceedings were concerned with whether,

by failing to have PII cover in place and to pay regulatory fees and levies, FSE was

meeting the Threshold Conditions, rather than whether FSE had committed

misconduct by carrying out regulated activities after its PII cover had lapsed. As the

issue was not fundamental to the FSE Tribunal Decision, the Authority does not

consider it an abuse of process for the Authority to allege that Mr Markou failed to

ensure that the mortgage advisers stopped carrying on regulated mortgage business

after 10 July 2017.

18.
Further, the Authority has had regard to the judgment in the case of Mansing Moorjani

v Durban Estates Limited [2019] EWHC 1229 (TCC), in which the judge summarised

how a court should approach an application that there has been an abuse of process.

He noted that: (a) the onus is upon the applicant to establish abuse; (b) the mere fact

that the claimant could with reasonable diligence have taken the new point in the first

action does not necessarily mean that the second action is abusive; (c) the court is

required to undertake a broad, merits-based assessment taking account of the public

and private interests involved and all of the facts of the case; (d) the court’s focus

must be on whether, in all the circumstances, the claimant is misusing or abusing the

process of the court by seeking to raise before it the issue which could have been

raised before; and (e) the court will rarely find abuse unless the second action involves

unjust harassment of the defendant.

19.
The Authority considers that this issue was not considered by the Tribunal in the FSE

Tribunal Proceedings, such that it could be reasonably argued that it would waste time

and costs for it to be considered again. It is also consistent with the Authority’s

operational objectives, and it is in the public interest, for the Authority to take action

where it has identified serious misconduct and for the full extent of that misconduct

to be reflected in the statutory notice. The Authority also does not consider that this

action involves unjust harassment of Mr Markou.

The Authority’s supervision of FSE prior to the May 2017 Visit

20.
Mr Markou denies that the Authority’s interactions with him and FSE in relation to

FSE’s mortgage business from February 2011 onwards demonstrate that he was aware

of the risks which the Authority allege arise from his conduct during the Relevant

Period. Whenever the Authority corresponded with FSE, FSE was fully co-operative

and received a “clean bill of health”. He does not agree that he failed to ensure that

FSE’s mortgage business did not revert to previous non-compliant practices in relation

to which the Authority had previously expressed serious concerns.

21.
The December 2011 Variation of Permission was imposed with the full consent and

cooperation of Mr Markou and FSE. When the various agreed requirements imposed

were lifted, the Authority confirmed that FSE was carrying out its regulated business

in a proper way, in accordance with FSE’s policies and procedures, which had been

approved by the Authority.

22.
The Authority considers that its interactions with Mr Markou and FSE from February

2011 onwards demonstrate that Mr Markou was aware of the financial crime risks

associated with a lack of proper oversight. The pattern of these interactions was: (i)

the Authority identified a matter of regulatory concern; (ii) the Authority visited FSE

to assess the extent of that concern; (iii) the Authority identified regulatory failings at

FSE; (iv) the Authority requested or required FSE to take action to rectify the

concerns; (v) FSE made improvements and seemingly rectified compliance issues; (vi)

the Authority scaled back its close oversight of FSE; and (vii) FSE reverted to its pre-

visit approach to oversight. There were three iterations of this cycle from February

2011 onwards.

23.
The Authority considers that the evidence does not support Mr Markou’s assertion that

the Authority gave FSE a “clean bill of health”, approved FSE’s policies and procedures

and informed Mr Markou that FSE was carrying out regulated business in a proper

way.

Removal of FSE from lenders’ panels in October 2016 and February 2017

24.
FSE was removed from a lender’s panel in October 2016 because the lender did not

give FSE enough time to arrange a mutually convenient appointment. Mr Markou

denies that FSE did not comply with the lender’s request for a meeting.

25.
In respect of FSE’s removal from a lender’s panel in February 2017, neither the

Authority nor the lender have provided details of the mortgage applications from which

the lender’s concerns apparently arose, even though Mr Markou and FSE requested

them. Mr Markou cannot comment on documents that he has not seen and queries

why the Authority would not provide this information if it demonstrates a risk that FSE

was facilitating fraud, in order that FSE could make any necessary changes to its

policies and procedures.

26.
The Authority was informed by the lenders of the reasons for FSE’s removal from their

respective panels. The removal of FSE from the lenders’ panels, and the reasons for

the removals, provide the context for the May 2017 Visit. The Authority is not alleging

that mortgage fraud took place at FSE, but that Mr Markou knew throughout the

Relevant Period the financial crime risks associated with a lack of proper oversight.

The Authority has not obtained the mortgage applications referred to as they are not

necessary to evidence the failings set out in the Notice.

FSE’s policies and procedures

27.
The policies and procedures in place at FSE had been approved by the Authority, and

Mr Markou ensured that they were implemented, monitored and reviewed, as

necessary. FSE therefore did not have inadequate financial crime systems and

controls that left it exposed to being used as a vehicle for financial crime.

28.
Mr Markou does not accept that the MSP was not followed by FSE’s mortgage advisers.

Mr Markou would conduct checks of the mortgage sale process in his own way and

there were no customer complaints. Any issues would be discussed with compliance

officers and the mortgage advisers.

29.
The Mortgage Fraud Checklist was also followed. Mr Markou’s advised target was to

review 10% of customer files, rather than every customer file. This is consistent with

him reviewing two of the 19 files reviewed by the Authority. The fact that the 19 files

did not refer to Mr Markou or FSE conducting a check of the mortgage applications

does not mean that no checks were conducted.

30.
Mr Markou does not accept that FSE’s policies and procedures presented a risk of

mortgage fraud not being identified. Not only were the policies and procedures

approved by the Authority, but the Authority did not identify any fraud, which implies

that the policies and procedures were robust.

31.
Whilst the Authority recognises that policies and procedures existed at FSE, it has not

seen any evidence that they were implemented and maintained by Mr Markou to

ensure that they were followed by FSE’s mortgage advisers.

32.
The Authority considers that the evidence does not support Mr Markou’s assertion that

the
Authority
approved
FSE’s
policies
and
procedures;
conversely
their

characterisation of being robust came from Mr Markou in correspondence with the

Authority.

33.
The Authority has not seen any evidence that demonstrates that Mr Markou or FSE’s

mortgage advisers followed the actions specified in the MSP. In contrast, the 19 client

files reviewed by the Authority indicate that Mr Markou and the mortgage advisers

deviated from the requirements of the MSP. For example, none of these client files

contained any evidence that the mortgage advisers discussed the recommendation or

proposed outcome for the customer with Mr Markou before the business was

submitted, or notes querying the inconsistencies within the documents provided, both

of which actions were required by the MSP.

34.
The Authority also considers that the 19 client files it reviewed supports its view that

the Mortgage Fraud Checklist was not followed and that Mr Markou did not conduct

file reviews during the Relevant Period, as the checklist was incomplete in the files in

which it was present. FSE’s New Business Register also did not contain any record of

Mr Markou or any other person carrying out a review of customer files, despite

containing columns allowing for a record of such reviews. This demonstrates that, as

regards the files reviewed by the Authority, contrary to Mr Markou’s assertion, he

failed to comply with the minimum standard of review that he states was his advised

target (two out of 19 files).

35.
As mentioned above, the Authority is not alleging that mortgage fraud took place at

FSE. However, the Authority does not consider this means that FSE’s policies and

procedures must have been robust. For the reasons given in this Notice, the Authority

considers that Mr Markou failed to implement effective financial crime systems and

controls and exercise appropriate oversight of FSE to prevent it from being used as a

vehicle for financial crime.

Oversight of FSE’s mortgage advisers

36.
Mr Markou does not accept that he failed to ensure that he had appropriate oversight

of FSE’s mortgage business. The mortgage advisers were competent and dealt with

all applications with the appropriate degree of scrutiny. His approach to assessing

competence and training was not inadequate.

37.
Mr Markou denies that there was no formal requirement for the mortgage advisers to

meet with him, that he was not easily accessible to them, and that records of meetings

with the mortgage advisers were inadequate.

38.
Although FSE’s mortgage advisers predominantly worked remotely away from FSE’s

offices and recorded business conducted on FSE’s electronic New Business Register,

that does not mean that there was no formal reporting process between Mr Markou

and FSE’s mortgage advisers. FSE’s working practice was proper, reasonable and

adequate for the work carried out, and was consistent with working practices during

the Covid-19 pandemic.

39.
The Authority considers that the evidence shows that Mr Markou did not appropriately

oversee FSE’s mortgage business or its mortgage advisers to ensure that FSE’s policies

and procedures were followed in practice. At interview, Mr Markou said that he trusted

the experience of one of the mortgage advisers and did not regularly monitor the

mortgage customer files given the absence of complaints from customers. However,

it was not sufficient for Mr Markou simply to trust that the mortgage advisers would

act appropriately; Mr Markou should have taken a proactive approach to overseeing

FSE and should have established adequate systems to monitor the competence of the

mortgage advisers, either through one-to-one assessments or an appraisal system,

but did not do so. Although he introduced an internal Adviser Competency Framework,

it was not implemented until after the May 2017 Visit.

40.
The Authority has also not seen any evidence of Mr Markou taking steps to proactively

provide financial crime training to his mortgage advisers, even after FSE was removed

from two lender panels, and despite this being specifically requested by one of the

mortgage advisers. Mr Markou did not instigate, monitor, check or assess CPD, and

this is supported by the fact that the CPD record sheet for the mortgage adviser was

not signed off by him.

41.
Although the mortgage advisers occasionally met with Mr Markou, according to one of

the mortgage advisers there was no formal requirement for them to do so and Mr

Markou has not provided any records of such meetings during the Relevant Period.

One of the mortgage advisers informed the Authority in interview that Mr Markou was

very busy, had many other business interests, and was not easy to meet, and given

the lack of records of meetings, the Authority considers that it is reasonable to

conclude that Mr Markou was not easily accessible to the mortgage advisers.

42.
The Authority acknowledges that, although FSE’s mortgage advisers worked remotely,

Mr Markou had the means to oversee them, as client files were uploaded to FSE’s

server, to which he had access. However, Mr Markou did not conduct any file reviews

or raise any issues on the files with the mortgage advisers, and instead, in the absence

of any customer complaints, simply trusted that there were no issues, which

demonstrates that FSE’s working practice was not adequate.

Mortgage business carried out after the May 2017 Visit

43.
FSE did not submit any new mortgage business after 9 May 2017. The purportedly

new client files referred to by the Authority in support of its allegation that FSE’s

mortgage advisers processed new mortgage applications between 15 July 2017 and

14 October 2017 were not new cases, but relate to fees paid to FSE in relation to cases

that were commenced prior to 9 May 2017. The files were created for an invoice to be

raised, so that FSE’s accounting records were properly recorded. Therefore, as no new

mortgage business was submitted, Mr Markou did not put the interest of FSE’s

mortgage customers at risk.

44.
The material provided by mortgage lenders on which the Authority relies is misleading

in respect of the dates that mortgage applications were submitted, and Mr Markou’s

request for disclosure of the original applications has not been facilitated. No mortgage

applications can have been submitted by FSE in October 2017 as the mortgage adviser

concerned had left her role at FSE before the end of September 2017.

45.
When advised by his brokers that no PII cover would be afforded by the insurers due

to the Authority’s supervisory investigation, Mr Markou specifically advised his

mortgage advisers not to make any new applications, and this was adhered to as far

as he was aware.

46.
Mr Markou also relies on the Tribunal’s finding of fact that FSE voluntarily ceased

carrying on regulated activities when its PII cover lapsed.

47.
The Authority considers that material provided to it by three different mortgage

lenders demonstrates that FSE continued to submit new mortgage applications after

its PII expired on 11 May 2017 and beyond the date on which Mr Markou knew that

the PII cover would not be renewed, which was no later than 10 July 2017. This

material shows that FSE submitted at least 45 residential mortgage applications after

11 May 2017, 20 of which were submitted after 10 July 2017 (between 15 July 2017

48.
The fact that FSE’s engagement with a customer commenced prior to the lapse of its

PII does not mean that it was permitted to continue carrying out mortgage business

in respect of that customer once its PII had lapsed. FSE required PII cover throughout

its performance of the relevant regulated activity (the activity set out in Article 25A of

the Regulated Activities Order of making arrangements for another person to enter

into a regulated mortgage contract as borrower), not just at the outset of dealing with

a customer. Submitting a mortgage application to a lender forms an integral part of

this regulated activity, through which the borrower enters into the mortgage contract.

49.
The mortgage lenders supplied the Authority with the underlying documentation in

respect of the mortgage applications that took place after FSE’s PII cover lapsed, and

this was provided to Mr Markou. The Authority acknowledges that the mortgage

adviser concerned informed it that she left FSE before the end of September 2017.

However, the material provided by one of the mortgage lenders shows that she

submitted four residential mortgage applications in the name of FSE in October 2017.

The mortgage adviser was self-employed, did not have a written employment contract

with FSE and usually met customers away from FSE’s offices. The Authority considers

it unlikely that the dates in the documentation provided by the mortgage lender are

incorrect and, in particular given Mr Markou’s failure to oversee and monitor

appropriately FSE’s mortgage advisers, more likely that the mortgage adviser

continued to process mortgage business on behalf of FSE until 14 October 2017.

50.
The Authority has not seen any evidence suggesting that Mr Markou knew that FSE

was continuing to transact regulated business beyond 10 July 2017. However, the

Authority considers that Mr Markou’s lack of awareness of the 20 residential mortgage

applications submitted by FSE between 15 July 2017 and 14 October 2017 is indicative

of his failure to exercise appropriate oversight of FSE’s mortgage business.

51.
As mentioned above, the majority of the evidence of the mortgage business conducted

by FSE after its PII cover lapsed was obtained by the Authority following the FSE

Tribunal Decision and the Authority did not adduce the evidence it did have during the

FSE Tribunal Proceedings. For the reasons set out at paragraphs 11 to 19 above, the

Authority considers that the Tribunal’s findings should not prevent it from concluding

that FSE did in fact conduct mortgage business beyond the date when its PII cover

lapsed.

Recklessness and/or lack of integrity

52.
Mr Markou does not accept that he ignored risks and acted recklessly and/or

demonstrated a lack of integrity. He denies that he failed to comply with Statement

of Principle 1 and that he is not a fit and proper person to perform the SMF1 (Director)

and SMF3 (Chief Executive) controlled functions at FSE or any other function in relation

to any regulated activity.

53.
The Authority considers that Mr Markou’s knowledge of how risks had arisen in the

past, coupled with his lack of oversight and control during the Relevant Period

demonstrates a reckless failure to take appropriate steps to run a compliant business.

Since February 2011, there have been regular interactions between Mr Markou and

the Authority flagging concerns around lack of oversight and control, and so he ought

to have been aware of the risks created by his conduct. However, during the Relevant

Period he ignored those risks and recklessly failed to:

a. Establish, maintain and enforce effective financial crime systems and controls;

b. Establish and practice an appropriate level of oversight and monitoring of FSE’s

mortgage advisers; and

c. Ensure that FSE’s mortgage advisers did not carry on regulated mortgage

business beyond the date on which he knew that FSE’s PII had lapsed.

54.
As a result, the Authority concludes that Mr Markou acted with a lack of integrity in

breach of Statement of Principle 1, and is not a fit and proper person to perform any

function in relation to any regulated activity.

Conduct of the Authority

55.
Mr Markou has a number of concerns with the conduct of the Authority since its

Supervision Division commenced an investigation into FSE in 2017.

56.
At the May 2017 Visit, a member of staff of the Authority entered an unauthorised

storage area of FSE’s offices, looked in a filing cabinet and temporarily removed a file,

without the knowledge or consent of Mr Markou or FSE. Mr Markou raised this matter

with the Authority in an email on 10 May 2017, but no explanation has been received.

57.
Following the May 2017 Visit, there was considerable delay in the progress of the

Authority’s Supervision Division’s investigation, at a time when the Authority was

aware that FSE could not obtain PII cover due to the investigation. The Authority

failed to give a satisfactory explanation for the delay and also refused Mr Markou’s

request that the matter be referred to Enforcement or the RDC when he was informed

of the Supervision Division’s preliminary findings.

58.
In February 2018, following internal discussions between the Authority’s Supervision

and Enforcement Divisions which excluded FSE and Mr Markou, the Enforcement

Division commenced an investigation into FSE and Mr Markou, despite the fact that

the Authority’s Supervision Division had not yet concluded its investigation. After Mr

Markou provided evidence that FSE’s policies and procedures were robust, because

they had been approved by the Authority, no action was taken against FSE. As no

action has been taken against FSE in respect of its policies and procedures, Mr Markou

cannot have acted non-compliantly in respect of those policies and procedures.

59.
Since the FSE Tribunal Decision, it is apparent that the Authority has a vendetta

against Mr Markou and FSE, and has used whatever method it can to prevent FSE from

trading and/or Mr Markou from being a director and CEO of FSE. The FSE Decision

Notice was an attempt to cancel FSE’s Part 4A permission through “the back door”,

given the evidential failures in respect of the Authority’s enforcement action against

FSE. This indicates the lengths to which the Authority will go in order to take away

FSE’s ability to trade. The action against Mr Markou seems to be a continuation of

this action, irrespective of the merits.

60.
The Authority has failed to comply with the Tribunal’s directions as set out in the FSE

Tribunal Decision. The Authority has only provided a perfunctory reply to FSE’s

solicitors’ written communication on this matter, and has not provided a detailed

update. This appears to be a wilful and deliberate attempt to prevent FSE from

trading.

61.
The decision to give Mr Markou this Notice was made by the RDC. As is explained in

paragraph 8.3 of this Notice, the RDC is a committee of the Authority which takes

certain decisions on behalf of the Authority, and its members are separate to the

Authority staff involved in conducting investigations and recommending action against

firms and individuals. The RDC has decided to give this Notice on the basis of the

evidence put before it regarding the conduct of Mr Markou; the submissions made by

Mr Markou regarding the conduct of the Authority are generally not relevant to that

decision and the RDC considers that they do not undermine the evidence on which the

decision is based. It is not part of the RDC’s role to investigate complaints relating to

the conduct of the Authority. Should Mr Markou continue to have concerns regarding

the conduct of the Authority, he has the option of making a complaint using the

Complaints Scheme established under the Financial Services Act 2012.

62.
The RDC does not agree with Mr Markou’s submission that, because the Authority

decided not to proceed with enforcement action against FSE, Mr Markou cannot have

acted non-compliantly in respect of FSE’s policies and procedures. Mr Markou was

responsible for ensuring that FSE’s written policies and procedures were properly

implemented, followed, monitored and reviewed, but despite being aware that the

Authority had previously raised serious concerns relating to FSE’s financial crime

systems and controls and oversight arrangements, he recklessly failed to ensure that

this happened.

63.
The RDC also does not agree that the Authority attempted to cancel FSE’s Part 4A

permission “through the back door”. The reason that this cancellation action was

taken was because the Authority considered that FSE was failing to satisfy the

Threshold Conditions, which are the fundamental requirements for authorisation, as a

result of FSE not having PII cover and having outstanding fees and levies. The fact

that the Tribunal decided to allow FSE’s reference and to remit the matter which was

the subject of the FSE Decision Notice back to the Authority does not mean that the

action was not brought in good faith by the Authority.

64.
The RDC does not accept Mr Markou’s submission that this action against Mr Markou

is a further attempt by the Authority to stop FSE from trading, having been

unsuccessful in respect of its cancellation action against FSE. The RDC has decided to

issue this Notice because the evidence it has seen shows that Mr Markou acted

recklessly during the Relevant Period and considers that the action is appropriate and

supports its operational objectives of securing an appropriate degree of protection for

consumers and protecting and enhancing the integrity of the UK financial system.

65.
The RDC notes that a letter has now been sent to Mr Markou informing him of the

conclusions the Authority has reached following the Tribunal’s decision, set out in the

FSE Tribunal Decision, to remit the matter which was the subject of the FSE Decision

Notice back to the Authority.