1

SECOND SUPERVISORY NOTICE

Address:

The Townhouse,
114-116
Fore
Street,
Hertford,

1.1
For the reasons given in this Second Supervisory Notice, the Financial Conduct
Authority (“the Authority”) has decided to maintain the following requirements (“the
Requirements”) that were imposed on Business Agent Limited (“the Firm”) by a
First Supervisory Notice dated 22 July 2024.

Cease Regulated Activity

(1)
The Firm must not conduct any regulated activities without the Authority’s prior
written consent.

Notification and client money requirements

(2)
By 5:00pm on 26 July 2024, the Firm must notify in writing any financial
services providers that it holds accounts with of the terms and effect of these
Requirements. As soon as practicable in advance of making the notifications,
the Firm must agree the wording of the notifications with the Authority.

(3)
by 5:00pm on 26 July 2024 the Firm must:

a)
Publish a prominent notice on the front page of its website, and any
website that it controls, in terms, font and size to be agreed with the
Authority, outlining the effect of the Requirements and providing a link to

2

the relevant website and entry in the Authority’s register relating to the
Firm where the terms of those requirements will appear.


b)
Ensure that when any client of the Firm enters login details to access an
account, a prominent notice is immediately displayed to the client, in
terms, font and size to be agreed with the Authority, outlining the effect
of the requirements above and providing a link to the relevant website
address of the entry in the Authority’s register relating to the Firm where
the terms of these requirements will appear.

(4)
Within 24 hours of the notifications at Requirements (2) and (3) being made,
the Firm must provide to the Authority:

a)
Copies of the template notification sent to all recipients; and

b)
Confirmation that, to the best of its knowledge, the Firm has sent
notifications pursuant to the Requirements (2) and (3).

(5)
The Firm shall send to the Authority by email by 12 noon every Friday,
beginning on 2 August 2024 until such time as it is notified otherwise in writing
by the Authority, up-to-date bank statements for all the Firm’s bank, payments
and/or electronic money accounts.


Records requirement

(6)
The Firm must:

a)
Secure all books and records and preserve information and systems
relating to all regulated activities carried on by it, whether or not the Firm
holds permissions for that activity.

b)
Retain such records in a form and at a location within the UK, to be
notified to the Authority in writing no later than seven days after the
coming into force of these requirements, such that they can be provided
to the Authority, or to a person named by the Authority, promptly on its
request.


1.2
The Requirements took immediate effect upon imposition of the First Supervisory
Notice on 22 July 2024 and shall remain in force unless and until varied or cancelled
by the Authority (either on application of the Firm or of the Authority’s own volition).

2
REASONS FOR ACTION

Summary


2.1
The Authority has concluded, on the basis of the facts and matters described below
that, in respect of the Firm, it is necessary to exercise its power under
section 55L(3)(a) of the Act to impose the Requirements on the Firm because it is
failing, or is likely to fail, to satisfy the Threshold Conditions and it is desirable in
order to advance one or more of the Authority’s operational objectives, which
includes securing an appropriate degree of protection for consumers.

2.2
The Authority has identified serious concerns relating to:

(1) the Firm’s handling of client money. The Firm has a requirement on its

permission that it “cannot hold or control client money”. However, it appears
to be holding client money with a payment services provider (“Firm 2”);

3

(2)
the Firm’s activities as ISA Manager. The Firm has received ISA subscriptions
into accounts which appear to be set-up inconsistently with the requirements
of the ISA Regulations;


(3)
the Firm’s identification and management of several potential conflicts of
interest;


(4)
the Firm’s approach to carrying out due diligence. The Firm appears to have
failed to conduct adequate due diligence on at least one investment offered on
its platform; and


(5)
the Firm’s approach to providing information to the Authority. The Firm appears
to have failed to disclose information to the Authority relating to individuals
associated with the Firm in response to questions from the Authority and may
be in breach of notification requirements relating to financial promotions that
it has approved.


2.3
The Authority considers that it was necessary that imposition of the Requirements
took immediate effect on 22 July 2024 because the facts and matters described
below demonstrate that:

(1) the Firm’s conduct risks causing harm to consumers and action was needed to

protect their interests;

(2) the Authority has serious concerns about the Firm’s ability to meet its

regulatory obligations; and

(3) there is a serious problem with the Firm that calls into question its ability to

continue to meet the Threshold Conditions.

2.4
Based on the facts and matters described in this Second Supervisory Notice, and
having considered the Representations made by the Firm in respect of the First
Supervisory Notice, the Authority considers that imposition of the Requirements
continues to be necessary and appropriate.

2.5
The Firm’s Representations, and the Authority’s response to them, are set out in
Annex 2 to this Second Supervisory Notice.

3
DEFINITIONS

The definitions below are used in this Second Supervisory Notice:

“the Act” means the Financial Services and Markets Act 2000;

“the Authority” means the Financial Conduct Authority;

“Bond Issuer A” means the bond issuer listed on the platform described at
paragraphs 4.27 to 4.33;

“CASS” means the Authority’s client money asset sourcebook, part of the FCA
Handbook;

“Director A” means the director of Bond Issuer A;

“the Firm” means Business Agent Limited;


“Firm 1” means that custody bank engaged by the Firm to act as custodian to the
Firm’s client’s funds in respect of respect of its investment portfolio business;

“Firm 2” means the payment services provider engaged by the Firm to receive clients’
funds and pay them on to the relevant investments;

“Firm 3” means the authorised firm which the Firm says it engaged to hold client
funds on behalf of the Firm;

“Firm 4” means the company listed on Companies House referred to at paragraphs
4.28 to 4.33;

“Group A” means a group of companies which comprises Firm 2 and Firm 3;

“Handbook” means the Authority’s online handbook of rules and guidance (as in force
from time to time);

“HMRC” means HM Revenue and Customs;

“ISA” means an Individual Savings Account;

“ISA Regulations” means The Individual Savings Account Regulations 1998;

“PRIN” means the Authority’s Principles for Businesses, part of the FCA Handbook;

“Requirements” means the terms imposed on the Firm by this Second Supervisory
Notice as outline in section 1 above;

“SUP” means the Supervision Manual, part of the FCA Handbook; and

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

4
FACTS AND MATTERS

Background

4.1
The Firm was incorporated on 18 December 2013 as a private limited company,
under company number 08819159.

4.2
The Firm is a debt and equity crowdfunding platform. It operates the Nextcrowd
website at https://nextcrowd.co.uk/ (the “platform”).

4.3
The Firm’s client base appears to be split evenly between retail investors, certified
high net-worth individuals and self-certified sophisticated investors. As of 26 March
2024, the Firm had 66 customers who had invested £1.7m in equity and debt
offered on the platform.

4.4
The Firm has two Directors. One Director holds SMF 3 – Executive Director. The
other Director holds SMF 3 – Executive Director, SMF 16 – Compliance Oversight,
and SMF 17 – Money Laundering Reporting Officer (MLRO).

4.5
The Firm was authorised by the Authority on 29 September 2015, with the following
Part 4A permissions:

•
credit broking;

•
arranging (bringing about) deals in investments;

•
making arrangements with a view to transactions in investments; and

•
agreeing to carry on a regulated activity.

5

4.6
The Firm has a requirement on its permission that it must not hold or control client
money. It does not have permissions to deal in investments as principal, to
safeguard and administer assets or arrange the safeguarding or administration of
assets.

4.7
The Authority understands the Firm generates revenue from (a) charging issuers a
fee for listing investments on their platform and (b) charging investors a fee which
represents a percentage of their investment (deducted when the investment is
made).

Failings and risks identified

Holding client money without permission

4.8
Money that a firm receives or holds for, or on behalf of, a client during or in
connection with its designated investment business or otherwise, is client money
for the purposes of the CASS rules. The Firm has a requirement on its permission
that it must not hold or control client money.


4.9
Before 19 March 2024, consumers who entered into an agreement to purchase
investments offered on the platform deposited funds into a bank account with
Firm 1 (Firm 1 has permission to hold and control client money). The funds were
then transferred from Firm 1 to the Firm.

4.10 The Authority reviewed bank statements provided by the Firm in response to an

information requirement. These statements appear to show that client funds (which
are client money for the purposes of CASS 7.10.1R) were frequently received into
the Firm’s own accounts.

4.11 The Authority considers that when the Firm received these funds into its account,

the funds were client money under CASS 7.10.1R. The Firm appears to have been
holding client money when it did not have permission to do so.


4.12 On 11 June 2024, the Authority invited the Firm to sign a Voluntary Application for

Imposition of Requirements (“VREQ”) under section 55L(5)(a) of the Act. The
Authority noted in its correspondence that the Authority had identified what
appeared to be multiple breaches of CASS and believed the Firm was acting in
breach of a requirement on its permission not to hold or control client money.


4.13 On 25 June 2024, the Firm declined to sign the VREQ. The Firm acknowledged the

breach of CASS (following legal advice on the issue in May 2024) but stated that it
had since resolved the issue. The Firm noted that it considered that no client money
had been lost. The Firm stated that to address the Authority’s concerns it had (i)
stopped receiving client funds into its own account; and (ii) entered into an
agreement for a new client money service to be provided by Firm 2 (in place of
Firm 1).

4.14 Firm 2 is an authorised payment institution with permission to provide payment

services. Firm 2 does not have permission to hold or control client money. The
Authority has reviewed the statement for the Firm’s account with Firm 2, which
appears to show that client money has been paid into the Firm’s account with
Firm 2.

4.15 CASS 7.13.6R requires that “A firm using the normal approach must ensure that all

client money it receives is paid directly into a client bank account at an institution
referred to in CASS 7.13.3R(1) to CASS 7.13.3R (3)”.

6

4.16 The Firm’s account with Firm 2 is not a client bank account for the purposes of

CASS 7.13.6R because Firm 2 is not a valid institution to place client money with
(CASS 7.13.3R).

4.17 Contrary to the Firm’s position (referred to at paragraph 4.134.13 above), the Firm

2 account appears to be:

•
an account held in the Firm’s name and controlled by the Firm;

•
which is used to hold client money; and

•
which is held with a firm that does not have permission to hold client money
and consequently does not appear to be set-up in a way that complies with
the rules in CASS.

4.18 Although the Firm appears to accept that the arrangements that it had in place prior

to receiving legal advice in May 2024 breached the Authority’s CASS rules, the
Authority has serious concerns that the arrangements the Firm has put in place to
remedy this also appear to breach the CASS rules.

4.19 Consequently, the Authority has serious concerns about whether those who manage

the Firm’s affairs have adequate skills and experience to ensure that the Firm’s
affairs are conducted in an appropriate manner and one which complies with the
requirements of the regulatory framework.

Breach of the ISA Regulations

4.20 An ISA is a tax-free savings account, which allows individuals to subscribe up to

£20,000 per tax year. There are four different kinds of ISA: a cash ISA, a stocks
and shares ISA, a Lifetime ISA, an innovative finance ISA (IFISA) - each has
different features. The account rules for ISAs are set out in the ISA Regulations and
include:


•
which investments qualify for these accounts;

•
which financial institutions can offer which ISAs;

•
the rules concerning ownership, transfer and withdrawal of ISA
investments; and

•
the information that ISA providers must supply to HMRC.

4.21 Only persons approved by HMRC can manage an ISA. The role of an ISA Manager

is to hold investments and claim repayment of income tax deducted at source, by
submitting claims to HMRC. They are also responsible for ensuring compliance with
the duties prescribed under the ISA Regulations.


4.22 The Firm is registered with HMRC as an ISA Manager, for Stocks and Shares ISAs

and IFISAs.


4.23 Regulation 6(4) of the ISA Regulations states that cash subscriptions and other

cash held by an ISA manager must be deposited in an account with a deposit-taker
as defined in section 853 of the Income Tax Act 2007. The account with a deposit
taker must be designated as an ISA account for the purposes of the ISA Regulations
and it should be in the name of the investor.

4.24 The Firm holds accounts with three financial institutions. None of these financial

institutions are deposit takers as defined in section 853 of the Income Tax Act 2007.
However, the Authority have identified several transactions involving payments of
sums into these accounts which appear to relate to ISAs.


4.25 The Authority is concerned that the Firm appears to have breached Regulation 6(4)

7

of the ISA Regulations by accepting ISA subscriptions and transfers into accounts
which are not held with a deposit taker. Even if the ISA subscriptions which the
Firm has accepted were held in account with a deposit-taker, it appears from the
account statements provided to the Authority that (i) the account is not designated
as an ISA account; and (ii) the account is not held in the name of the name of the
investors.

4.26 Consequently, the Authority has serious concerns about whether those who

manage the Firm’s affairs have adequate skills and experience to ensure that the
Firm’s affairs are conducted in an appropriate manner and one which complies
with the requirements of the regulatory framework.

Inadequate due diligence on investments on the Firm’s platform


4.27 The Authority has concerns with the level of due diligence that the Firm appears

to be carrying out in respect of prospective bond issuers to be listed on its
platform. Supervision has identified that the due diligence carried out on
Bond Issuer A appears to be inadequate.


4.28 At the time that the Firm carried out its due diligence Companies House recorded

Director A as the director of Bond Issuer A. Director A is also listed on Companies
House as a director of Firm 4, holding this position since 1 March 2022. Firm 4
went into administration in March 2022 and on 11 October 2023, the Serious Fraud
Office announced that it was conducting a criminal investigation into Firm 4.
Publicly available adverse media relating to the collapse of Firm 4 and the potential
loss of consumer funds dates back to March 2022.


4.29 On 17 April 2024, the Authority asked the Firm about its relationship with

Bond Issuer A. The Firm said that it had completed KYC checks on the bond issuer,
which were signed-off internally. The Authority asked whether the Firm was aware
that Director A was a director of Firm 4 and that the Serious Fraud Office was
investigating Firm 4. The Firm said it was not aware of this. The Authority asked
the Firm what due diligence it had undertaken prior to onboarding Bond Issuer A.
The Firm said it had recently carried out due diligence on Director A and Bond
Issuer A but was not aware of the Serious Fraud Office investigation.


4.30 On 23 April 2024, the Authority sent an information request requiring the Firm to

provide, among other things, a copy of the onboarding and due diligence checks
carried out on Bond Issuer A. In response the Firm provided (among other things)
two documents relating to the Bond Issuer A due diligence. One of the documents
completed on 21 November 2023, refers to Director A and states “Reputation –
Individual. There are no adverse returns for the directors.”


4.31 On 11 June 2024, the Authority provided feedback to the Firm on its approach to

due diligence on investments to be listed on its platform. The Authority set out its
concerns that the Bond Issuer A due diligence was inadequate.


4.32 On 25 June 2024, the Firm confirmed that it reviewed Companies House Records

and the records of the companies that Director A was connected to. The Firm said
that “On clicking on [Director A], a list of companies did not provide any reference
to [Firm 4], so we could not have connected her to [Firm 4]. It’s noted there is an
article re [Firm 4] and the SFO investigation, but [Director A] is not mentioned
and we would not have searched for [Firm 4] as she was not listed as a director
there through her companies house link on [Bond Issuer A]. This situation is still
the case today.”


4.33 The Authority considers that in carrying out its due diligence on Bond Issuer A,

the Firm should have identified Director A as a director of Firm 4. Following the
Authority’s engagement with the Firm, the Authority has carried out further
searches of Companies House records. Contrary to the Firm’s assertion, the
Authority has confirmed that Director A is in fact recorded on Companies House
as a director of Firm 4.


4.34 Consequently, the Authority has serious concerns about whether those who

manage the Firm’s affairs have adequate skills and experience to ensure that the
Firm’s affairs are conducted in an appropriate manner and one which complies
with the requirements of the regulatory framework.

4.35 On 6 February 2024, the Firm applied for permission to approve financial

promotions under Section 21 of the Act. No decision has been made by the
Authority on the Firm’s application to vary its permissions. The application was
made in accordance with the Policy Statement for Introducing a gateway for firms
who approve financial promotions (PS23/13). The Policy Statement provided for a
transitional period to enable existing authorised persons that applied for
permission on or before 6 February 2024 to continue approving financial
promotions for unauthorised persons while the Authority determines their
application.


4.36 SUP 16.31.5R(1)(b) requires a firm to notify the Authority within 7 days of

approving any financial promotion relating to a Non-Mass Market Investment
(“NMMI”). On 6 June 2024, the Authority identified live financial promotions on
the Nextcrowd website for Investment Opportunity 1.


4.37 NMMIs
include
Speculative
Illiquid
Securities
(“SIS”)
as
defined
in

COBS 4.12B.50R and Investment Opportunity 1 is a SIS. The Firm should
therefore have notified the Authority of the Investment Opportunity 1 live
placement within 7 days of the approval. However, to date the Firm has not made
any notifications to the Authority.


4.38 In its written feedback to the Firm dated 11 June 2024, the Authority reminded

the Firm of its obligations under SUP 16.31.5R. On 25 June 2024, the Firm
acknowledged the “reference to the 7-day notifications on approvals” and said “we
will ensure this is implemented moving forward.”


4.39 It appears from the Authority’s engagement with the Firm that the Firm has not

complied with SUP16.31.5R(1)(b). Consequently, the Authority has serious
concerns about whether those who manage the Firm’s affairs have adequate skills
and experience to ensure that the Firm’s affairs are conducted in an appropriate
manner and one which complies with the requirements of the regulatory
framework.

Conflicts of interest and non-disclosures


4.40 Principle 8 of PRIN requires the Firm to manage conflicts of interest fairly, both

between itself and its customers and between a customer and another client.


4.41 SYSC 10 requires firms to take all reasonable steps to identify the types of conflicts

of interest that arise, or may arise, in the course of carrying out regulated activities
between
the
firm
(including
its
managers,
employees
and
appointed

representatives or any person directly or indirectly linked to them by control) and
a client or one client and another. Guidance in SYSC 10.5.1G explains the
circumstances which should be treated as giving rise to a conflict of interest.

These include cases where there is a conflict between the interests of the firm or
certain persons connected to the firm or the firm’s group, and the duty the firm
owes to a client.


4.42 Once a firm has identified an actual or potential conflict, it is required to maintain

and operate effective organisational arrangements with a view to taking all
reasonable steps to prevent conflicts of interest from constituting or giving rise to
a material risk of damage to the interests of its clients.


4.43 More specifically, firms should:

1)
take all reasonable steps to identify conflicts of interest between itself
including its managers, employees and appointed representatives, or any
person directly or indirectly linked to them by control on the one hand, and
clients of the firm on the other, as set out in SYSC 10.1.3R;

2)
take into account, as a minimum, whether the firm was likely to make a
financial gain, or avoid a financial loss, at the expense of the client and/or had
an interest in the outcome of a service provided to the client or a transaction
carried out on behalf of the client which was distinct from the client’s interest
in that outcome;

3)
maintain
and
operate
effective
organisational
and
administrative

arrangements with a view to taking all reasonable steps to prevent conflicts
of interest from constituting or giving rise to a material risk of damage to the
interests of its clients; and

4)
clearly disclose the general nature and/or sources of conflicts of interest to
the client before undertaking business for the client if arrangements to
manage conflicts of interest were not sufficient to ensure, with reasonable
confidence, that risks of damage to the interests of a client would be
prevented.

4.44 On 27 June 2024, the Authority asked the Firm to provide a copy of its Conflicts

of Interest Policy, and a copy of its Conflicts of Interest Register. The Firm provided
both documents on 28 June 2024.


4.45 The Firm’s Conflict of Interest Policy states that the Firm “will manage conflicts of

interest by maintaining a written record of any conflicts that arise and actions
taken”; and that “Where a conflict of interest arises between an employee of the
Firm or a person that is directly or indirectly linked to the Firm and could cause
significant detriment, we will withdraw that individual’s involvement in the
transaction/activity to safeguard the interest of our customer.”


4.46 The Conflict of Interests register contains just one entry. No other conflicts are

recorded on the Conflicts of Interest Register.

4.47 In response to the Authority’s information requests, the Firm has disclosed various

relationships which appear to give rise to potential conflicts of interest. The
Authority has provided further detail of its concerns in relation to these potential
conflicts to the Firm. None of these potential conflicts appear to have been
identified, recorded or mitigated by the Firm.

Impact of conflict of interests


4.48 To manage conflicts of interest, the Firm must maintain and operate effective

organisational and administrative arrangements with a view to taking all

reasonable steps to prevent conflicts of interest from adversely affecting the
interests of its clients.


4.49 However, the Firm has not identified in its Conflicts Register that any of the other

potential conflicts identified by the Authority exist, nor does it appear to have
taken all reasonable steps to manage the conflicts in accordance with the
regulatory requirements or its own Conflicts Policy.


4.50 SYSC 10.1.8R states that where a conflict is not managed in accordance with SYSC

10.1.7R, the firm should disclose to the client before undertaking business for the
client the general nature or sources of conflict of interest (or both) and the steps
taken to mitigate the risk. Because, in the circumstances set out above, the Firm
has not identified that either potential conflicts exist, the Firm does not appear to
have made any disclosures about the potential conflicts to clients before
undertaking business for them.


4.51 The Authority is concerned that the Firm appears to have acted inconsistently with

Principle 8, SYSC 10 and its own Conflicts of Interest Policy because:

(1) The Firm does not appear to have taken all reasonable steps to identify

potential conflicts of interest between the Firm and clients of the Firm.

(2) The Firm has not recorded the potential conflicts in the Firm’s Conflict of

Interest Register.

(3) The Firm does not appear to have taken all reasonable steps to prevent the

potential conflicts of interest from adversely affecting the interests of its
clients.

4.52 Consequently, the Authority has serious concerns about whether those who

manage the Firm’s affairs have adequate skills and experience to ensure that the
Firm’s affairs are conducted in an appropriate manner and one which complies
with the requirements of the regulatory framework.

Failure to deal with the Authority in an open and cooperative manner


4.53 Principle 11 of PRIN states that a firm must deal with its regulators in an open and

cooperative way and must disclose to the Authority appropriately anything relating
to the firm of which that regulator would reasonably expect notice.


4.54 Rule 15.6.1 of SUP states that a firm must take reasonable steps to ensure that

all information it gives to the Authority in accordance with a rule in any part of the
Handbook (including Principle 11) is factually accurate and complete.


4.55 On 17 April 2024, the Authority met with representatives of the Firm. During the

meeting, when asked about the Firm’s organisation and staffing, the Firm said that
it employs four staff on its payroll and engages two consultants. This is confirmed
in an organisational chart provided to the Authority. The Firm also confirmed that
none of its employees are employed elsewhere or hold directorships elsewhere
and that none of the Firm’s shareholders have an active role in the Firm’s business.


4.56 The Authority has reviewed the information provided by the Firm, and is concerned

that some of the information that the Firm has provided is not accurate or
complete and had the potential to be misleading about the individuals involved in
the Firm’s business. The Authority has provided the Firm with further detail of its
concerns about the accuracy of information provided to it.

The Firm’s written representations

4.57 On 21 August 2024, following the issuance of the First Supervisory Notice, the Firm

submitted written representations. The Authority has reviewed and considered the
Firm’s representations. A summary of the Firm’s written representations and the
Authority’s response is set out in Annex 2.

5
CONCLUSION

5.1
The regulatory provisions relevant to this Second Supervisory Notice are set out in
Annex 1.

Analysis of failings and risks


5.2
The Authority has serious concerns about the Firm’s compliance with the Threshold
Conditions. The Threshold Conditions are minimum requirements that firms need
to meet to be authorised and to continue carrying on regulated activities.

5.3
Section 55L of the Act permits the Authority to impose requirements on the Firm
because the Firm is failing, or likely to fail to satisfy:

1)
the Suitability Threshold Condition pursuant to section 2E of Schedule 6 of
the Act; and

2)
the Business Model Threshold Condition pursuant to section 2F of Schedule 6
of the Act.

5.4
As a result of the facts and matters detailed above, the Authority has serious
concerns that Business Agent is failing or is likely to fail, to meet the Threshold
Conditions above because:

1)
The Firm has a requirement on its permission that it “cannot hold and control
client money”. The Firm appears to have breached this requirement by first
holding client money itself and then, in seeking to remedy the issue the
Authority had identified, by putting in place arrangements to hold client
money with an authorised payment institution which itself does not have
permission to hold client money. Consequently, the Authority has serious
concerns that the client money arrangements the Firm has in place do not
comply with its regulatory requirements and that client money is not
adequately protected.

2)
The Firm appears to be operating as ISA Manager in connection with several
investments, but (in part, because of the client money arrangements it
currently has in place) does not appear to be complying with the ISA
Regulations.

3)
The Firm appears to have failed to identify, prevent or manage several
potential conflicts of interest. Consequently, the Firm appears to be in breach
of PRIN 8 and several provisions of SYSC 10 (as outlined above) by failing to
identify, manage fairly and disclose potential conflicts of interest.

4)
The Firm appears to have provided information to the Authority which is
inaccurate, incomplete and has the potential to be misleading.

5)
The Firm appears to have failed to notify the Authority of financial promotions
it has approved in breach of SUP 16.31.5R(1)(b).

6)
The Firm appears to have failed to conduct adequate due diligence on at least
one of the investments offered on its platform.

5.5
The Authority is concerned that the cumulative effect of these concerns is that the
Firm appears to be failing, or is likely to fail, to meet the Suitability and Business
Model Threshold Conditions. In particular:

1)
The Firm’s affairs may not be being conducted in an appropriate manner
having regard to the interests of consumers (COND 2.5.1A(1)(c).


2)
Those who manage the Firm’s affairs may not have adequate skills and
experience to do so (COND 2.5.1A(1)(e)).


3)
The Firm’s business may not be being, or may not be, managed in such a way
as to ensure that its affairs will be conducted in a sound and prudent manner
(COND 2.5.1A(f) and COND 2.7.1(2)).

5.6
The Authority considers that the Firm’s activities present a significant and ongoing
risk of consumer harm. In particular:

1)
By holding or controlling client money in breach of a requirement on the Firm’s
permission and in a manner that appears to be inconsistent with the
requirements of the CASS rules and the ISA Regulations, customer funds do
not appear to be adequately protected and there is a risk of loss to consumers
while their money is held in the Firm 2 account.

2)
By failing to identify, prevent or manage several potential conflicts of interest
competing interests may influence the Firm’s decision-making, for example,
on the extent of the due diligence it conducts on potential investment
opportunities and the investments that it lists on its platform and therefore
whether it acts in accordance with the best interests of its client.

5.7
The Authority has concluded, in light of the matters set out above, that it is
necessary for the Authority to exercise its own-initiative power under
section 55L(3)(a) of the Act by imposing the Requirements to stop the Firm from
conducting regulated activities in order to protect the interests of consumers.


5.8
The Authority considers that the Requirements remain a proportionate and
appropriate means to address the current and immediate risks and are desirable in
order to advance the Authority’s operational objective of consumer protection.

Timing and duration of the Requirements


5.9
It was necessary to impose the Requirements given the seriousness of the risks
and the need to protect consumers.


5.10 The Authority considers that it is necessary for the Requirements to remain in place

indefinitely and until such time as the Authority is satisfied that the risks that the
Requirements seek to address are appropriately mitigated.

6
PROCEDURAL MATTERS

6.1
The decision which gave rise to the obligation to give this Second Supervisory Notice
was made by an Authority staff member under executive procedures according to
DEPP 2.3.1G, DEPP 2.5.7G and DEPP 4.1.7G.

6.2
This Second Supervisory Notice is given under section 55Y(7) and in accordance
with section 55Y(9) of the Act.


6.3
The following statutory rights are important.

Representations


6.4
On 21 August 2024, the Firm submitted written representations in response to the
First Supervisory Notice. The Authority has reviewed and considered all material
the Firm provided and concluded that the Requirements remain proportionate and
appropriate. A summary of the Firm’s written representations and the Authority’s
response is set out at Annex 2.

The Tribunal


6.5
The Firm has the right to refer the matter to which this Second Supervisory Notice
relates to the Tribunal. The Tax and Chancery Chamber is part of the Tribunal
which, amongst other things, hears references arising from decisions of the
Authority. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper
Tribunal) Rules 2008, the Firm has 28 days from the date on which this Second
Supervisory Notice is given to it to refer the matter to the Tribunal.


6.6
A reference to the Tribunal can be made by way of a reference notice (Form FTC3)
signed by or on behalf of the Firm and filed with a copy of this First Supervisory
Notice. The Tribunal’s contact details are: The Upper Tribunal, Tax and Chancery
Chamber, 5th Floor, Rolls Building, Fetter Lane, London EC4A 1NL (telephone: 020
7612 9730; email: uttc@hmcts.gsi.gov.uk).


6.7
Further information on the Tribunal, including guidance and the relevant forms to
complete, can be found on the HM Courts and Tribunal Service website:
http://www.justice.gov.uk/forms/hmcts/tax-and-chancery-upper-tribunal

6.8
The Firm should note that a copy of the reference notice (Form FTC3) must also be
sent to the Authority at the same time as a reference is filed with the Tribunal. A
copy of the reference notice should be sent to the Executive Decision Making
Secretariat (EDMCaseInbox@fca.org.uk).

Confidentiality and publicity

6.9
The Firm should note that section 391(5) of the Act requires the Authority, when
the Second Supervisory Notice takes effect, to publish such information about the
matter to which the notice relates as it considers appropriate.

6.10 In the Authority’s view, publication of this Second Supervisory Notice is not unfair

to the Firm or prejudicial to the interests of consumer or detrimental to the stability
of the UK financial system as per section 391(6) of the Act.

Authority contacts

6.11 For more information concerning this matter generally, contact the Executive

Decision Making Secretariat (EDMCaseInbox@fca.org.uk).

6.12 Any questions regarding the executive procedures decision-making process should

be
directed
to
the
Executive
Decision
Making
Secretariat

(EDMCaseInbox@fca.org.uk).

Executive Decision Maker
Head of Department, Consumer Investments — Supervision, Policy and
Competition

Annex 1

RELEVANT STATUTORY PROVISIONS

1.
The Authority’s operational objectives established in section 1B of the Act include
securing an appropriate degree of protection for consumers, and protecting and
enhancing the integrity of the UK financial system.


2.
Section 55L of the Act allows the Authority to impose a new requirement on an
authorised person if it appears to the Authority that the authorised person is failing,
or likely to fail to satisfy the Threshold Conditions (section 55L(2)(a)), or it is
desirable to exercise the power in order to advance one or more of the Authority’s
operational objectives (section 55L(2)(c)).


3.
Section 55N of the Act allows a requirement to be imposed under section 55L of the
Act so as to require the person concerned to take specified action (section
55N(1)(a)), or to refrain from taking specified action (section 55N(1)(b)).

4.
Section 55Y(3) of the Act allows a requirement to take effect immediately (or on a
specified date) if the Authority, having regard to the ground on which it is exercising
its own-initiative power, reasonably considers that it is necessary for the requirement
to take effect immediately (or on that date).


5.
Section 55Y(7) provides that if , having considered any representations made by an
authorised person, the Authority decides (a) to vary the permission, or impose or
vary the requirement, in the way proposed, or (b) if the permission has been varied
or the requirement imposed or varied, not to rescind the variation of the permission
or the imposition or variation of the requirement, it must give the authorised person
written notice.


6.
Section 55Y(9) provides that if an authorised person is given written notice under
section 55Y(7), the Authority must inform the authorised person of their right to
refer the matter to the Tribunal.


7.
Section 391 of the Act provides that:

“[…]

(5) When a supervisory notice takes effect, the Authority must publish such

information about the matter to which the notice relates as it considers
appropriate.

(6) But the Authority may not publish information under this section if in its

opinion, publication of the information would, be unfair to the person with
respect to whom the action was taken or proposed to be taken [or]
prejudicial to the interests of consumers or detrimental to the stability of the
UK financial system.

(7) Information is to be published under this section in such manner as

the Authority considers appropriate.”

RELEVANT REGULATORY PROVISIONS

FCA Handbook

8.
COND 1.2.3G provides that the Authority may exercise its own-initiative powers
under section 55L of the Act if, among other things, a firm is failing to satisfy any of
the Threshold Conditions or is likely to do so.

9.
COND 1.3.2G states that the Authority will consider whether a firm satisfies, and will
continue to satisfy, the Threshold Conditions in the context of the size, nature, scale
and complexity of the business which the firm carries on or will carry on if the
relevant application is granted.


10.
COND 2.5.4G states that in assessing the Threshold Conditions set out in paragraphs
2E and 3D of the Schedule 6 to the Act (which includes the Suitability Threshold
Condition), factors which the Authority will have regard to general considerations
including, but not limited to, whether the firm: (a) conducts, or will conduct, its
business with integrity and in compliance with proper standards; (b) has, or will
have, a competent and prudent management; and (c) can demonstrate that it
conducts, or will conduct, its affairs with the exercise of due skill, care and diligence.

11.
COND 2.5.6G states that in assessing the Threshold Conditions set out in paragraphs
2E and 3D of the Schedule 6 to the Act (which includes the Suitability Threshold
Condition), factors which the Authority will have regard to include, but are not limited
to, whether the firm:


•
has been open and co-operative in all its dealings with the Authority and
any other regulatory body (Principle 11 (Relations with regulators)) and is
ready, willing and organised to comply with the requirements and standards
under the regulatory system (such as the detailed requirements of SYSC) in
addition to other legal, regulatory and professional obligations; and


•
has made arrangements to put in place an adequate system of internal
control to comply with the requirements and standards for which the
Authority is responsible under the regulatory system.

12.
CASS 7.12.1R states that a firm must, when holding client money, make adequate
arrangements to safeguard the client’s rights and prevent the use of client money
for its own account.


13.
CASS 7.13.1G states that the segregation of client money from a firm’s own money
is an important safeguard for its protection.


14.
CASS 7.13.6R states that a firm using the normal approach must ensure that all
client money it receives is paid directly into a client bank account at an institution
referred to in CASS 7.13.3R(1) to CASS 7.13.3R(3), rather than being first received
into the firm’s own account and then segregated.


15.
SYSC 10.1.3R states that a firm must take all appropriate steps to identify and to
prevent or manage conflicts of interest between (1) the firm, including its managers,
employees and appointed representatives (or where applicable, tied agents), or any
person directly or indirectly linked to them by control, and a client of the firm; or (2)
one client of the firm and another client; that arise or may arise in the course of the
firm providing any service referred to in SYSC 10.1.1R including those caused by the
receipt of inducements from third parties or by the firm’s own remuneration and
other incentive structures.

16.
SUP 16.31.5R(1)(b) states that a firm must notify the Authority within 7 days of
approving any financial promotion relating to a Non Mass-Market Investment.

The Principles for Businesses

17.
Principle 8 of PRIN states that a firm must manage conflicts of interest fairly, both
between itself and its customers and between a customer and another client.

18.
Principle 10 of PRIN states that a firm must arrange adequate protection for clients’
assets when it is responsible for them.


19.
Principle 11 of PRIN states that a firm must deal with its regulators in an open and
cooperative way and must disclose to the FCA appropriately anything relating to the
firm of which that regulator would reasonably expect notice.


The Enforcement Guide

20.
The Authority's approach in relation to its enforcement powers is set out in Chapter
8 of the Enforcement Guide (EG), certain provisions of which are summarised below.


21.
EG 8.1.1 reflects the provisions of section 55L of the Act by stating that the Authority
may use its own-initiative power to impose requirements on an authorised person
where, amongst other factors, the person is failing or is likely to fail to satisfy the
threshold conditions for which the Authority is responsible (EG 8.1.1(1)), or it is
desirable to exercise the power in order to advance one or more of its operational
objectives (EG 8.1.1(3)).


22.
EG 8.2.1 states that when the Authority considers how it should deal with a concern
about a firm, it will have regard to its statutory objectives and the range of regulatory
tools that are available to it. It will also have regard to the principle that a restriction
imposed on a firm should be proportionate to the objectives the Authority is seeking
to achieve (EG 8.2.1(2)).


23.
EG 8.2.3 states that in the course of its supervision and monitoring of a firm or as
part of an enforcement action, the Authority may make it clear that it expects the
firm to take certain steps to meet regulatory requirements. In the vast majority of
cases the Authority will seek to agree with a firm those steps the firm must take to
address the Authority’s concerns. However, where the Authority considers it
appropriate to do so, it will exercise its formal powers under section 55L of the Act
to impose a requirement to ensure such requirements are met. This may include
where, amongst other factors, the Authority has serious concerns about a firm, or
about the way its business is being or has been conducted (EG 8.2.3(1)), or is
concerned that the consequences of a firm not taking the desired steps may be
serious (EG 8.2.3(2)).


24.
EG 8.3.1 states that the Authority may impose a requirement so that it takes effect
immediately or on a specified date if it reasonably considers it necessary for the
requirement to take effect immediately (or on the date specified), having regard to
the ground on which it is exercising its own-initiative powers.


25.
EG 8.3.2 states that the Authority will consider exercising its own-initiative power
where: 1) the information available to it indicates serious concerns about the firm or
its business that need to be addressed immediately; and 2) circumstances indicate
that it is appropriate to use statutory powers immediately to require and/or prohibit
certain actions by the firm in order to ensure the firm addresses these concerns.


26.
EG 8.3.3 states that it is not possible to provide an exhaustive list of the situations
that will give rise to such serious concerns, but they are likely to include one or more
of four listed characteristics, these include: 1) information indicating significant loss,
risk of loss or other adverse effects for consumers, where action is necessary to

protect their interests; 2) information indicating that a firm’s conduct has put it at
risk of being used for the purposes of financial crime, or of being otherwise involved
in crime; 3) evidence that the firm has submitted to the Authority inaccurate or
misleading information so that the Authority becomes seriously concerned about the
firm’s ability to meet its regulatory obligations; 4) circumstances suggesting a
serious problem within a firm or with a firm’s controllers that calls into question the
firm’s ability to continue to meet the threshold conditions.


27.
EG 8.3.4 states that the Authority will consider the full circumstances of each case
when it decides whether an imposition of a requirement is appropriate and sets out
a non-exhaustive list of factors the Authority may consider, these include:

1) EG 8.3.4(1) includes the extent of any loss, or risk of loss, or other adverse effect

on consumers. The more serious the loss or potential loss or other adverse effect,
the more likely it is that the Authority’s exercise of own-initiative powers will be
appropriate, to protect the consumers’ interests.


2) EG 8.3.4(2) includes the extent to which customer assets appear to be at

risk. Exercise of the Authority’s own-initiative power may be appropriate where
the information available to the Authority suggests that customer assets held by,
or to the order of, the firm may be at risk.


3) EG 8.3.4(4) includes the seriousness of any suspected breach of the

requirements of the legislation or the rules and the steps that need to be taken
to correct that breach.


4) EG 8.3.4(8) includes the firm’s conduct. The Authority will take into account

whether the firm identified the issue, brought it promptly to the Authority’s
attention and what steps the firm has taken or is taking to address the issue.


5) EG 8.3.4(9) includes the impact that use of the Authority’s own-initiative powers

will have on the firm's business and on its customers. The Authority will need to
be satisfied that the impact of any use of the own-initiative power is likely to be
proportionate to the concerns being addressed, in the context of the overall aim
of achieving its statutory objectives.

Annex 2

REPRESENTATIONS

The Firm’s Representations, and the Authority’s response, are summarised as follows.

Client money

Firm’s Representations

The Firm engaged Firm 3 to hold client funds on behalf of the Firm. This entity holds the
requisite regulatory permission to hold and control client money and is doing so in
compliance with the Authority’s rules and guidance.

The Authority’s Response

The Authority notes that there are two entities within Group A: (i) Firm 2; and (ii) Firm 3,
and that the former is an authorised payment institution with permission to provide
payment services (but does not have permission to hold or control client money) and that
the latter does have permission to hold and control client money.

On 27 June 2024, the Authority asked the Firm to confirm the name of the legal entity
that provides client money service to the Firm (including its firm reference number) and
to provide a copy of the agreement between Group A and the Firm in relation to holding
and controlling client money. The Firm provided copies of account statements with Firm 2,
which appear to show that client money has been paid into the account with Firm 2.

Although the Firm refers to certain misunderstandings that have arisen due to incomplete
information previously submitted to the Authority, the Firm has not provided any evidence
to support its assertion that its agreement to hold client funds is with Firm 3. The account
statements previously provided by the Firm to the Authority, in response to an information
request, suggest client money is held with Firm 2, which does not have permission to hold
and control client money.

Compliance with the ISA Regulations

Firm’s Representations

The Firm engaged Group A to hold and control client money and Group A operates accounts
with Bank A. The Firm’s previous provider of client money services held funds with Bank
B. As both Bank A and Bank B are deposit-takers, the Firm was, and is, acting in
compliance with Regulation 6(4) of the Individual Savings Account Regulations 1998 (“ISA
Regulations”).

The Authority’s Response

The Authority continues to have concerns with the Firm’s arrangements for accepting
subscriptions from ISA investors. HMRC has published guidance which states that the
account with the deposit taker must be designated as an ISA account for the purposes of
the ISA Regulations and the account should be in the name of the investor. The Firm has
not provided any evidence to support its assertion that cash subscriptions and other
investors funds are held with a deposit-taker and in a way that complies with the ISA
Regulations. However, even if the ISA subscriptions which the Firm has accepted were
held in account with a deposit-taker, it appears that (i) the account is not designated as
an ISA account; and (ii) the account is not held in the name of the name of the investors,
for the purposes of the ISA Regulations.

Conflicts of interest

Firm’s Representations

The Firm acknowledges the importance of managing and disclosing potential conflicts of
interest and recognises that relationships and transactions that the Authority identified
could be interpreted as conflicts of interest. The Firm states its commitment to
transparency. The Firm proposes to take certain actions to address the Authority’s
concerns including: (i) updating its conflicts of interest policy and register; (ii) engaging a
third party to audit the Firm’s conflicts management practices; (iii) establishing ongoing
monitoring; and (iv) notifying current and former clients of the potential conflicts.

The Authority’s Response

The Authority continues to have serious concerns about the Firm’s current approach to
identifying and managing conflicts of interest. The Firm’s Representations accept that
there are several relationships that could be interpreted as conflicts of interest. The
Authority notes the Firm’s current practices (as described in the Representations) and the
Firm’s commitment to transparency and the remedial steps the Firm is proposing to take
to address the Authority’s concerns. Although the Authority acknowledges the remedial
steps proposed by the Firm, the Authority has serious concerns about the risks to
consumers of the Firm offering investments on its platform until these remedial actions
are undertaken and the Firm is able to demonstrate to the Authority that it is ready, willing
and organised to comply with its obligations under the regulatory system.

Information provided to the Authority

Firm’s Representations

The Firm states that it has not intentionally attempted to mislead the Authority and has
provided further information to clarify the roles and responsibilities of individuals identified
in the FSN. The Firm states that it will take several actions to address the concerns
identified in the FSN including (i) conducting a review/audit of its organisational disclosures
and providing a copy of its updated organisation charts/role descriptions to the Authority;
(ii) engaging an independent compliance auditor to review its internal practices; and (iii)
establishing new process for monitoring and reporting organisational changes.

The Authority’s Response

The Authority remains concerned that the Firm has provided inaccurate and incomplete
information to it and that the information provided by the Firm had the potential to be
misleading about the individuals involved in the Firm’s business. Although the Authority
acknowledges the remedial steps proposed by the Firm, the Authority has serious concerns
about the risks to consumers of the Firm offering investments on its platform until these
remedial actions are undertaken and the Firm is able to demonstrate to the Authority that
it is ready, willing and organised to comply with its obligations under the regulatory
system.

Due diligence

Firm’s Representations

The Firm conducted due diligence on Director A, by searching her first and last name (but
not her middle name) on Companies House. The Firm accepts that if the Firm had searched
using her middle name, adverse information would have been found relating to Firm 4. At

the time the Firm outsourced anti-money laundering and financial crime checks to a third
party, which subcontracted these to a subcontractor. The third party and the subcontractor
did not identify the adverse information. The Firm has now instructed another third party
to undertake anti-money laundering and financial crime checks on its behalf. The Firm
has proposed a series of remedial actions including: (i) enhancing its due diligence
processes; (ii) engaging a third-party to review its due diligence processes; (iii) conducting
an independent review and audit of all entities onboarded via the original third party and
(iv) implementing a training programme for staff. In summary, the Firm acknowledges
the gaps in its due diligence practices and expresses its commitment to implementing the
necessary improvements.

The Authority’s Response

The Authority remains concerned that the Firm’s due diligence processes do not meet its
regulatory expectations. Firms who use third party providers must take reasonable care
to organise and control their affairs responsibly and effectively, with adequate risk
management systems. It is the Firm’s responsibility to manage the risk arising from using
third parties to carry out services on its behalf and greater levels of risk management are
needed when a firm increases its dependence on outsourced and third party providers.
Although the Authority acknowledges the remedial steps proposed by the Firm, the
Authority has serious concerns about the risks to consumers of the Firm offering
investments on its platform until these remedial actions are undertaken and the Firm is
able to demonstrate to the Authority that it is ready, willing and organised to comply with
its obligations under the regulatory system.

Other matters

Firm’s Representations

In addition to those matters identified above, the Firm has committed to taking several
further steps to address the Authority’s concerns:

•
Engaging a compliance consultancy to provide dedicated compliance officer support.

•
Launching a compliance training programme for all staff.

•
Conducting period independent audits to review and improve compliance practices.

•
Enhancing the Firm’s governance and risk management framework.

The Firm states that to be able to introduce these changes and ensure their success, it is
essential that the Firm can continue to operate and generate revenue.

The Firm has also provided the Authority with a summary of the benefits the Firm provides
to the industry.

The Authority’s Response

The Authority welcomes the range of remedial actions the Firm intends to take to address
the concerns the Authority has raised and to bring it into compliance with the requirements
of the regulatory framework. However, noting the scale of the work to be undertaken, the
Authority has serious concerns about the risks to consumers of the Firm offering
investments on its platform until these remedial actions are undertaken and the Firm can
demonstrate to the Authority that it is ready, willing and organised to comply with its
obligations under the regulatory system.