SECOND SUPERVISORY NOTICE

ACTION

1.
For the reasons given in this Notice, the Authority has decided not to rescind the
variation of permission and the requirements that were notified to P.F.
(International) Limited (the “Firm”) in the First Supervisory Notice dated 31 July
2018 (“The First Supervisory Notice”). Accordingly, the Firm is not permitted to
carry on any regulated activity.

2

2.
The First Supervisory Notice notified the Firm of the Authority’s decision:

(a) pursuant to section 55J of the Financial Service and Markets Act 2000 (the

“Act”), to vary the permission granted to the Firm, with effect from 31 July
2018, by removing the following regulated activities;

i. agreeing to carry on a regulated activity;

ii. credit broking; and

iii. entering into regulated credit agreements as lender (excluding

high-cost short-term credit, bill of sale agreements, and home
collected credit agreements);

(b) pursuant to section 55J of the Act, to vary the permission granted to the

Firm, with effect from 1 November 2018, by removing the regulated
activity of exercising / having the right to exercise lender’s rights and
duties under a regulated credit agreement (excluding high-cost short-term
credit, bill of sale agreements, and home collected credit agreements); and

(c) pursuant to section 55L of the Act, to impose on the Firm, with effect from

31 July 2018, the following requirements:

a. The Firm must, if it proposes to sell its loan book to any third party,

disclose the potential purchaser to the Authority at least 4 weeks prior
to any sale;

b. The Firm must by 7 August 2018 at the latest, send the Authority a

draft letter, which it proposes to send to each of its existing customers
to whom it has lent funds and from whom funds remain outstanding
under regulated agreements (“Existing Customers”), explaining to
them the existence and:

i) effect of the First Supervisory Notice; and

ii) nature of the rights they have under the law.

Within 5 working days of the Authority agreeing the content of the
letter, the Firm must then send it to its Existing Customers; and

c. The Firm must supply the Authority with a list of the Existing

Customers by 7 August 2018 at the latest.

REASONS FOR ACTION



3.
On the basis of the facts and matters described in this Notice, having taken into
account the representations made by the Firm, the Authority considers that the
variation of permission and the imposition of requirements set out in the First
Supervisory Notice were necessary and appropriate. It appears to the Authority
that:

3

a)
the Firm is failing to satisfy the threshold condition set out in paragraph 2E
(suitability) of Schedule 6 to the Act; and

b)
the variation of permission and the requirements set out in the First
Supervisory Notice are desirable in order to advance the Authority’s
consumer protection objective (set out in section 1C of the Act).

DEFINITIONS

4.
The definitions below are used in this Notice:

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

“the Authority” means the Financial Conduct Authority;

“Existing Customers” means the Firm’s customers to whom it has lent funds and
from whom funds remain outstanding under regulated agreements

“the Firm” means P.F. (International) Limited

“the First-Tier Tribunal” means the First-Tier Tribunal (Consumer Credit) General
Regulatory Chamber;

“the First Supervisory Notice” means the First Supervisory Notice given to the
Firm and dated 31 July 2018;


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

“the OFT” means the Office of Fair Trading;

“the Requirement” means the requirement on the Firm’s permissions which states:
‘the Firm is not permitted to canvass regulated borrower-lender-supplier
agreements or regulated consumer hire agreements off trade premises’;

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

“X Ltd” means the company (whose name has been anonymised) with connections
to the Firm described in paragraphs 19 and 20.

FACTS AND MATTERS RELIED ON

Background


5.
The Firm is a small business based in Bristol. Its business model previously
included selling premium vacuum cleaners door to door. Customers could
purchase the cleaners by cash or on credit. The credit was either supplied directly
by the Firm, or the Firm would broker credit to another lender. On 13 November
2018, the Firm told the Authority that it had ceased its sales activities.
Accordingly, the Firm’s current business appears to involve exercising rights
(including by collecting payments) under the credit agreements it previously
entered into, and servicing the vacuum cleaners that it previously sold.

6.
On 1 October 2015, the Firm was authorised to conduct the following activities:

a)
Agreeing to carry on a regulated activity;

b)
Credit broking;

c)
Entering into a regulated credit agreement as lender (excluding high-cost
short-term credit, bill of sale agreements, and home collected credit
agreements); and

d)
Exercising/having the right to exercise the lender’s rights and duties under
a regulated credit agreement (excluding high-cost short-term credit, bill of
sale agreements, and home collected credit agreements).

Failings

Canvassing Off Trade Premises

7.
On 1 October 2015 (when the Firm was authorised), the Authority imposed the
Requirement on the Firm. The Requirement states that the Firm is not permitted
to canvass regulated borrower-lender-supplier agreements or regulated consumer
hire agreements off trade premises.

8.
The Firm has been trading in breach of this requirement from the time of its
authorisation by attending the homes of consumers, without a prior appointment,
with a view to persuading them to enter into credit agreements in order to
purchase vacuum cleaners.

Affordability checks

9.
It appears to the Authority that the Firm has entered into consumer credit
agreements without conducting adequate creditworthiness assessments, as it is
required to do under CONC 5.2.1(R). For example:

a)
On at least two occasions, the Firm entered into a consumer credit
agreement despite being told by the customers that they could not afford
the credit (for example, because they were unemployed); and

b)
On a separate occasion, a consumer credit agreement caused a customer’s
bank account to become overdrawn and certain bills to go unpaid.

10.
Principle 6 requires the Firm to pay due regard to the interests of its customers
and to treat them fairly. CONC 2.2.2(G) provides some examples of behaviour
which is likely to contravene Principle 6. These examples include “targeting
customers with regulated credit agreements which are unsuitable for them, by
virtue of their indebtedness, poor credit history, age, health, disability or any other
reason” and “subjecting customers to high-pressure selling, aggressive or
oppressive behaviour, or unfair coercion”.

5

11.
The Authority considers that the Firm’s sales practices are in contravention of
Principle 6. The Authority has seen evidence that the Firm has engaged in some
of the following practices:

a)
Targeting customers with credit agreements which are unsuitable for them,
by virtue of their age, poor credit history, indebtedness or disability; and

b)
Subjecting customers to high-pressure selling, aggressive or oppressive
behaviour.

12.
For example, on one occasion, the Firm’s representative remained at the home of
a consumer who, on the day of the visit, had received news that a close relative
had passed away that day. Despite being asked to leave by the customer on more
than one occasion, the Firm’s representative remained on the premises for
approximately three hours and as a result, the customer entered into a consumer
credit agreement for the purchase of a new vacuum cleaner so that the
representative would leave her home.

13.
On another occasion, the Firm entered into a credit agreement with a 78 year old
man with reading difficulties in order to facilitate the purchase of a vacuum
cleaner. The customer had already bought two vacuum cleaners on credit and
spent thousands of pounds on servicing them over the previous six years. The
credit agreement put the customer under financial stress and he did not
understand the payments coming from his bank accounts.

14.
Principle 11 requires a firm to be open and cooperative in its dealings with the
Authority and chapter 15 of SUP includes detailed rules and guidance on
information that firms should provide to the Authority.

Misleading the Authority

15.
The Authority has been misled by the Firm on a number of occasions:

a)
On 2 August 2017, in an application for a variation of permission to enable
it to canvass off trade premises, the Firm represented to the Authority that
it had not completed any credit agreements which would have required the
permission which was being sought in the application. In fact, as the Firm
must have known, it had entered into many such agreements.

b)
On 9 August 2017, the Firm stated to the Authority that “we believed we
did have permission to canvass off trade premises”. However, given
previous correspondence between the Firm and the Authority, the Authority
considers that the Firm could not have reasonably believed that it had the
right to canvass off trade premises. In particular, when the Firm initially
submitted its application for authorisation, the Authority sought
clarification from the Firm as to its business model and was told by the Firm
that it would not be canvassing off trade premises. Accordingly, the
Authority granted the Authorisation with the Requirement in place.

c)
On 9 August 2017, in support of the statement at paragraph 15(b), the
Firm told the Authority that it had permission to canvass off trade premises

6

whilst it was licensed by the OFT. However, correspondence between the
Firm and the OFT shows that the Firm, having requested permission to
canvass off trade premises in its application, was told by the OFT that a
licence would not be granted on those terms. The Firm withdrew its request
and was granted a licence without such permission. Accordingly, the
Authority considers that the Firm must have known in August 2017 that it
did not have permission to canvass off trade premises whilst licensed by
the OFT.

d)
On 22 January 2018, the Firm stated that it only canvassed off trade
premises for business brokered to another lender. However, witness
statements provided by the Firm’s customers show that the Firm entered
into consumer credit agreements off trade premises where it was the
lender.

Failure to notify the Authority of an investigation by another regulatory authority

16.
SUP 15.3.15(R) requires a firm to notify the Authority of disciplinary measures or
sanctions that have been imposed by any statutory or regulatory authority,
competition authority, professional organisation or trade body (other than the
Authority) or when the firm becomes aware that one of those bodies has started
an investigation into its affairs. The Firm is under investigation by another
regulatory authority in respect of the way that it conducts its business, and
discovered that it was under investigation in March 2017, but failed to notify the
Authority of this investigation.

Failure to inform the Authority it was breaching its requirement not to canvass off trade premises

17.
On 19 June 2017, the Firm began drafting an application on the Authority’s
authorisation system to remove the requirement not to canvass off trade
premises. The Firm therefore must have known that it was subject to this
requirement. The Firm had been canvassing off trade premises while the
requirement was in place, and breached Principle 11 by failing to notify the
Authority that it was in breach of the requirement.

Unreliability of Firm’s claims

18.
The Firm has been unreliable in its dealings with the Authority. In particular:

a)
The Firm indicated as early as 22 January 2018 that it no longer requires
the permission to broker credit and that it was willing to cede this
permission. However, as at 31 July 2018, it had not applied to the Authority
to do so (although it has since stated that it does not intend challenge the
Authority’s decision to remove this regulated activity from the Firm’s
permission). This is despite having been invited by the Authority to submit
the necessary application, and having been chased by the Authority on 26
April 2018, 16 May 2018 and 6 June 2018.

b)
The Firm also indicated on 22 January 2018 that it intended to wind down
its business and would surrender its permission when that was done, which
at the time of writing was anticipated to be June/July 2018. The Firm has
not applied to cancel its permission and it now appears that the Firm wishes
to remain authorised.

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c)
Upon learning that the Firm intended to wind its business down, the
Authority
sought
clarification
of
various
matters
concerning
the

consequences of doing so on 13 March 2018. The Firm was set a deadline
of 16 March 2018 to respond. The answers given by the Firm were
inadequate and further clarification was sought on 16 May 2018, with a
deadline of 18 May 2018. That correspondence was unanswered as at the
date of the First Supervisory Notice.

The Firm’s connection to unfit persons

19.
The Firm is connected to a number of unfit persons; X Ltd, and two individuals
(Mr A and Mr B) connected to X Ltd. The Firm has a financial connection to X Ltd,
Mr A is the ultimate controller of X Ltd, and Mr B has carried out sales for both the
Firm and X Ltd as well as service management functions for the Firm. Prior to
October 2012, X Ltd operated a similar business model to the Firm. A key similarity
was the sale of the same premium brand vacuum cleaners on credit. The OFT,
which licensed X Ltd, determined that it was unfit and that its licence should be
revoked. On referral to the First-Tier Tribunal, the decision was upheld. In the
course of that decision, the First-Tier Tribunal also found that Mr A was unfit and
that Mr B had engaged in unfair business practices.

20.
The Firm’s connections to X Ltd and the two individuals referred to above, as well
as the findings of the OFT and the First-Tier Tribunal, call into question whether
the Firm is fit and proper. This is particularly the case given that the Firm is
carrying on substantially the same business model as that operated by X Ltd.

CONCLUSION

21.
The statutory and regulatory provisions relevant to this Notice are referred to in
Annex A

22.
On the basis of the facts and matters set out above, the Authority considers that
the Firm is not fit and proper having regard to all the circumstances. As a result,
it appears to the Authority that the Firm is failing to satisfy the threshold condition
in paragraph 2E of Schedule 6 to the Act (suitability).

23.
In addition, the Authority considers that consumers are likely to continue to be
harmed by the Firm’s practices if it is permitted to trade with the permissions set
out in paragraph 6. Accordingly, the Authority considers that the variation of
permission and requirements set out in the First Supervisory Notice are
appropriate and proportionate in order to advance its consumer protection
objective.

24.
The Authority, having regard to the grounds for taking the action set out in the
First Supervisory Notice, reasonably considers that it was necessary that:

a)
the action set out in paragraphs 1 and 3 of the First Supervisory Notice
took effect immediately; and

b)
the action proposed in paragraph 2 of the First Supervisory Notice took
effect on 1 November 2018.

REPRESENTATIONS


25.
Annex B contains a brief summary of the key representations made by the Firm,
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 the Firm, whether or not set out in Annex B.

PROCEDURAL MATTERS


26.
This Second Supervisory Notice is given to the Firm under section 55Y(7) of the
Act, and in accordance with section 55Y(9) of the Act.

27.
The following paragraphs are important.

Decision Maker


28.
The decision which gave rise to the obligation to give this Second Supervisory
Notice was made by the Regulatory Decisions Committee.

The Tribunal


29.
The Firm has the right to refer the matter to which this Second Supervisory Notice
relates to the Tribunal. 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 Upper
Tribunal.

30.
A reference to the Tribunal can be made by way of a signed reference notice (Form
FTC3) and filed with a copy of this Second Supervisory Notice. The Tribunal’s
contact details are: The Upper Tribunal, Tax and Chancery Chamber, Fifth Floor,
Rolls Building, Fetter Lane, London, EC4A 1NL (telephone: 020 7612 9730; email:
uttc@hmcts.gsi.gov.uk).

31.
For further information on the Upper Tribunal (including the power to vary time
periods) you should refer to the HM Courts and Tribunals Service website which
will provide guidance and the relevant form to complete. The relevant page on the
HM Courts and Tribunals Service website can be accessed via the following link:

32.
A copy of Form FTC3 must also be sent to Rory Neary at the Authority, 12
Endeavour Square, London E20 1JN at the same time as filing a reference with
the Upper Tribunal.

33.
The Firm should note that section 391 of the Act requires the Authority, when this
Notice takes effect, to publish such information about the matter as it considers
appropriate.

34.
For more information concerning this matter generally, the Firm should contact
Rory Neary at the Authority (direct line: 020 7066 7972).

Alana Christopher, Deputy Company Secretary, on behalf of
Tim Parkes
Chair, Regulatory Decisions Committee

ANNEX A

RELEVANT STATUTORY PROVISIONS

1.
The Authority’s operational objectives are set out in section 1B of the Act and include

securing an appropriate degree of protection for consumers (section 1C).

2.
Section 55J of the Act allows the Authority to remove a regulated activity from those to
which an authorised person’s Part 4A permission relates where it is desirable to do so in
order to advance one or more of the Authority’s operational objectives (section 55J(1)(c))
or where a firm is failing, or is likely to fail, to satisfy the threshold conditions for which
the Authority is responsible (section 55J(1)(a)).

3.
Section 55L of the Act allows the Authority to impose a requirement on an authorised
person with a Part 4A permission where it is desirable to do so in order to advance one
or more of the Authority’s operational objectives (section 55L(2)(c) or where a firm is
failing, or is likely to fail, to satisfy the threshold conditions for which the Authority is
responsible (section 55L(2)(a)).

4.
Section 55Y of the Act allows a requirement or variation imposed under the own-initiative
requirement power or own initiative variation power to take effect immediately (or on a
specified date) only 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 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) The [Authority] may not publish information under this section if in its opinion,
publication of the information would be—

(a) unfair to the person with respect to whom the action was taken or proposed to
be taken,

(b) prejudicial to the interests of consumers […]

(7) Information is to be published under this section in such manner as the
[Authority] considers appropriate.”

6.
Paragraph 2E to Schedule 6 to the Act states that:

“A must be a fit and proper person having regard to all the circumstances, including-

(c) the need to ensure that A’s affairs are conducted in an appropriate manner,
having regard in particular to the interests of consumers and the integrity of the UK
financial system;

(d) whether A has complied and is complying with requirements imposed by the
[Authority] in the exercise of its functions, or requests made by the [Authority],
relating to the provision of information to the [Authority] and, where A has so
complied or is so complying, the manner of that compliance;

(e) whether those who manage A’s affairs have adequate skills and experience and
have acted and may be expected to act with probity;

(f) whether A’s business is being, or is to be, managed in such a way as to ensure
that its affairs will be conducted in a sound and prudent manner”;

[…].”

RELEVANT HANDBOOK PROVISIONS

7.
In exercising its power to impose requirements or variations of permission, the Authority
must have regard to guidance published in the Handbook. The relevant main
considerations in relation to the action specified above are set out below.

Guidance concerning the relevant threshold conditions

8.
Guidance on the threshold conditions is set out in the part of the Handbook entitled
threshold conditions (“COND”).

COND 2.5 – Suitability: Paragraph 2E of Schedule 6 to the Act

9.
COND 2.5.1A(1) reproduces paragraph 2E of Schedule 6 to the Act (“the Suitability
Threshold Condition”) (as set out in part above).


10.
COND 2.5.3G(1) states that the Authority may consider that a firm is not suitable because
of doubts over the individual or collective suitability of persons connected with the firm.


11.
COND 2.5.4G(2) provides examples of general considerations to which the Authority may
have regard in assessing whether a firm will satisfy and continue to satisfy the Suitability
Threshold Condition.


12.
COND 2.5.6G provides that the Authority may have regard when assessing whether a
firm will satisfy, and will continue to satisfy the threshold conditions, to whether the firm
has been open and co-operative in all of its dealings with the Authority and is ready,
willing and organised to comply with the requirements and standards under the
regulatory system.


CONC – Consumer Credit Sourcebook

13.
CONC 2.2.2G sets out a number of examples of behaviour by or on behalf of a firm which
the Authority considers is likely to contravene Principle 6 including:

“(1) targeting customers with regulated credit agreements which are unsuitable for them,
by virtue of their indebtedness, poor credit history, age, health, disability or any other

reason;

(2) subjecting customers to high-pressure selling, aggressive or oppressive behaviour,
or unfair coercion.”


14.
CONC 5.2.1R requires firms to carry out adequate creditworthiness assessments prior to
lending and lists factors which firms must consider.

PRIN – Principles for Businesses

15.
PRIN 1.1.2G states that the Principles are a general statement of the fundamental
obligations of firms under the regulatory system. PRIN includes:

Principle 6 - “A firm must pay due regard to the interests of its customers and
treat them fairly”; and

Principle 11 - “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”.

SUP – Supervision

16.
Chapter 15 of SUP includes detailed rules and guidance on information that firms should
provide in order to comply with Principle 11.


17.
SUP 15.3.15R(3) provides that a firm must notify the Authority immediately if measures
or sanctions have been imposed on the firm by any statutory or regulatory authority,
competition
authority, professional
organisation
or
trade
body
(other
than

the Authority) or the firm becomes aware that one of those bodies has started an
investigation into its affairs.

OTHER RELEVANT REGULATORY PROVISIONS

18.
The Authority's policy in relation to its enforcement powers is set out in the Enforcement
Guide (EG), certain provisions of which are summarised below.

19.
EG 8.1 reflects the provisions of sections 55J and 55L of the Act that the Authority may
use its power to vary an authorised person’s Part 4A permission or impose a requirement
where a firm is failing or is likely to fail to satisfy the threshold conditions (EG 8.1(1));
or where it is desirable to exercise the power in order to advance one or more of its
operational objectives (EG 8.1(3)).

Imposing requirements on the Authority’s own-initiative

20.
EG 8.2.1 provides that the Authority will have regard to its statutory objectives and the
range of regulatory tools that are available to it, when it considers how it should deal
with a concern about a firm. The Authority will also have regard to: (1) the responsibilities
of a firm's management to deal with concerns about the firm or about the way its business
is being or has been run; and (2) the principle that a restriction imposed on a firm should
be proportionate to the objectives the Authority is seeking to achieve.

21.
EG 8.2.3 provides that the Authority will exercise its formal powers under section 55J or
55L of the Act, where the Authority considers it is appropriate to ensure a firm meets its

regulatory requirements. EG 8.2.3(1) and (2) specifies that the Authority may consider
it appropriate to exercise its powers where it has serious concerns about a firm or the
way its business is being or has been conducted and it is concerned that the consequences
of a firm not taking the desired steps may be serious. EG 8.2.6 gives examples of the
circumstances in which the Authority will consider varying a firm’s Part 4A permission
because it has serious concerns about a firm, or about the way its business is being or
has been conducted. These include:

“(1) in relation to the grounds for exercising the power under section 55J(1)(a) or
section 55L(2)(a) of the Act, the firm appears to be failing, or appears likely to fail,
to satisfy the threshold conditions relating to one or more, or all, of its regulated
activities, because for instance:

(b) the firm appears not to be a fit and proper person to carry on a regulated
activity because:

(iii) it has breached requirements imposed on it by or under the Act (including the
Principles and the rules), for example in respect of its disclosure or notification
requirements, and the breaches are material in number or in individual seriousness;

22.
EG 8.5 states the circumstances in which the Authority will consider cancelling a firm’s
Part 4A permission using its own initial powers contained in sections 55J and 55Q
respectively of the Act. These include where the Authority has very serious concerns
about a firm or the way its business is or has been conducted (EG 8.5.1(1)).

23.
EG 8.5.1 states examples of the types of circumstances in which the Authority may cancel
a firm’s Part 4A permission. These include repeated failures to comply with rules and
requirements (EG 8.5.2(7); a failure to co-operate with the Authority which is of sufficient
seriousness that the Authority ceases to be satisfied that the firm is fit and proper, for
example failing to provide material information or take remedial action reasonably
required by the Authority (EG 8.5.2(8)(b)).

24.
EG 8.5.4 states that where the situation is so urgent and serious that the firm should
immediately cease to carry on all regulated activities, the Authority may first vary the
firm's Part 4A permission so that there is no longer any regulated activity for which the
firm has a Part 4A permission. If it does this, the Authority will then have a duty to cancel
the firm's Part 4A permission - once it is satisfied that it is no longer necessary to keep
the Part 4A permission in force.

25.
EG 8.5.5 states the Authority may decide to keep a firm's Part 4A permission in force to
maintain the firm's status as an authorised person to use administrative enforcement
powers against the firm.

Use of the own-initiative powers in urgent cases

26.
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.

27.
EG 8.3.2 provides the circumstances in which the Authority will consider exercising its
own initiative power as a matter of urgency. These include where the information
available to it indicates serious concerns about the firm or its business that need to be
addressed immediately and 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.

28.
EG 8.3.3 sets out a non-exhaustive list of situations which the Authority will consider in
exercising its own-initiative power as a matter of urgency. These include:

“(1) information indicating significant loss, risk of loss or other adverse effects for
consumers, where action is necessary to protect their interests;

(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.”

29.
EG 8.3.4 states that the Authority will consider the full circumstances of each case when
it decides whether an urgent imposition of a requirement is appropriate and sets out a
non-exhaustive list of factors which will determine whether the urgent exercise of the
Authority’s own-initiative power is an appropriate response to serious concerns,
including:

“(1) 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 urgent exercise of own-initiative powers will be
appropriate, to protect the consumers' interests.

(3) The nature and extent of any false or inaccurate information provided by the
firm. Whether false or inaccurate information warrants the [Authority]’s urgent
exercise of its own-initiative powers will depend on matters such as:

(a) the impact of the information on the [Authority]’s view of the firm's compliance
with the regulatory requirements to which it is subject, the firm's suitability to
conduct regulated activities, or the likelihood that the firm's business may be being
used in connection with financial crime;

(b) whether the information appears to have been provided in an attempt
knowingly to mislead the [Authority], rather than through inadvertence;

(c) whether the matters to which false or inaccurate information relates indicate
there is a risk to customer assets or to the other interests of the firm's actual or
potential customers.

(4) 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.

(5) The financial resources of the firm. Serious concerns may arise where it appears
the firm may be required to pay significant amounts of compensation to consumers.
In those cases, the extent to which the firm has the financial resources to do so will
affect the [Authority]’s decision about whether exercise of the [Authority]’s own-
initiative powers is appropriate to preserve the firm's assets, in the interests of the
consumers. The [Authority] will take account of any insurance cover held by the
firm. It will also consider the likelihood of the firm's assets being dissipated without
the [Authority]’s intervention, and whether the exercise of the [Authority]’s power
to petition for the winding up of the firm is more appropriate than the use of its
own-initiative powers […].

(8) The firm’s conduct. The [Authority] will take into account:

(a) whether the firm identified the issue (and if so whether this was by chance or
as a result of the firm’s normal controls and monitoring);

(b) whether the firm brought the issue promptly to the [Authority]’s attention;

(c) the firm’s past history, management ethos and compliance culture;

(d) steps that the firm has taken or is taking to address the issue.

(9) The impact that use of the [Authority’s] own-initiative powers will have on the
firm’s business and on its customers.

ANNEX B

REPRESENTATIONS


1. The Firm’s representations (in italics) and the Authority’s conclusions in respect of them

are set out below.

Improvements made by the Firm to their procedures and structures and future operation

2. The Authority’s assertion that the Firm is not fit and proper does not accurately reflect

the current situation. The Firm accepts that in the past there was a need to improve its
procedures and systems. However, this situation had been rectified even before the First
Supervisory Notice was issued by recruiting an employee to assist with administration
and compliance. Significant alterations were made to the Firm’s procedures which
brought the Firm completely into compliance with the requirements for authorised firms.
A good example of the newly introduced measures is the “verification phone call” with
the help of which the Firm makes sure within the cancellation period that the customers
are happy with their purchases (please see also paragraph 14 below).


3. The Authority acknowledges that a person was hired by the Firm to carry out compliance

functions. However, the Firm has made no attempt to provide any evidence of the
improvements to its procedures it has made or their impact on the Firm’s suitability, and
specifically on the failings set out in the First Supervisory Notice. Accordingly, it appears
to the Authority that the Firm is not fit and proper and does not meet the Threshold
Condition in paragraph 2E of Schedule 6 to the Act (suitability).

Removing the Firm’s permissions to exercise lender’s rights is not in the interests of consumers


4. The Firm is winding down its operations. It has ceased its sales activities, and is no longer

a distributor of Kirby vacuum cleaners. The Firm therefore does not wish to contest the
variation on its permission set out in paragraph 1 of the First Supervisory Notice.


5. However, the Firm continues to provide services to its customers. It is part of the business

model that the vacuum cleaners are serviced annually by the Firm (free of charge in the
first five years) and thanks to this servicing, the lifespan of the cleaners can reach 30
years. If, as a result of the variation imposed by paragraph 2 of the First Supervisory
Notice, the Firm is not permitted to collect the debts it is owed, it will not be able to
provide these services any more thereby causing detriment to its customers.


6. There has never been any complaint about the debt collection activities of the Firm. There

is no reason why the Firm should not be allowed to receive monies owed to it, which in
turn would allow it to continue to provide the annual service to its customers.


7. For the reasons set out in this Notice, the Authority considers that the Firm is failing to

satisfy the threshold condition in paragraph 2E (suitability) of Schedule 6 to the Act.
Given the nature and breadth of the failings described in the Notice, the Authority is not
satisfied that the Firm could carry out the regulated activities for which it had permission
in a compliant manner, including the activity of exercising lenders’ rights. This is the case,

even though the Authority has not specifically analysed the way in which the Firm has
carried out its collecting activities to date.


8. The Firm has not provided the Authority with any evidence to support its assertion that

it will not be able to carry out the annual servicing of vacuum cleaners. In any event, the
Authority considers that the risk to consumers would be greater if the firm was permitted
to exercise lender’s rights, than the risk that the Firm’s customers might not receive the
annual service on their vacuum cleaners. In particular, the Authority is concerned that
the Firm will continue to collect money from consumers in respect of credit agreements
that might have been entered into in breach of the Authority’s rules, especially in
circumstances where the Firm, as at the date it made representations to the Authority,
had not informed its customers of the effect of the First Supervisory Notice, or the nature
of the rights they have under the law.


Canvassing off trade premises

9. The Firm accepts that it concluded some credit agreements by canvassing off trade

premises. However, of the approximately 3000 contracts that the Firm has concluded
over the last three years, only a couple of dozen were concluded in breach of the
requirement that prohibits the Firm from canvassing off trade premises. Even this
statistically insignificant number of contracts
was a
result
of a
series
of

misunderstandings, rather than an intentional breach. In particular, the Firm believed
that it was permitted to canvass off trade premises because:


a. it believed it could trade as an appointed representative of another lender (which

it understood was permitted to canvass off trade premises); and

b. it understood from its compliance consultant (who submitted its application to the

Authority for permission to carry on regulated activities) that it had applied for
permission to canvass off trade premises, when in fact it had not.

When it realised that it did not have such a permission it immediately ceased its
canvassing activities.


10. Contemporaneous evidence demonstrates that the Firm received several emails that

made it clear that its permission was subject to a requirement not to carry out canvassing
off trade premises. Therefore, it should have been clear to the Firm that it was not
permitted to canvass off trade premises. Its failure to comply with this requirement
demonstrates that the Firm is either unwilling or unable to comply with the regulatory
requirements to which it is subject.


11. The Authority does not accept that the Firm could have formed the belief that it could

canvass off trade premises due to its relationship with another lender. The Authority’s
records do not show that the Firm has ever been an appointed representative of the
lender in question.


12. Both the email sent to the Firm confirming its authorisation and the Authority’s online

register made it clear in short, simple terms that the Firm was not permitted to canvass

off trade premises. Therefore, the Authority does not agree that the Firm genuinely held
the belief that it had permission to canvass off trade premises.

Affordability checks

13. The Firm did not enter into credit agreements with new customers. Instead, credit was

provided by another lender, and that lender was responsible for conducting affordability
assessments. If an existing customer decided to purchase a new vacuum cleaner, the
Firm would provide credit. The firm brokered approximately 1,200 credit agreements,
and provided credit in respect of approximately 1,700 agreements. The Firm is only aware
of about 20 complaints in respect of its credit business, and each one of those complaints
has been resolved to the satisfaction of the customer.


14. Since early 2017, within 12 to 13 days after the sale of a vacuum cleaner, the Firm would

call the customer to ask, among other things, whether they understood their payment
obligations. That process cut down the number of complaints.


15. The Firm has not addressed the Authority’s concerns. In particular, the Firm has provided

no evidence that it is carrying out creditworthiness assessments compliantly, or at all.
Neither has it provided any evidence to demonstrate that it carried out adequate
creditworthiness assessments in the examples in paragraph 9 of this Notice.



16. The Firm has not deliberately targeted vulnerable customers. The Firm’s business model

involves sales agents and service engineers visiting customers. The Firm’s agents have
training and work from a standard script. Where the Firm has found out that one of its
agents has acted in an inappropriate way, the agent is censured and receives training to
address any issues. The Firm also aims to do everything it can for the customers after
the event, which may include a full refund.


17. The manufacturer of the vacuum cleaners has a ‘golden age’ policy, whereby anyone over

67, or with certain disabilities, can cancel their purchase within 9 months. This is far in
excess of any consumer protection legislation. The manufacturer also has a free
compliance phone number. Customers can contact that number if they have any
complaints, but do not wish to contact their distributor.


18. The Authority has not found that the Firm deliberately targeted vulnerable customers.

The Authority’s finding is that the Firm entered into credit agreements that were
unsuitable for certain customers, by virtue of their age, poor credit history, indebtedness
or disability.


19. The Firm has provided no evidence to support its representations. In particular, it has

not provided the standard sales scripts that it states its agents used, or any training
materials or any evidence of an agent being censured. Nor has it provided any evidence

to address the examples described in paragraphs 12 and 13 of this Notice. The firm
explained the lack of any documentary or other evidence as being due to its (small) size
meaning that much was done by word of mouth with little record keeping.


20. The Authority does not consider that it is appropriate for the Firm to rely on the

manufacturer’s policies and compliance telephone line to ensure compliance with Principle
6. The Firm is responsible for its obligations under the regulatory system. Further, the
manufacturer is not an authorised firm, the ‘golden age’ policy only relates to cancellation
rights and, while the Authority has not seen details of this policy, as it is the
manufacturer’s policy, it may not cover the credit advanced by the distributor.

Misleading the Authority

21. Canvassing off trade premises: As set out in paragraph 9 of this Annex, the Firm was not

aware that it was not permitted to canvass off trade premises. It therefore did not
deliberately mislead the Authority in relation to this matter.


22. Failure to notify the Authority of an investigation by another regulatory authority: The

Firm’s understanding was that an investigation only had to be reported to the Authority
if the investigating authority proposed to take action. To date, the investigating authority
has not charged the Firm, or either of the individuals that were interviewed as part of the
investigation.


23. Unreliability of Firm’s claims: The Firm’s director was caring for a family member and also

had a medical condition. During this period, the Firm was run by another individual. This
individual intended to apply to remove the Firm’s broking permissions but, given the
circumstances, he was under pressure and there was always something more pressing
to deal with.


24. Canvassing off trade premises: The Firm received several emails (from both the Authority

and the OFT) which made it clear that the Firm was not permitted to canvass off trade
premises. In light of these communications, which were with the Firm’s director, the
Authority considers that the Firm must have been aware of the requirement not to
canvass off trade premises.


25. Failure to notify the Authority of an investigation by another regulatory authority: The

obligation on the Firm to notify the Authority of the investigation is clear. However, the
Firm failed to notify the Authority of the investigation. The investigation is ongoing, and
the fact that the Firm has not been charged does not mitigate the breach.


26. Unreliability of the Firm’s claims: The Firm’s claims have proved to be unreliable, and

ultimately resulted in the Authority taking the action to remove the Firm’s permission to
carry out regulated activities. Further, the Firm’s conduct has taken place over a period
of several months, during which, there have been a number of attempts by the Authority
to obtain information (as described in paragraph 18 of the Notice). The Authority is not
persuaded that the circumstances at the Firm justify the persistent failure to deal
promptly with the Authority.


The Firm’s connection to unfit persons

27. X Ltd: There is no suggestion that X Ltd has done anything wrong.

28. Mr A: There is no evidence that Mr A is unsuitable. Further, Mr A has no connection to

the Firm. Mr A is involved in the distribution of vacuum cleaners as the official distributor
in the Bristol area, and previously was the UK supervisor under the manufacturer’s
franchise model. However, the Firm has ceased its sales activities and Mr A ceased to be
the UK supervisor last year.


29. Mr B: Mr B was only a sales agent, he was not involved in the management of the Firm.

As the Firm no longer carries out sales activities, Mr B no longer has a role at the Firm.


30. The Authority’s concern with X Ltd, is that it was found to be unfit by the OFT and that

Mr A owns 50% of the shares of, and therefore is in a position to exert significant influence
over, X Ltd. X Ltd collects payments on behalf of the Firm under the credit agreements
the Firm has entered into with its customers. X Ltd also provides the Firm with office
space at a reduced rent.


31. The Authority’s evidence that Mr A is unfit is the decision of the OFT and the First-Tier

Tribunal (mentioned in paragraph 19 of the Notice). While Mr A’s role in relation to the
Firm might have changed since last year, the Authority is still satisfied that he has a
connection to the Firm as a result of his shareholding in X Ltd, and his ongoing role in
the vacuum cleaner franchise.


32. The Firm was unable to provide any evidence to demonstrate that Mr B had ceased his

role in the Firm. The Firm said that this was due to the nature of his role; he was an
independent contractor and was not given any formal written notice. Given that Mr B has
held very similar positions in several businesses selling the same brand of vacuum
cleaner, and given the lack of evidence to the contrary, the Authority remains satisfied
that Mr B has a connection to the Firm.