FIRST SUPERVISORY NOTICE

TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary

Wharf, London, E14 5HS (“the FSA”) has taken the following action:

1.
ACTION

1.1.
For the reasons listed below and pursuant to section 45 of the Financial Services and

Markets Act 2000 (“the Act”), the FSA has decided to vary the permission granted to

Jarvis Investment Management Limited (“the Firm”) pursuant to Part IV of the Act by

imposing the following requirements on the Firm.

1.2.
The Firm is required to refrain from taking any action, omitting to take any action or

permitting any action to be taken which has, or may have, the effect of withdrawing

money from the Account including in respect of any monies which may be deposited to

the Account after the date of this notice unless the FSA has confirmed, in writing, that

it has no objection to those proposals.

1.3.
The Firm is required to notify the FSA in writing immediately:

a) if it receives any instruction to withdraw money from the Account, with a copy

of that instruction;

b) of whether any instruction to withdraw money from the Account has the

authorisation of the Supervisory Commissioner of ARM, with a copy of that

authorisation if in writing or details of that authorisation if oral;

c) of all withdrawals and deposits to the Account, as they occur, together with the

running account balance.

1.4.
The Firm is required, by 10am on 10 November 2011, to:

(a)
acknowledge receipt of this notice and confirm that the Firm will comply with
the requirements in this notice pending further proceedings in this matter; or

(b)
confirm that when proposing to take any action in relation to Pending Investors’
funds in the Account (as defined below), it will continue to use the same client
reference numbers as referred to in the Appendix to this notice. If the Firm is to change
its client reference numbers in relation to the Account and/or the client reference
numbers shown in the Appendix to this notice in any way, it will not do so without the
prior approval of the FSA;

(c)
notify the FSA of any reason why the Firm will be unable to do so.

1.5.
In this notice:

“Account” means that account bearing sort code 55-70-13 and account number

78322936 held in the name of Jarvis Investment Management Limited, but only in

relation to those funds in the Account referable to the list of client reference numbers

given in the Appendix to this notice.

“ARM” means ARM Asset Backed Securities SA, a Luxembourg-based securitisation

vehicle.

“CSSF” means the Luxembourg regulator – the Commission de Surveillance du Secteur

Financier.

“Pending Investors” mean those consumers who handed over money to ARM whilst it

could not issue bonds.

“Supervisory Commissioner” has the meaning in Article 29 of the Luxembourg Law of

22 March 2004 on securitisation being, in summary, the CSSF unless the Luxembourg

district court dealing with commercial matters appoints one or more other persons as

supervisory commissioners.

2.
EFFECTIVE DATE

2.1.
These requirements take effect immediately.

3.
REASONS FOR ACTION

3.1.
The FSA has concluded, on the basis of the facts and matters described below, that it is

desirable to impose the requirements above in order to secure the appropriate degree of

protection for consumers.

3.2.
The FSA considers, on the basis of those facts and matters, that it is necessary, in order

to secure the appropriate degree of protection for consumers, for the action specified

above to take immediate effect.

3.3.
The FSA makes it clear that there is no suggestion of any kind of misconduct in relation

to the Firm in the context of any of the matters contained in this Notice.

3.4.
The FSA's regulatory objectives established in section 2(2) of the Act include the

protection of consumers.

3.5.
By section 425A of the Act, consumer is defined, inter alia, as persons who use or have

used services provided by authorised persons in carrying on regulated activities, or

authorised persons who are investment firms, or credit institutions, in providing

relevant ancillary services, or have relevant rights or interests in relation to any of those

services, and have a right or interest which is derived from or is otherwise attributable

to the use of the services by others.

3


3.6.
By section 45 of the Act, the FSA may (among other things) exercise its power to vary

an authorised person’s Part IV permission in any of the ways mentioned in section

44(1) of the Act where it is desirable to exercise that power in order to meet any of its

regulatory objectives.

3.7.
By section 45(4) of the Act the FSA’s power to vary a Part IV permission extends to

including any provision in the permission as varied that could be included if a fresh

permission were being given in response to an application for authorisation.

3.8.
By section 43(1) of the Act, a Part IV permission may include such requirements as the

FSA considers appropriate. By section 43(2), a requirement may be imposed so as to

require the person concerned to take specified action, or to refrain from taking specified

action. By section 43(3), a requirement may extend to activities which are not regulated

activities.

3.9.
Section 53(3) of the Act allows such variations to take effect immediately if the FSA

reasonably considers that it is necessary for the variations to take effect immediately.

Relevant Regulatory Provisions

3.10. The FSA's policy for exercising its own-initiative power to vary an authorised person’s

Part IV permission is set out in chapter 8 of the Enforcement Guide (“EG”), and

chapter 7.3 of the Supervision Manual (“SUP”), which are part of the FSA Handbook.

3.11. EG 8.1(3) reflects the provisions of section 45 of the Act that the FSA may use its own-

initiative power to vary or cancel the permission of an authorised firm where it is

desirable to do so in order to meet any of its regulatory objectives.

3.12. EG 8.1B provides that the FSA will have regard to its regulatory 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 FSA will also have regard to the principle that a

restriction imposed on a firm should be proportionate to the objectives the FSA is

seeking to achieve.

3.13. EG 8.3 provides that the FSA will exercise its formal powers under section 45 of the

Act, where the FSA considers it is appropriate to ensure a firm meets its regulatory

requirements. EG 8.3(4) specifies that the FSA may consider it appropriate to exercise

its powers where the imposition of a formal statutory requirement may assist the firm to

take steps which would otherwise be difficult because of legal obligations owed to third

parties.

3.14. EG 8.6 to 8.9 set out the FSA’s policy on exercising its own-initiative power to vary an

authorised person’s Part IV permission in urgent cases.

3.15. EG 8.8 provides a non-exhaustive list of situations that will give rise to such serious

concerns and states that this is likely to include a situation where there is information

indicating significant loss, risk of loss or other adverse effects for consumers, where

action is necessary to protect their interests (EG 8.8(1)).

3.16. EG 8.9 provides a non-exhaustive list of the factors the FSA may consider when

deciding whether an urgent variation of permission is appropriate and includes the

extent of any loss or risk of loss or other adverse effect on consumers (EG 8.9(1)).

3.17. SUP 7 provides more information about the situations in which the FSA may decide to

take formal action in the context of its supervision activities. SUP 7.3 provides further

guidance on the criteria for varying a firm’s permission. Further, SUP 7.3.4 provides

that the FSA may vary a firm’s permission with immediate effect where it considers

that a delay may be prejudicial to the interests of consumers.

4.
FACTS AND MATTERS RELIED UPON

4.1.
The Firm in its capacity as a receiving agent, is the holder of the Account specified in

paragraph 1.5 above.

4.2.
The Account contains Pending Investors’ funds.

4.3.
Since 2006, ARM had been in the business of offering to the public securities in the

form of bonds backed by a portfolio of senior life settlements. The marketing process

in the United Kingdom (“UK”) was such that an FSA authorised firm acted as

distributor of the bonds, approved the bond documentation and provided it to FSA

authorised Independent Financial Advisers, who then advised the ultimate investors in

the UK and arranged for the purchase of the bonds.

4.4.
In this way, it is a reasonable inference that investors will have used the services of an

FSA authorised person in carrying on regulated activities, or will have relevant rights

or interests derived from or otherwise attributable to the use of such services by others.

4.5.
In 2009, ARM applied to the CSSF, for authorisation as an authorised securitisation

firm. The issuance of bonds was suspended by agreement between ARM and the CSSF

pending resolution of the application for authorisation, but the bonds continued to be

marketed to consumers. This resulted in a number of those consumers becoming

Pending Investors.

4.6.
The Pending Investors in effect handed over money for three different tranches of

bonds, depending on when the money was handed over. The tranches are known as

tranches 9 to 11.

4.7.
The money was initially held by receiving agents on behalf of ARM and/ or the FSA

authorised firm acting as distributor of the bonds. The money in respect of tranche 9

was transferred from the receiving agents to ARM’s general account in Luxembourg,

and has been used up in the course of ARM’s business.

4.8.
The money in respect of tranches 10 and 11 remains held by the receiving agents. A

proportion of such money sits in the Account.

4.9.
There is uncertainty as to the correct legal status of the pending investor money, and

indeed whether English law or Luxembourg law applies to it. The FSA is of the opinion

that this uncertainty could only properly be resolved by a Court decision.

4.10. ARM is currently subject to a suspension of payments resulting from the CSSF’s

decision to refuse ARM’s application for authorisation. This appears to be a result of

Article 28 of the Luxembourg law of 22 March 2004 on securitisation. This has been

disputed by ARM, and a ruling is expected on 10 November 2011.

4.11. One possible outcome of this ruling is that the suspension of payments may be lifted,

leaving ARM able to make use of the pending investor money currently held by the

Firm.

5.
CONCLUSIONS

5.1.
The facts and matters described above lead the FSA, having regard to its regulatory

objectives, to the following conclusions:

(1)
There is a significant degree of risk to the Pending Investors money prior to

resolution of the question over ownership of the money; and

(2)
The variation of the Firm’s permission to impose the requirements detailed

above should take immediate effect to address the FSA’s serious concern that

there is a risk of loss to consumers.

5.2.
The FSA’s reasons for making the variation and requirements effective immediately are

that:

(1)
there are reasons to consider that the pending investors money may be dealt

with by ARM in a manner inconsistent with the interests of those pending

investors if the money is not protected; and

(2)
there is a risk that such protection as is currently afforded to the money, that is,

the suspension of payments imposed on ARM, may fall away imminently; and

(3)
it is therefore necessary to put in place protection of that money immediately,

having regard to the regulatory objective of consumer protection.

6.
DECISION MAKER

6.1.
The decision which gave rise to the obligation to give this notice was made by the

Chairman of the Regulatory Decisions Committee.

7.
IMPORTANT

7.1.
This Supervisory Notice is given to the Firm under section 53(4) and in accordance

with section 53(5) of the Act, and is being served on the Firm at the principal place of

business last notified by you to the FSA. The following statutory rights are important.

7


The Tribunal

7.2.
The Firm has the right to refer the matter to which this notice relates to the Upper

Tribunal (Tax and Chancery Chamber)(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 notice is given to refer the matter to the Tribunal. A

reference to the Tribunal is made by way of a reference notice (Form FTC3) signed by

the Firm (or on the Firm’s behalf) and filed with a copy of this notice. The Tribunal’s

address is: The Upper Tribunal, Tax and Chancery Chamber, 45 Bedford Square,

London
WC1B
3DN
(tel
020
7612
9700;
email

financeandtaxappeals@tribunals.gsi.gov.uk). Further details are contained in “Making

a Reference to the UPPER TRIBUNAL (Tax and Chancery Chamber)” which is

available from the Upper Tribunal website:

7.3.
The Firm should note that a copy of the reference notice (Form FTC3) must also be sent

to the FSA at the same time as filing a reference with the Tribunal. A copy of the

reference notice should be sent to Simon Stokes at the FSA, 25 The North Colonnade,

Canary Wharf, London, E14 5HS.

Representations

7.4.
The Firm has the right to make written and oral representations to the FSA (whether or

not it refers this matter to the Tribunal). If the Firm wishes to make written

representations it must do by 13 December 2011 or such later date as may be permitted

by the FSA. Written representations should be made to the Regulatory Decisions

Committee and sent to Philip Bellars, Regulatory Decisions Committee Professional

Support Services. The address of the Regulatory Decisions Committee Professional

Support Services is: 25 The North Colonnade, Canary Wharf, London E14 5HS. If you

wish to make oral representations, please inform Philip Bellars in writing of your

intention to do so by 21 November 2011. If you do not notify the FSA by 21 November

2011 you will not, other than in exceptional circumstances, be able to make oral

representations.

Access to evidence

7.5.
Section 394 of the Act does not apply to this Supervisory Notice.

Confidentiality and publicity

7.6.
The Firm should note that this Supervisory Notice may contain confidential information

and should not be disclosed to a third party (except for the purpose of obtaining advice

on its contents).

7.7.
The FSA is required by section 391(5) to 391(6) of the Act to publish such information

about the matter to which this notice relates as it considers appropriate, unless such

publication would in its opinion be unfair to the Firm to which the requirement applies

or prejudicial to the interest of consumers.

7.8.
In the opinion of the FSA, publication of such information would not unfair to the Firm,

nor would it be prejudicial to the interests of consumers.

FSA contacts

7.9.
If the Firm has any questions regarding the procedures of the Regulatory Decisions

Committee, it should contact Philip Bellars (direct line: 0207 066 2894)

7.10. For more information concerning this matter generally, you should contact Simon

Stokes in the FSA’s Supervision Division (direct line: 0207 066 3124).

Tim Herrington

Chairman, Regulatory Decisions Committee

APPENDIX