Supervisory Notice
On , the Financial Conduct Authority issued a Supervisory Notice to Lilium Markets Ltd
FIRST SUPERVISORY NOTICE
_______________________________________________________________
To:
Lilium Markets Ltd
1.1
For the reasons given in this First Supervisory Notice, and pursuant to regulation
12(1) and 15 of the Payment Services Regulations 2017 (“the PSR”), the Financial
Conduct Authority (“the Authority”) has decided to vary the registration granted to
Lilium Markets Ltd (“the Firm”) pursuant to Part 2 of the PSR by:
1)
removing the following payment service the Firm provides:
a) Money remittance; and
2)
imposing the following requirements (“the Requirements”) on the Firm with
immediate effect:
a)
By close of business Monday, 10 October 2022 the Firm must remove,
or where this is not practicable, use its best endeavours to secure the
removal of, any advertising and financial promotions it currently has live,
in whatever form they may take. This includes, but should not be limited
to, videos on YouTube, online press articles (including but not limited to
Manchester Express and Leicester Buzz) and posts across all social media
platforms (including but not limited to Facebook, Twitter and Instagram).
b) The Firm must not issue or publish any advertising or financial promotions
in relation to payment services, money service business, regulated
activities or electronic money. This includes, but it not limited to
advertising or publication on the Website, YouTube and social media
channels.
c)
The Firm must secure and preserve all records and/or information
(physical or electronic) relating to all activities carried on by it, including
but not limited to regulated activities. These must be retained in a form
and at a location within the United Kingdom, to be notified to the
Authority in writing by close of business Monday, 10 October 2022,
such that they (or, so as not to hinder the Firm’s performance of its
business activities, true copies of them) can be provided to the Authority,
or to a person named by the Authority, promptly on its request.
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d) By close of business Friday, 7 October 2022, the Firm must update its
details displayed on the Authority’s Register online using Connect. This
must include but should not be limited to details of its directors, all
addresses, telephone numbers, email addresses and complaint contact
details.
e)
The Firm must provide written confirmation to the Authority that it is in
compliance with these Requirements by close of business Monday,
10 October 2022, together with a list of all advertising and financial
promotions removed.
1.2
The effect of the removal of the payment service in accordance with paragraph
1.1(1) is that the Firm cannot provide any payment services.
1.3
The variation shall take immediate effect and remain in force unless and until varied
or cancelled by the Authority (either on the application of the Firm or of the
Authority’s own volition).
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REASONS FOR ACTION
Summary
2.1
The Authority has concluded, on the basis of the facts and matters described below,
that it is necessary to vary the Firm’s registration by removing the payment services
it provides and imposing the Requirements because it appears the Firm no longer
meets, or it is unlikely to meet, the conditions for registration under regulation
14(11) of the PSR and it is desirable in order to protect the interests of consumers
pursuant to regulation 12(1)(d) of the PSR.
2.2
The Authority has identified serious concerns that:
1) A small payment institution (“SPI”) is required, as a condition of registration
under regulation 14(11) of the PSR, to be included in the HMRC Register. The
Firm is in breach of this requirement: it is not included on the HMRC Register;
it has never successfully obtained HMRC registration; and its two applications
for HMRC registration were rejected on 21 April 2020 and 15 January 2021
respectively.
2) The Firm is registered as a payment services firm to provide money remittance
only; it is not authorised under the Act and does not hold any permissions to
conduct regulated activities under the Act. The Authority considers that the
contents of the Firm’s Website (not currently live as at September 2022),
various YouTube videos purporting to be from the Firm (which remain live),
two online articles (which remain live) and the Firm’s business plan, suggest
the Firm may be offering, or intending to offer, contract for differences (“CFD”)
and other investment services while not having the relevant permissions to do
so.
2.3
The Authority considers variation of the Firm’s registration by removing its payment
service and imposing the Requirements should take immediate effect because the
matters set out in this FSN raise serious concerns about the Firm’s suitability and
demonstrate that the Firm is putting customers at risk of significant potential loss
or adverse effects and otherwise.
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DEFINITIONS
3.1
The definitions below are used in this First Supervisory Notice:
“Act” means the Financial Services and Markets Act 2000;
“Authority” means the Financial Conduct Authority;
“CFD” means contract for differences;
“EMR” means the Electronic Money Regulations 2011
“the Firm” means Lilium Markets Ltd;
“the First Application” means the Firm’s first application to HMRC for registration on
the HMRC Register submitted 26 September 2019;
“Financial Services Register” means the public record maintained by the Authority as
required by, inter alia, regulation 4 of the PSR;
“FOS” means the Financial Ombudsman Service;
“FSCS” means the Financial Services Compensation Scheme;
“FSN” means First Supervisory Notice;
“HMRC” means HM Revenue and Customs;
“The HMRC Register” means the Supervised Business Register maintained by HMRC
under the MLR;
“MLR” means the Money Laundering, Terrorist Financing and Transfer of Funds
(Information on the Payer) Regulations 2017;
“money service business” means an undertaking which by way of business operates
a currency exchange office, transmits money (or any representation of monetary
value) by any means or cashes cheques which are made payable to customers;
“PSR” means the Payment Services Regulations 2017;
“Requirements” means the terms imposed on the Firm by this First Supervisory
Notice as outlined in section 1 above;
“the Second Application” means the Firm’s second application to HMRC for
registration on the HMRC Register submitted 14 September 2020;
“SPI” means a small payment institution registered pursuant to regulation 14 of the
PSR and included by the Authority in the Financial Services Register pursuant to
regulation 4(1)(b) of the PSR;
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);
“the Website” means the Firm’s former website at https://lilium-markets.com/.
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FACTS AND MATTERS
Background
4.1
The Firm was incorporated on 28 June 2019 with the name Sama Exchange and
Travel Limited. It was renamed to Safa Exchange and Travel Limited on 2 July 2019.
It was renamed a third time to Lilium Markets Ltd on 27 November 2021.
4.2
The Firm is an SPI. It was registered by the Authority on 30 March 2020 under the
PSR to provide payment services. The sole payment service it is registered to
provide is money remittance. The Firm is not an authorised firm.
4.3
As part of the Firm’s application for registration, the Firm told the Authority that
“[t]he company’s operations will be only based on money transmission to different
countries […] There are no other business activities undertaken by the firm.” A firm
that transmits money (or any representation of monetary value), such as the Firm,
carries on a money service business for the purposes of regulation 3(1) of the MLR.
4.4
The Firm has had three different Directors since it was registered with the Authority.
The Firm’s current Director was appointed on 21 March 2022 and remains in role.
Failure to be included on HMRC’s Register
4.5
The conditions of registration in the PSR require the Firm to be included in the HMRC
Register (regulation 14(11)). HMRC is a supervisory body under the MLR for certain
firms, including a money service business such as the Firm.
4.6
The Firm is not on the HMRC Register, and HMRC has confirmed to the Authority
that it has no evidence that the Firm has ever been on the HMRC Register. The
Firm has applied twice for HMRC registration but been refused both times:
1) The Firm applied for registration on the HMRC Register on 26 September 2019
(“the First Application”). During the period that during the period HMRC was
considering this application, the Firm was treated as though it were on the
HMRC Register, and therefore permitted to act as a money service business.
This application was refused on 21 April 2020. Within the refusal letter, HMRC
informed the Firm that the refusal meant that the Firm could not carry out any
“relevant activity” including acting as a money service business and may be
subject to penalties and/or prosecution if it did so;
2) On 14 September 2020, the Firm submitted its second registration application
to HMRC (“the Second Application”). This was refused by HMRC on 15 January
2021. In the refusal letter, HMRC reiterated that the Firm may be subject to
penalties and/or prosecution if it trades as a money service business;
3) From 21 April 2020, when the First Application was refused by HMRC, the Firm
has not been permitted by HMRC to carry out any relevant activity, including
acting as a money service business. HMRC has confirmed that the Firm’s
Second Application did not confer any temporary registration effect on the Firm
while HMRC was considering it.
4.7
The Firm was registered as an SPI with the Authority on 30 March 2020. Within its
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application, the Firm provided confirmation that it had submitted the First
Application. An SPI’s registration on the HMRC Register is relevant to the fulfilment
of the conditions for registration under regulation 14(11) of the PSR. An SPI is
required by regulation 37(1)(b) PSR to provide details of a significant change in
circumstances which is relevant to fulfilment of the conditions for registration. The
Authority can find no evidence that the Firm informed it that either the First or the
Second Applications had been refused by HMRC.
4.8
On 9 May 2022 the Authority wrote to the Firm stating that it did not appear that
the Firm was on the HMRC Register and requesting that it sign a voluntary
undertaking. On 10 May 2022, the Firm signed the voluntary undertaking to:
1) Return all “relevant funds” as defined in regulation 23 of the PSR;
2) Provide the Authority with a statement to evidence the return of “relevant
funds”;
3) Refrain from providing payment services as defined in Schedule 1 to the PSR
except where such services are necessary for the purposes of complying with
(1) above; and
4) Refrain from on-boarding or registering any new payment service users from
the date of the undertaking.
4.9
On 10 May 2022, in response to a question from the Authority about the current
status of the Firm’s registration with HMRC, the Firm’s current Director stated that
he was unsure of the Firm’s HMRC status. The Authority has received no further
updates from the Firm about its HMRC status
The Firm’s activities
4.10 The Firm is registered with the Authority to provide money remittance only. The
Firm is not authorised and holds no Part 4A permissions. The Authority has not
received any application from the Firm for authorisation. The Firm does not hold
authorisation or registration under the Electronic Money Regulations 2011 (“EMR”).
4.11 The Firm’s business plan provided to the Authority in April 2022, its Website, its
YouTube videos, and online UK press articles all indicate that the Firm purports to
provide, or is intending to provide in the future, products or services for which it
does not hold the appropriate Part 4A permissions. These include investment
management, CFD products and copy trading, for which the Firm would require
permissions to manage, arrange, deal with or advise on investments.
Business plan
4.12 The Firm submitted a business plan to the Authority on 15 April 2022, as part of a
change in control application by the Firm. The business plan stated that the Firm
is an “investment management” firm offering “wealth cum investment management
services” at “local, state, national, and international levels” and “based in the United
Kingdom, targeting several other markets in neighboring [sic] European countries,
Asia and United States”. The business plan lists various investment products that
it purportedly offers. It also lists the services it provides including asset
management and “related investment consulting and advisory services”.
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4.13 This description of the Firm’s business does not resemble the description given by
the Firm as part of its registration application to the Authority, namely that it would
only provide money transactions services and would not conduct any other business
activities.
The Website
4.14 The Website is no longer live; the Authority last observed the Website as live on 23
June 2022. It is not known when the Website was taken down, nor is it known
whether the Firm will make the Website available again in the future.
4.15 The Website contained the following:
1)
A statement that “The company is authorized [sic] and supervised by the
Financial Conduct Authority (FCA) with a licence number of 913607, and
provides various basic products with contracts for difference (CFD)”;
2)
A statement that “You Are In A Fully Regulated Forex: […] LILIUM’s company
reference number is 913607 and we have passed the strict regulations
imposed by the British Financial Market Conduct Authority (FCA) and obtained
FCA qualifications in 2020.”;
3)
A copy of the Authority’s logo; and
4)
A statement that “Reliable and Fast Execution: Easy implementation of “copy
trading”, enjoy professional trading services easily”.
4.16 The Website’s domain name, lilium-markets.com, was created on 27 November
2021 (after HMRC’s refusal of both the First and the Second applications) and is not
due to expire until 27 November 2022.
YouTube videos
4.17 The Authority has identified a YouTube account named “LILIUM MARKETS”, to which
12 YouTube videos were uploaded between 14 December 2021 and 19 February
2022, all after HMRC’s refusal of the Second Application. As at September 2022,
each of the YouTube videos remained publicly available.
4.18 The Authority has conducted a review of six of the 12 videos as a representative
sample. These videos, which are in English, all promote the Firm and the services
that it purports to offer. Three of the videos include the following claims by the
Firm:
1)
It is a CFD broker and is authorised by the FCA to conduct this activity; and
2)
It offers copy trading to consumers, offering 15% to 30% profit each month.
Online articles
4.19 The Authority has identified two online articles in the public domain at the following
website addresses: https://manchesterexpress.uk and https://leicesterbuzz.uk.
The two articles are identical. Both articles remain live and publicly accessible as at
September 2022. The articles refer to the Firm being “…the market’s top broker for
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Contract for Differences (CFDs)…” and having “…obtained FCA qualifications in 2020
to legally handle e-money transactions”.
Failings and risks identified
4.20 The conditions of registration in the PSR (regulation 14(11)) require the Firm to be
included in the HMRC Register. HMRC is a supervisory body under the MLR for
certain firms, including a money service business such as the Firm.
Firm appears not to be meeting conditions for registration: Regulation 14(11) of
the PSR
4.21 The Authority considers that the Firm does not appear to be meeting the conditions
for registration as an SPI under regulation 14(11) of the PSR because the Firm is
not, and has never been, included on the HMRC’s Register.
4.22 The Authority can find no record that the Firm informed it that HMRC had refused
to register it on the HMRC Register. The Authority considers that the refusal of
registration by HMRC is a significant change in circumstances in respect of its
conditions for registration under regulations 14(11) and 37(1)(b) of the PSR for the
Firm, and that the Firm should have informed the Authority of this.
4.23 On the basis of the facts and matters set out, it appears to Authority that it is
desirable to exercise the power under regulation 12(1)(a) of the PSR.
Consumer protection
4.24 The Authority has serious concerns that the Firm may expose consumers to the risk
of significant harm.
4.25 The Firm is registered as a payment services firm to provide money remittance
only; it is not authorised under the Act and does not hold any permissions to
conduct regulated activities under the Act. Managing investments, arranging deals
in investments, dealing in investments as principal or agent, and advising on
investments are all regulated activities for which a firm must be authorised to carry
on in the UK.
4.26 The content of the Website (not currently live as at September 2022 but may be
reinstated), the YouTube videos purporting to be from the Firm (which remain live),
two online articles (which remain live) and the Firm’s business plan suggest that
the Firm may have been, or may currently be, offering investment products and
services, or may intend to do so in the future, while not being authorised and not
having the relevant Part 4A permissions to do so. The Authority therefore has
serious concerns that the Firm is using its registration as a “halo effect” to advertise
these products and services. The Website and YouTube videos falsely state or
otherwise indicate that the Firm is authorised by the Authority and has the relevant
permissions. In addition, the online articles refer to electronic money activities for
which it is not authorised or registered under the EMR, and falsely states that the
Firm is so authorised or registered.
4.27 Where consumers invest through an authorised firm with the appropriate
permissions, consumers should receive a degree of consumer protection. A
consumer dealing with an authorised firm can make a complaint through the
Financial Ombudsman Service (“FOS”) and, if the firm fails, the consumer can make
a claim for compensation from the Financial Services Compensation Scheme
(“FSCS”). However, since the Firm is not an authorised firm, and does not have the
appropriate permissions for the services that it appears to be offering, consumers
would not have these protections. The Firm’s claims on its Website and its YouTube
videos that it is authorised (or has “FCA qualifications”) put consumers at risk since
they may be misled into believing that any investments made through the Firm
would enjoy protection from FSCS or allow any complaints to be made via FOS,
when these protections will not typically apply.
4.28 The Authority has not been able to identify any UK customers of the Firm. However,
while it has no direct evidence that these services are being promoted to UK
consumers, it considers that an inference may be drawn that they are, or may be
in the future:
1)
The Website was in English, and the YouTube videos are in English;
2)
The Website included the FCA logo and on 23 June 2022 stated (incorrectly)
that “the company is authorized and supervised by the Financial Conduct
Authority (FCA)”; and
3)
The two online articles identified were purportedly published in the UK online
publications, so would appear to be targeted at UK consumers; and
4)
The Firm’s business plan states that it is “based in the United Kingdom” and
provides services at the “local, state, national, and international levels”.
4.29 The Authority considers that, based on the above, there is a risk of serious future
harm to UK consumers. On the basis of the facts and matters set out, it appears to
the Authority that it is desirable to exercise the power under regulation 12(1)(d) of
the PSR.
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CONCLUSION
5.1
The regulatory provisions relevant to this First Supervisory Notice are set out in the
Annex.
Analysis of failings and risks
5.2
The Authority has concluded, in light of the matters set out above, that it is
necessary to exercise its own-initiative power to vary the Firm’s registration
because the Firm is not meeting the conditions for registration and a variation is
desirable in order to protect the interests of consumers. The Authority has
concluded that it is necessary to vary the firm’s registration by:
a)
removing its money remittance payment service; and
b)
by imposing the Requirements.
5.3
The Authority considers that variation of the Firm’s registration by removing its
payment service and imposing the Requirements are a proportionate and
appropriate means to address the current and immediate risks, and are desirable
to protect the interests of consumers in accordance with the Authority’s duties
under regulation 12(1)(d) of the PSR.
Timing and duration of the variation
5.4
It is necessary to vary the Firm’s registration by removing its payment service and
imposing the Requirements immediately given the seriousness of the risks and the
need to protect consumers.
5.5
The Authority considers that it is necessary for the variation to remain in place
indefinitely.
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PROCEDURAL MATTERS
Decision maker
6.1
The decision which gave rise to the obligation to give this First Supervisory Notice
was made by an Authority staff member under executive procedures according to
DEPP 2.3.7G and DEPP 4.1.7G.
6.2
This First Supervisory Notice is given to the Firm under regulation 12(6) of the PSR
and in accordance with regulation 12(7) of the PSR.
6.3
The following statutory rights are important.
Representations
6.4
The Firm has the right to make written representations to the Authority (whether
or not it refers this matter to the Tribunal). The Firm may also request to make oral
representations but the Authority will only consider this in exceptional
circumstances according to DEPP 2.3.1AG. The deadline for providing written
representations and notifying the Authority that the Firm wishes to make oral
representations is Wednesday, 19 October 2022 or such later date as may be
permitted by the Authority. Any notification or representations should be sent to
the SPC Decision Making Secretariat (SPCDecisionMakingSecretariat@fca.org.uk).
The Tribunal
6.5
The Firm has the right to refer the matter to which this First Supervisory Notice
relates to the Tribunal. The Tax and Chancery Chamber is the 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 First
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: Upper Tribunal (Tax and Chancery
Chamber), 5th Floor, Rolls Building, Fetter Lane, London EC4A 1NL (telephone: 020
7612 9700; email: financeandtaxappeals@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/froms/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 SPC Decision Making Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
Confidentiality and publicity
6.9
The Firm should note that this First Supervisory Notice may contain confidential
information and should not be disclosed to a third party (except for the purpose of
obtaining legal advice on its contents).
6.10 The Firm should note that section 391(5) of the Act, as applied by paragraph 10 of
Schedule 6 of the PSR, requires the Authority, when this First Supervisory Notice
takes effect (and this First Supervisory Notice takes immediate effect), to publish
such information about the matter to which the notice relates as it considers
appropriate.
Authority contacts
6.11 Any questions regarding the executive procedures decision-making process should
be directed to the SPC Decision Making Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
Decision made under Executive Procedures
Director Retail Banking
Annex
RELEVANT STATUTORY PROVISIONS
1.
Regulation 7(1) of the PSR provides that the Authority may include in the
authorisation of an authorised payment institution such requirements as it considers
appropriate. Regulation 7(2) of the PSR provides that a requirement may, in
particular, be imposed so as to require the person concerned to: 1) take a specified
action, or 2) to refrain from taking a specified action.
2.
Regulation 8 of the PSR provides that the Authority may, on the application of an
authorised payment institution, vary that person’s authorisation. Regulation 8(b)
permits the Authority to remove a payment service from those for which it has
granted authorisation. Regulation 8(c) permits the Authority to impose a
requirement such as may, under regulation 7 of the PSR, be included in an
authorisation provided that the Authority is satisfied that the conditions set out in
regulations 6(4) to (9) and regulation 22(1) are being or likely to be met.
3.
Regulation 12(1) of the PSR provides that the Authority may vary the authorisation
of an authorised payment institution in any of the ways mentioned in regulation 8 if
it appears to the Authority that:
“[…]
(a)
the person no longer meets, or is unlikely to continue to meet, any of the
conditions set out in regulation 6(4) to (9) of the requirement in regulation 22(1)
to maintain own funds;
[…]
(d) the variation is desirable in order to protect the interests of consumers; […]
4.
Regulation 12(2) of the PSR provides that a variation takes effect immediately if the
notice given under paragraph (6) states that this is the case, or on such date as may
be specified. Regulation 12(3) of the PSR provides that a variation may be expressed
to take effect immediately or on a specified date only if the Authority, having regard
to the ground on which it is exercising the power under paragraph (1), reasonably
considers that it is necessary for the variation to take effect immediately or, as the
case may be, on that date.
5.
Regulation 12(6) of the PSR provides that, where the Authority proposes to vary a
person’s authorisation, it must give the person notice.
6.
Regulation 14 of the PSR provides the conditions for registration as a small payment
institution, including the condition under regulation 14(11) that the applicant must
comply with a requirement of the MLR to be included in a register maintained under
those Regulations where such a requirement applies to the applicant.
7.
Regulation 15 of the PSR provides that regulations 7 to 12 apply to registration of
a small payment institution as they apply to authorisation as a payment institution
as if:
“[…]
(a) references to authorisation were references to registration;
(c) in regulation 8 […]—
(i) for “an authorised payment institution” there were substituted “small
payment institution”; and
(ii) for “provided that” to the end there were substituted—
“provided that the FCA is satisfied that the conditions set out in regulation
14(4) to (11) are being or are likely to be met and that the monthly average
over any period of 12 months of the total amount of payment transactions
executed by the institution, including any of its agents in the United
Kingdom, continues not to exceed 3 million euros (“the financial limit”).”;
(e) in regulation 12 […] for sub-paragraph (a) there were substituted—
“(a) the person does not meet, or is unlikely to meet, any of the conditions
set out in regulation 14(4) to (11) or the financial limit referred to in
regulation 8.”
6.12 Regulation 15 of the PSR provides that regulations 7 to 12 apply to registration of
a small payment institution as they apply to authorisation as a payment institution
as if:
“[…]
(a) references to authorisation were references to registration;
(c) in regulation 8 […]—
(i) for “an authorised payment institution” there were substituted “small
payment institution”; and
(ii) for “provided that” to the end there were substituted—
“provided that the FCA is satisfied that the conditions set out in
regulation 14(4) to (11) are being or are likely to be met and that
the monthly average over any period of 12 months of the total
amount of payment transactions executed by the institution,
including any of its agents in the United Kingdom, continues not to
exceed 3 million euros (“the financial limit”).”;
(e) in regulation 12 […] for sub-paragraph (a) there were substituted—
“(a) the person does not meet, or is unlikely to meet, any of the conditions
set out in regulation 14(4) to (11) or the financial limit referred to in
regulation 8.”
8.
Section 391 of the Act, as applied in modified form by paragraph 10 of Schedule 6
to the PSR, 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 was proposed to be taken), b) prejudicial
to the interests of consumers, or c) 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
9.
The Authority's approach in relation to its own-initiative powers is set out in the
Enforcement Guide (“EG”), certain provisions of which are summarised below.
10.
EG 19.20 outlines the Authority’s policy in respect of the use of its powers under the
PSR. EG 19.20.5 provides that the PSR, for the most part, mirror the Authority’s
investigative, sanctioning and regulatory powers under the Act and that the Authority
has decided to adopt procedures and policies in relation to the use of those powers
akin to those it has under the Act.
11.
The Authority considers that the powers under regulation 12(1) of the PSR are similar
to those under sections 55J and 55L of the Act and that the provisions of EG 8
“Variation and cancellation of permission and imposition of requirements on the
Authority’s own-initiative and intervention against incoming firms” are applicable.
12.
EG 8.2.1 states 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. It 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.
13.
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 55J or 55L of
the Act where the Authority considers it appropriate 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
or is concerned that the consequences of a firm not taking the desired steps may be
serious.
14.
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.
15.
EG 8.3.2 states that the Authority will consider exercising its own-initiative power as
a matter of urgency 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.
16.
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 some of the
following characteristics: 1) information indicating significant loss, risk of loss or other
adverse effects for consumers, where action is necessary to protect their interests;
and 2) 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.
17.
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) the
extent of any consumer loss or risk of consumer loss or other adverse effect on
consumers; 2) the extent to which customer assets appear to be at risk; 3) the
financial resources of the firm; 4) the nature of the false or inaccurate information;
and 5) the impact that use of the Authority’s own-initiative powers will have on the
firm's business and on its customers [or state any other relevant factors that apply].
18.
EG 8.4.4 states that examples of requirements that the Authority may consider
imposing when exercising its own-initiative power are: 1) a requirement not to take
on new business; 2) a requirement not to hold or control client money; and 3) a
requirement that prohibits the disposal of, or other dealing with, any of the firm’s
assets or restrict those disposals or dealings.
_______________________________________________________________
To:
Lilium Markets Ltd
1.1
For the reasons given in this First Supervisory Notice, and pursuant to regulation
12(1) and 15 of the Payment Services Regulations 2017 (“the PSR”), the Financial
Conduct Authority (“the Authority”) has decided to vary the registration granted to
Lilium Markets Ltd (“the Firm”) pursuant to Part 2 of the PSR by:
1)
removing the following payment service the Firm provides:
a) Money remittance; and
2)
imposing the following requirements (“the Requirements”) on the Firm with
immediate effect:
a)
By close of business Monday, 10 October 2022 the Firm must remove,
or where this is not practicable, use its best endeavours to secure the
removal of, any advertising and financial promotions it currently has live,
in whatever form they may take. This includes, but should not be limited
to, videos on YouTube, online press articles (including but not limited to
Manchester Express and Leicester Buzz) and posts across all social media
platforms (including but not limited to Facebook, Twitter and Instagram).
b) The Firm must not issue or publish any advertising or financial promotions
in relation to payment services, money service business, regulated
activities or electronic money. This includes, but it not limited to
advertising or publication on the Website, YouTube and social media
channels.
c)
The Firm must secure and preserve all records and/or information
(physical or electronic) relating to all activities carried on by it, including
but not limited to regulated activities. These must be retained in a form
and at a location within the United Kingdom, to be notified to the
Authority in writing by close of business Monday, 10 October 2022,
such that they (or, so as not to hinder the Firm’s performance of its
business activities, true copies of them) can be provided to the Authority,
or to a person named by the Authority, promptly on its request.
2
d) By close of business Friday, 7 October 2022, the Firm must update its
details displayed on the Authority’s Register online using Connect. This
must include but should not be limited to details of its directors, all
addresses, telephone numbers, email addresses and complaint contact
details.
e)
The Firm must provide written confirmation to the Authority that it is in
compliance with these Requirements by close of business Monday,
10 October 2022, together with a list of all advertising and financial
promotions removed.
1.2
The effect of the removal of the payment service in accordance with paragraph
1.1(1) is that the Firm cannot provide any payment services.
1.3
The variation shall take immediate effect and remain in force unless and until varied
or cancelled by the Authority (either on the 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 it is necessary to vary the Firm’s registration by removing the payment services
it provides and imposing the Requirements because it appears the Firm no longer
meets, or it is unlikely to meet, the conditions for registration under regulation
14(11) of the PSR and it is desirable in order to protect the interests of consumers
pursuant to regulation 12(1)(d) of the PSR.
2.2
The Authority has identified serious concerns that:
1) A small payment institution (“SPI”) is required, as a condition of registration
under regulation 14(11) of the PSR, to be included in the HMRC Register. The
Firm is in breach of this requirement: it is not included on the HMRC Register;
it has never successfully obtained HMRC registration; and its two applications
for HMRC registration were rejected on 21 April 2020 and 15 January 2021
respectively.
2) The Firm is registered as a payment services firm to provide money remittance
only; it is not authorised under the Act and does not hold any permissions to
conduct regulated activities under the Act. The Authority considers that the
contents of the Firm’s Website (not currently live as at September 2022),
various YouTube videos purporting to be from the Firm (which remain live),
two online articles (which remain live) and the Firm’s business plan, suggest
the Firm may be offering, or intending to offer, contract for differences (“CFD”)
and other investment services while not having the relevant permissions to do
so.
2.3
The Authority considers variation of the Firm’s registration by removing its payment
service and imposing the Requirements should take immediate effect because the
matters set out in this FSN raise serious concerns about the Firm’s suitability and
demonstrate that the Firm is putting customers at risk of significant potential loss
or adverse effects and otherwise.
3
3
DEFINITIONS
3.1
The definitions below are used in this First Supervisory Notice:
“Act” means the Financial Services and Markets Act 2000;
“Authority” means the Financial Conduct Authority;
“CFD” means contract for differences;
“EMR” means the Electronic Money Regulations 2011
“the Firm” means Lilium Markets Ltd;
“the First Application” means the Firm’s first application to HMRC for registration on
the HMRC Register submitted 26 September 2019;
“Financial Services Register” means the public record maintained by the Authority as
required by, inter alia, regulation 4 of the PSR;
“FOS” means the Financial Ombudsman Service;
“FSCS” means the Financial Services Compensation Scheme;
“FSN” means First Supervisory Notice;
“HMRC” means HM Revenue and Customs;
“The HMRC Register” means the Supervised Business Register maintained by HMRC
under the MLR;
“MLR” means the Money Laundering, Terrorist Financing and Transfer of Funds
(Information on the Payer) Regulations 2017;
“money service business” means an undertaking which by way of business operates
a currency exchange office, transmits money (or any representation of monetary
value) by any means or cashes cheques which are made payable to customers;
“PSR” means the Payment Services Regulations 2017;
“Requirements” means the terms imposed on the Firm by this First Supervisory
Notice as outlined in section 1 above;
“the Second Application” means the Firm’s second application to HMRC for
registration on the HMRC Register submitted 14 September 2020;
“SPI” means a small payment institution registered pursuant to regulation 14 of the
PSR and included by the Authority in the Financial Services Register pursuant to
regulation 4(1)(b) of the PSR;
“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);
“the Website” means the Firm’s former website at https://lilium-markets.com/.
4
FACTS AND MATTERS
Background
4.1
The Firm was incorporated on 28 June 2019 with the name Sama Exchange and
Travel Limited. It was renamed to Safa Exchange and Travel Limited on 2 July 2019.
It was renamed a third time to Lilium Markets Ltd on 27 November 2021.
4.2
The Firm is an SPI. It was registered by the Authority on 30 March 2020 under the
PSR to provide payment services. The sole payment service it is registered to
provide is money remittance. The Firm is not an authorised firm.
4.3
As part of the Firm’s application for registration, the Firm told the Authority that
“[t]he company’s operations will be only based on money transmission to different
countries […] There are no other business activities undertaken by the firm.” A firm
that transmits money (or any representation of monetary value), such as the Firm,
carries on a money service business for the purposes of regulation 3(1) of the MLR.
4.4
The Firm has had three different Directors since it was registered with the Authority.
The Firm’s current Director was appointed on 21 March 2022 and remains in role.
Failure to be included on HMRC’s Register
4.5
The conditions of registration in the PSR require the Firm to be included in the HMRC
Register (regulation 14(11)). HMRC is a supervisory body under the MLR for certain
firms, including a money service business such as the Firm.
4.6
The Firm is not on the HMRC Register, and HMRC has confirmed to the Authority
that it has no evidence that the Firm has ever been on the HMRC Register. The
Firm has applied twice for HMRC registration but been refused both times:
1) The Firm applied for registration on the HMRC Register on 26 September 2019
(“the First Application”). During the period that during the period HMRC was
considering this application, the Firm was treated as though it were on the
HMRC Register, and therefore permitted to act as a money service business.
This application was refused on 21 April 2020. Within the refusal letter, HMRC
informed the Firm that the refusal meant that the Firm could not carry out any
“relevant activity” including acting as a money service business and may be
subject to penalties and/or prosecution if it did so;
2) On 14 September 2020, the Firm submitted its second registration application
to HMRC (“the Second Application”). This was refused by HMRC on 15 January
2021. In the refusal letter, HMRC reiterated that the Firm may be subject to
penalties and/or prosecution if it trades as a money service business;
3) From 21 April 2020, when the First Application was refused by HMRC, the Firm
has not been permitted by HMRC to carry out any relevant activity, including
acting as a money service business. HMRC has confirmed that the Firm’s
Second Application did not confer any temporary registration effect on the Firm
while HMRC was considering it.
4.7
The Firm was registered as an SPI with the Authority on 30 March 2020. Within its
5
application, the Firm provided confirmation that it had submitted the First
Application. An SPI’s registration on the HMRC Register is relevant to the fulfilment
of the conditions for registration under regulation 14(11) of the PSR. An SPI is
required by regulation 37(1)(b) PSR to provide details of a significant change in
circumstances which is relevant to fulfilment of the conditions for registration. The
Authority can find no evidence that the Firm informed it that either the First or the
Second Applications had been refused by HMRC.
4.8
On 9 May 2022 the Authority wrote to the Firm stating that it did not appear that
the Firm was on the HMRC Register and requesting that it sign a voluntary
undertaking. On 10 May 2022, the Firm signed the voluntary undertaking to:
1) Return all “relevant funds” as defined in regulation 23 of the PSR;
2) Provide the Authority with a statement to evidence the return of “relevant
funds”;
3) Refrain from providing payment services as defined in Schedule 1 to the PSR
except where such services are necessary for the purposes of complying with
(1) above; and
4) Refrain from on-boarding or registering any new payment service users from
the date of the undertaking.
4.9
On 10 May 2022, in response to a question from the Authority about the current
status of the Firm’s registration with HMRC, the Firm’s current Director stated that
he was unsure of the Firm’s HMRC status. The Authority has received no further
updates from the Firm about its HMRC status
The Firm’s activities
4.10 The Firm is registered with the Authority to provide money remittance only. The
Firm is not authorised and holds no Part 4A permissions. The Authority has not
received any application from the Firm for authorisation. The Firm does not hold
authorisation or registration under the Electronic Money Regulations 2011 (“EMR”).
4.11 The Firm’s business plan provided to the Authority in April 2022, its Website, its
YouTube videos, and online UK press articles all indicate that the Firm purports to
provide, or is intending to provide in the future, products or services for which it
does not hold the appropriate Part 4A permissions. These include investment
management, CFD products and copy trading, for which the Firm would require
permissions to manage, arrange, deal with or advise on investments.
Business plan
4.12 The Firm submitted a business plan to the Authority on 15 April 2022, as part of a
change in control application by the Firm. The business plan stated that the Firm
is an “investment management” firm offering “wealth cum investment management
services” at “local, state, national, and international levels” and “based in the United
Kingdom, targeting several other markets in neighboring [sic] European countries,
Asia and United States”. The business plan lists various investment products that
it purportedly offers. It also lists the services it provides including asset
management and “related investment consulting and advisory services”.
6
4.13 This description of the Firm’s business does not resemble the description given by
the Firm as part of its registration application to the Authority, namely that it would
only provide money transactions services and would not conduct any other business
activities.
The Website
4.14 The Website is no longer live; the Authority last observed the Website as live on 23
June 2022. It is not known when the Website was taken down, nor is it known
whether the Firm will make the Website available again in the future.
4.15 The Website contained the following:
1)
A statement that “The company is authorized [sic] and supervised by the
Financial Conduct Authority (FCA) with a licence number of 913607, and
provides various basic products with contracts for difference (CFD)”;
2)
A statement that “You Are In A Fully Regulated Forex: […] LILIUM’s company
reference number is 913607 and we have passed the strict regulations
imposed by the British Financial Market Conduct Authority (FCA) and obtained
FCA qualifications in 2020.”;
3)
A copy of the Authority’s logo; and
4)
A statement that “Reliable and Fast Execution: Easy implementation of “copy
trading”, enjoy professional trading services easily”.
4.16 The Website’s domain name, lilium-markets.com, was created on 27 November
2021 (after HMRC’s refusal of both the First and the Second applications) and is not
due to expire until 27 November 2022.
YouTube videos
4.17 The Authority has identified a YouTube account named “LILIUM MARKETS”, to which
12 YouTube videos were uploaded between 14 December 2021 and 19 February
2022, all after HMRC’s refusal of the Second Application. As at September 2022,
each of the YouTube videos remained publicly available.
4.18 The Authority has conducted a review of six of the 12 videos as a representative
sample. These videos, which are in English, all promote the Firm and the services
that it purports to offer. Three of the videos include the following claims by the
Firm:
1)
It is a CFD broker and is authorised by the FCA to conduct this activity; and
2)
It offers copy trading to consumers, offering 15% to 30% profit each month.
Online articles
4.19 The Authority has identified two online articles in the public domain at the following
website addresses: https://manchesterexpress.uk and https://leicesterbuzz.uk.
The two articles are identical. Both articles remain live and publicly accessible as at
September 2022. The articles refer to the Firm being “…the market’s top broker for
7
Contract for Differences (CFDs)…” and having “…obtained FCA qualifications in 2020
to legally handle e-money transactions”.
Failings and risks identified
4.20 The conditions of registration in the PSR (regulation 14(11)) require the Firm to be
included in the HMRC Register. HMRC is a supervisory body under the MLR for
certain firms, including a money service business such as the Firm.
Firm appears not to be meeting conditions for registration: Regulation 14(11) of
the PSR
4.21 The Authority considers that the Firm does not appear to be meeting the conditions
for registration as an SPI under regulation 14(11) of the PSR because the Firm is
not, and has never been, included on the HMRC’s Register.
4.22 The Authority can find no record that the Firm informed it that HMRC had refused
to register it on the HMRC Register. The Authority considers that the refusal of
registration by HMRC is a significant change in circumstances in respect of its
conditions for registration under regulations 14(11) and 37(1)(b) of the PSR for the
Firm, and that the Firm should have informed the Authority of this.
4.23 On the basis of the facts and matters set out, it appears to Authority that it is
desirable to exercise the power under regulation 12(1)(a) of the PSR.
Consumer protection
4.24 The Authority has serious concerns that the Firm may expose consumers to the risk
of significant harm.
4.25 The Firm is registered as a payment services firm to provide money remittance
only; it is not authorised under the Act and does not hold any permissions to
conduct regulated activities under the Act. Managing investments, arranging deals
in investments, dealing in investments as principal or agent, and advising on
investments are all regulated activities for which a firm must be authorised to carry
on in the UK.
4.26 The content of the Website (not currently live as at September 2022 but may be
reinstated), the YouTube videos purporting to be from the Firm (which remain live),
two online articles (which remain live) and the Firm’s business plan suggest that
the Firm may have been, or may currently be, offering investment products and
services, or may intend to do so in the future, while not being authorised and not
having the relevant Part 4A permissions to do so. The Authority therefore has
serious concerns that the Firm is using its registration as a “halo effect” to advertise
these products and services. The Website and YouTube videos falsely state or
otherwise indicate that the Firm is authorised by the Authority and has the relevant
permissions. In addition, the online articles refer to electronic money activities for
which it is not authorised or registered under the EMR, and falsely states that the
Firm is so authorised or registered.
4.27 Where consumers invest through an authorised firm with the appropriate
permissions, consumers should receive a degree of consumer protection. A
consumer dealing with an authorised firm can make a complaint through the
Financial Ombudsman Service (“FOS”) and, if the firm fails, the consumer can make
a claim for compensation from the Financial Services Compensation Scheme
(“FSCS”). However, since the Firm is not an authorised firm, and does not have the
appropriate permissions for the services that it appears to be offering, consumers
would not have these protections. The Firm’s claims on its Website and its YouTube
videos that it is authorised (or has “FCA qualifications”) put consumers at risk since
they may be misled into believing that any investments made through the Firm
would enjoy protection from FSCS or allow any complaints to be made via FOS,
when these protections will not typically apply.
4.28 The Authority has not been able to identify any UK customers of the Firm. However,
while it has no direct evidence that these services are being promoted to UK
consumers, it considers that an inference may be drawn that they are, or may be
in the future:
1)
The Website was in English, and the YouTube videos are in English;
2)
The Website included the FCA logo and on 23 June 2022 stated (incorrectly)
that “the company is authorized and supervised by the Financial Conduct
Authority (FCA)”; and
3)
The two online articles identified were purportedly published in the UK online
publications, so would appear to be targeted at UK consumers; and
4)
The Firm’s business plan states that it is “based in the United Kingdom” and
provides services at the “local, state, national, and international levels”.
4.29 The Authority considers that, based on the above, there is a risk of serious future
harm to UK consumers. On the basis of the facts and matters set out, it appears to
the Authority that it is desirable to exercise the power under regulation 12(1)(d) of
the PSR.
5
CONCLUSION
5.1
The regulatory provisions relevant to this First Supervisory Notice are set out in the
Annex.
Analysis of failings and risks
5.2
The Authority has concluded, in light of the matters set out above, that it is
necessary to exercise its own-initiative power to vary the Firm’s registration
because the Firm is not meeting the conditions for registration and a variation is
desirable in order to protect the interests of consumers. The Authority has
concluded that it is necessary to vary the firm’s registration by:
a)
removing its money remittance payment service; and
b)
by imposing the Requirements.
5.3
The Authority considers that variation of the Firm’s registration by removing its
payment service and imposing the Requirements are a proportionate and
appropriate means to address the current and immediate risks, and are desirable
to protect the interests of consumers in accordance with the Authority’s duties
under regulation 12(1)(d) of the PSR.
Timing and duration of the variation
5.4
It is necessary to vary the Firm’s registration by removing its payment service and
imposing the Requirements immediately given the seriousness of the risks and the
need to protect consumers.
5.5
The Authority considers that it is necessary for the variation to remain in place
indefinitely.
6
PROCEDURAL MATTERS
Decision maker
6.1
The decision which gave rise to the obligation to give this First Supervisory Notice
was made by an Authority staff member under executive procedures according to
DEPP 2.3.7G and DEPP 4.1.7G.
6.2
This First Supervisory Notice is given to the Firm under regulation 12(6) of the PSR
and in accordance with regulation 12(7) of the PSR.
6.3
The following statutory rights are important.
Representations
6.4
The Firm has the right to make written representations to the Authority (whether
or not it refers this matter to the Tribunal). The Firm may also request to make oral
representations but the Authority will only consider this in exceptional
circumstances according to DEPP 2.3.1AG. The deadline for providing written
representations and notifying the Authority that the Firm wishes to make oral
representations is Wednesday, 19 October 2022 or such later date as may be
permitted by the Authority. Any notification or representations should be sent to
the SPC Decision Making Secretariat (SPCDecisionMakingSecretariat@fca.org.uk).
The Tribunal
6.5
The Firm has the right to refer the matter to which this First Supervisory Notice
relates to the Tribunal. The Tax and Chancery Chamber is the 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 First
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: Upper Tribunal (Tax and Chancery
Chamber), 5th Floor, Rolls Building, Fetter Lane, London EC4A 1NL (telephone: 020
7612 9700; email: financeandtaxappeals@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/froms/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 SPC Decision Making Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
Confidentiality and publicity
6.9
The Firm should note that this First Supervisory Notice may contain confidential
information and should not be disclosed to a third party (except for the purpose of
obtaining legal advice on its contents).
6.10 The Firm should note that section 391(5) of the Act, as applied by paragraph 10 of
Schedule 6 of the PSR, requires the Authority, when this First Supervisory Notice
takes effect (and this First Supervisory Notice takes immediate effect), to publish
such information about the matter to which the notice relates as it considers
appropriate.
Authority contacts
6.11 Any questions regarding the executive procedures decision-making process should
be directed to the SPC Decision Making Secretariat
(SPCDecisionMakingSecretariat@fca.org.uk).
Decision made under Executive Procedures
Director Retail Banking
Annex
RELEVANT STATUTORY PROVISIONS
1.
Regulation 7(1) of the PSR provides that the Authority may include in the
authorisation of an authorised payment institution such requirements as it considers
appropriate. Regulation 7(2) of the PSR provides that a requirement may, in
particular, be imposed so as to require the person concerned to: 1) take a specified
action, or 2) to refrain from taking a specified action.
2.
Regulation 8 of the PSR provides that the Authority may, on the application of an
authorised payment institution, vary that person’s authorisation. Regulation 8(b)
permits the Authority to remove a payment service from those for which it has
granted authorisation. Regulation 8(c) permits the Authority to impose a
requirement such as may, under regulation 7 of the PSR, be included in an
authorisation provided that the Authority is satisfied that the conditions set out in
regulations 6(4) to (9) and regulation 22(1) are being or likely to be met.
3.
Regulation 12(1) of the PSR provides that the Authority may vary the authorisation
of an authorised payment institution in any of the ways mentioned in regulation 8 if
it appears to the Authority that:
“[…]
(a)
the person no longer meets, or is unlikely to continue to meet, any of the
conditions set out in regulation 6(4) to (9) of the requirement in regulation 22(1)
to maintain own funds;
[…]
(d) the variation is desirable in order to protect the interests of consumers; […]
4.
Regulation 12(2) of the PSR provides that a variation takes effect immediately if the
notice given under paragraph (6) states that this is the case, or on such date as may
be specified. Regulation 12(3) of the PSR provides that a variation may be expressed
to take effect immediately or on a specified date only if the Authority, having regard
to the ground on which it is exercising the power under paragraph (1), reasonably
considers that it is necessary for the variation to take effect immediately or, as the
case may be, on that date.
5.
Regulation 12(6) of the PSR provides that, where the Authority proposes to vary a
person’s authorisation, it must give the person notice.
6.
Regulation 14 of the PSR provides the conditions for registration as a small payment
institution, including the condition under regulation 14(11) that the applicant must
comply with a requirement of the MLR to be included in a register maintained under
those Regulations where such a requirement applies to the applicant.
7.
Regulation 15 of the PSR provides that regulations 7 to 12 apply to registration of
a small payment institution as they apply to authorisation as a payment institution
as if:
“[…]
(a) references to authorisation were references to registration;
(c) in regulation 8 […]—
(i) for “an authorised payment institution” there were substituted “small
payment institution”; and
(ii) for “provided that” to the end there were substituted—
“provided that the FCA is satisfied that the conditions set out in regulation
14(4) to (11) are being or are likely to be met and that the monthly average
over any period of 12 months of the total amount of payment transactions
executed by the institution, including any of its agents in the United
Kingdom, continues not to exceed 3 million euros (“the financial limit”).”;
(e) in regulation 12 […] for sub-paragraph (a) there were substituted—
“(a) the person does not meet, or is unlikely to meet, any of the conditions
set out in regulation 14(4) to (11) or the financial limit referred to in
regulation 8.”
6.12 Regulation 15 of the PSR provides that regulations 7 to 12 apply to registration of
a small payment institution as they apply to authorisation as a payment institution
as if:
“[…]
(a) references to authorisation were references to registration;
(c) in regulation 8 […]—
(i) for “an authorised payment institution” there were substituted “small
payment institution”; and
(ii) for “provided that” to the end there were substituted—
“provided that the FCA is satisfied that the conditions set out in
regulation 14(4) to (11) are being or are likely to be met and that
the monthly average over any period of 12 months of the total
amount of payment transactions executed by the institution,
including any of its agents in the United Kingdom, continues not to
exceed 3 million euros (“the financial limit”).”;
(e) in regulation 12 […] for sub-paragraph (a) there were substituted—
“(a) the person does not meet, or is unlikely to meet, any of the conditions
set out in regulation 14(4) to (11) or the financial limit referred to in
regulation 8.”
8.
Section 391 of the Act, as applied in modified form by paragraph 10 of Schedule 6
to the PSR, 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 was proposed to be taken), b) prejudicial
to the interests of consumers, or c) 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
9.
The Authority's approach in relation to its own-initiative powers is set out in the
Enforcement Guide (“EG”), certain provisions of which are summarised below.
10.
EG 19.20 outlines the Authority’s policy in respect of the use of its powers under the
PSR. EG 19.20.5 provides that the PSR, for the most part, mirror the Authority’s
investigative, sanctioning and regulatory powers under the Act and that the Authority
has decided to adopt procedures and policies in relation to the use of those powers
akin to those it has under the Act.
11.
The Authority considers that the powers under regulation 12(1) of the PSR are similar
to those under sections 55J and 55L of the Act and that the provisions of EG 8
“Variation and cancellation of permission and imposition of requirements on the
Authority’s own-initiative and intervention against incoming firms” are applicable.
12.
EG 8.2.1 states 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. It 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.
13.
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 55J or 55L of
the Act where the Authority considers it appropriate 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
or is concerned that the consequences of a firm not taking the desired steps may be
serious.
14.
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.
15.
EG 8.3.2 states that the Authority will consider exercising its own-initiative power as
a matter of urgency 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.
16.
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 some of the
following characteristics: 1) information indicating significant loss, risk of loss or other
adverse effects for consumers, where action is necessary to protect their interests;
and 2) 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.
17.
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) the
extent of any consumer loss or risk of consumer loss or other adverse effect on
consumers; 2) the extent to which customer assets appear to be at risk; 3) the
financial resources of the firm; 4) the nature of the false or inaccurate information;
and 5) the impact that use of the Authority’s own-initiative powers will have on the
firm's business and on its customers [or state any other relevant factors that apply].
18.
EG 8.4.4 states that examples of requirements that the Authority may consider
imposing when exercising its own-initiative power are: 1) a requirement not to take
on new business; 2) a requirement not to hold or control client money; and 3) a
requirement that prohibits the disposal of, or other dealing with, any of the firm’s
assets or restrict those disposals or dealings.