_______________________________________________________________


SECOND SUPERVISORY NOTICE

_______________________________________________________________

To:

Professional Construction Risks Limited

Reference Number:
715977

Address:


PCR House



Unit 2



Ebdon Bow



Ebdon Road



Weston-super-Mare



Avon



BS22 9NZ

Date:


26 January 2021

1
ACTION

1.1
By a First Supervisory Notice dated 11 December 2020, and pursuant to section
55L(3)(a) of the Financial Services and Markets Act 2000 (“the Act”), the Financial
Conduct Authority (“the Authority”) imposed the following requirements (“the
Requirements”) on Professional Construction Risks Limited (“the Firm”) with
immediate effect:

(1)
The Firm must not, without the prior written consent of the Authority, carry out
any regulated activity or any business activity that is carried on in connection
with a regulated activity.

(2)
Subject to sub-paragraphs (8)(i) and (ii) and paragraphs 1.3 and 1.4 below,
the Firm must not, without the prior written consent of the Authority, in any
way dispose of, withdraw, transfer, deal with or diminish the value of any of its
own assets, and any funds it holds for, or to the order of, its customers
(whether in the United Kingdom or elsewhere).

(3)
The Firm must ensure that client money is appropriately ringfenced in a
designated client money account or accounts. For the avoidance of doubt, if
this requires a transfer between accounts, this must be done with the prior
written consent of the Authority.

(4)
By 5pm on 13 December 2020 the Firm must display, in a prominent place on
its website (www.professionalconstructionrisks.co.uk) a notice setting out the
terms and effects of these Requirements in a form to be agreed in advance
with the Authority.

(5)
The Firm must identify all loan, or other financing, applications it has made in
the name of customers or other third parties without the relevant customer’s
or third party’s consent and provide a list of those applications to the Authority
by 5pm on 15 December 2020.

(6)
Within three working days of making the notification referred to in paragraph
1.1(5), the Firm must write to all customers and third parties in the name of
whom loans have been identified, in accordance with paragraph 1.1(5),
informing them, in a form and by a method to be agreed in advance with the
Authority, that a loan or other financing application has been made in their
name.

(7)
By 15 December 2020 the Firm must notify in writing any insurance
undertaking, with which the Firm has, at any time, had an active terms of
business agreement, of the imposition and effect of these Requirements in a
form to be agreed in advance with the Authority.

(8)
The Firm must, by 17 December 2020:

(i) Return to any customers any insurance premiums paid by them, which
the Firm has not paid to the relevant insurer;

(ii) Pay to any customer any claims monies owing to them that the Firm has
received from an insurer and has not paid to the customer;

(iii) Notify the Authority in writing of the names and addresses of each
customer to which a return of premium or claims monies has been paid
or is owing pursuant to sub-paragraphs (i) and (ii).


(9)
By 18 December 2020, the Firm must provide written confirmation to the
Authority that it is in compliance with these Requirements.

(10) The Firm must secure all books and records and preserve all information and
systems relating to regulated activities, and must retain these in a form and at
a location within the United Kingdom, to be notified to the Authority in writing
by 15 December 2020, such that they can be provided to the Authority, or to
a person named by the Authority, promptly on its request.

1.2
For the avoidance of doubt, the requirement at paragraph 1.1(2) above is an assets
requirement within the meaning of section 55P of the Act.

1.3
Paragraph 1.1(2) does not apply to:

(1)
Monetary payments or the disposal of assets made by the Firm in the ordinary
course of business, where:

(i) the payment or disposal is not connected to the carrying out of a
regulated activity; and

3


(ii) the payment or disposal amounts to no more than £500 (five hundred
pounds sterling), whether as a single transaction or a combination of
related transactions; or

(2)
Monetary payments or the disposal of assets made by the Firm pursuant to
the terms of its Company Voluntary Arrangement dated 3 January 2020.

1.4
For the purposes of paragraph 1.3, the following payments would not be regarded
as payments made in the ordinary course of business:

(1)
Payments to the Firm’s controllers, shareholders, directors, officers or any
connected persons.

(2)
The making of any capital distribution.

(3)
The making of any gift or loan by the Firm to any party.

(4)
Payments made as part of any financial restructuring or reorganisation of its
business, of from the sale of any part of the Firm’s business (whether share or
asset based).


1.5
For the reasons set out in this Second Supervisory Notice, and pursuant to section
55Y(7) of the Act, the Authority has decided not to rescind the Requirements.

1.6
The Requirements shall 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 serious concerns arising from the fact that the Firm appears to
have made an application for a loan in the name of one of its customers, without
having authority to do so and without making arrangements for the customer to
receive the benefit of loan funds. Absent the customer obtaining the benefit of the
loan funds, it is inferred that the Firm benefitted from receipt of the loan funds.

2.2
On the basis of the facts and matters set out below the Authority considers that the
imposition of these requirements is desirable in order to advance its consumer
protection and integrity objectives.

2.3
In addition, it appears to the Authority, on the basis of the facts and matters set
out below, that the Firm is failing, or is likely to fail, to satisfy the suitability
Threshold Condition set out at paragraph 2E to Schedule 6 of the Act. This requires
that a firm must be a fit and proper person having regard to all the circumstances,
including the need to ensure that its affairs are conducted in an appropriate manner,
that its business is being managed in a sound and prudent manner and the need to
minimise the extent to which any business carried on by it can be used for a purpose
connected to financial crime.


3
DEFINITIONS

3.1
The definitions below are used in this Second Supervisory Notice:

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


“the Authority” means the Financial Conduct Authority;

“the Firm” means Professional Construction Risks Limited;

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

“the RDC” means the Regulatory Decisions Committee of the Authority (see further
at paragraph 6.1 below);

“Requirements” means the requirements set out at paragraph 1.1 of this Second
Supervisory Notice; and

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


4
FACTS AND MATTERS

4.1
The Firm is a general insurance intermediary that primarily sells commercial
insurance for the construction industry in the south-west of England. It has been
authorised by the Authority since June 2016. It holds the following permissions:

(1) Arranging (bringing about) deals in investments;

(2) Making arrangements with a view to transactions in investments; and

(3) Agreeing to carry on a regulated activity.



4.2
The Firm also has permission to hold client money.

4.3
The Firm is the subject of a Company Voluntary Arrangement, which took effect on
3 January 2020.

4.4
Between 25 October 2019 and 7 February 2020, the Firm had an agreement with
Company A by which Company A provided premium finance services to the Firm.
Company A provides finance to policyholders to allow them to pay their insurance
premium in instalments. In June 2020, the Authority became aware of concerns
relating to a loan account that the Firm had arranged with Company A pursuant to
the agreement between Company A and the Firm.


4.5
Company A opened a loan account in November 2019 for one of the Firm’s
customers (“Customer A”). Company A had received an application form from the
Firm for this loan, which was in the sum of £4,975.72. On request from Company
A, the Firm provided it with policyholder details for a credit check to be conducted.
The details provided were for a partner in Customer A.


4.6
Company A approved the loan in the name of Customer A and paid funds to a bank
account. The details of this account were provided to Company A by the Firm.
Company A paid an additional advance of £2,899.85 to the same account in
December 2019, following Company A’s approval of the Firm’s application
purportedly on behalf of Customer A for funding for a mid-term policy adjustment.


4.7
Company A produced a welcome letter, a credit agreement and an EU Pre-
Contractual Consumer Information Form on the opening of the loan account. These
documents were sent to an email address that the Firm had provided to Company

A, representing that this email address belonged to Customer A. Following
notification of the mid-term adjustment to the policy, Company A also sent a mid-
term adjustment letter to the same email address. Customer A did not receive these
documents as the email address did not belong to it.


4.8
Three loan instalments were paid to Company A in December 2019 and January
and February 2020. These instalments were not paid by Customer A, but were
instead paid from an account held by another recently incorporated company, which
shares a common director, and shares or shared common ownership, with the Firm.
No further instalments were paid; this led to Company A initiating enquiries into
this account.


4.9
Although Company A opened a loan account for Customer A at the Firm’s request,
Customer A had in fact paid the annual premium in full in November 2019. This
payment was made to the Firm’s account. Customer A did not ask the Firm to take
out a loan on its behalf or authorise the Firm to provide its details to Company A
for the purpose of arranging a loan. Customer A did not receive the benefit of either
tranche of the loan funds advanced by Company A. Absent Customer A obtaining
the benefit of the loan, it is inferred that the Firm benefitted.


5
CONCLUSION

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


5.2
The Authority has concluded, in the light of the matters set out above, that it
remains appropriate to exercise its own-initiative power under section 55L(3)(a) of
the Act by imposing the Requirements on the Firm, for the reasons set out below.

Analysis of failings and risks

Consumer Protection

5.3
The Authority considers it is desirable to maintain the Requirements in place in
order to advance its operational objective of securing an appropriate degree of
protection for consumers. This is on the basis that the Firm appears to have
purported to apply for a premium finance loan account on behalf of a customer
when, in fact, it had no authority to do so and did not intend to arrange for its
customer to receive the benefit of funds advanced.


5.4
While Customer A, in whose name the loan account was opened, had the benefit of
insurance cover, it had already paid in full for that cover at the beginning of the
policy period, and a record of the first credit check and the later missed payment
would be recorded on its credit file. This is likely to affect adversely Customer A’s
future applications for credit, even if only temporarily, thus exposing the customer
to a risk of financial loss.


5.5
Without the maintenance in place of the Requirements, there is a risk that the Firm
will continue to expose consumers to the risk of harm, particularly in the form of
financial loss resulting from inaccurate and adverse credit records.


Integrity of the UK financial system

5.6
The Authority considers it is desirable to maintain the Requirements in place in
order to advance its operational objective of protecting and enhancing the integrity
of the UK financial system. This is on the basis that the Firm appears to have acted
dishonestly by representing to Company A that it was applying for a loan on behalf
of Customer A.

5.7
Without the maintenance of the Requirements in place there is a risk that the Firm
will continue to act in a dishonest manner, which would undermine the integrity of
the UK financial system.


Suitability Threshold Condition

5.8
It appears to the Authority that the Firm is failing, or is likely to fail, to satisfy the
suitability threshold condition that a firm must be a fit and proper person having
regard to all the circumstances, including the need to ensure that its affairs are
conducted in an appropriate manner, having regard in particular to the interests of
consumers and the integrity of the UK financial system and whether its 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. This is on the basis that the Firm
appears to have acted without honesty and integrity and not in accordance with
proper standards, in that it appears to have provided false information to Company
A in order to obtain financial gain.


5.9
The Authority considers that the Requirements are a proportionate and appropriate
means to address the risks, and are desirable in order to advance the Authority’s
operational objectives of consumer protection and the integrity of the UK financial
system.

Duration of the Requirements


5.10 The Authority considers that it is necessary for the Requirements to remain in place
unless and until revoked, whether on the application of the Firm or on the
Authority’s own initiative.


6
REPRESENTATIONS

6.1 The Firm made brief representations giving details of its financial difficulties and of
family difficulties from which it said the Firm’s sole director had been suffering,
causing upset in his personal life, and affecting the Firm’s business. It stated that
he was deeply sorry for what he had done and that he would never want to cause
any hurt. It asked for the matters described in the representations to be taken into
account as mitigating circumstances.

6.2 Having considered the representations, the Authority considers that they contain
nothing to suggest that the facts and matters set out above are inaccurate in any
way. Nor do they suggest that the Firm is satisfying the Threshold Conditions, or
that the Requirements are not appropriate to advance the Authority’s operational

7


objectives of consumer protection and the integrity of the UK financial system.
Therefore, they do not provide any basis for concluding that it would be appropriate
to rescind the Requirements.

6.3 In making the decision which gave rise to the obligation to give this Second
Supervisory Notice, the Authority has taken into account all of the representations
made by the Firm, whether or not set out in paragraph 6.1.

7
PROCEDURAL MATTERS


7.1
The following paragraphs are important.

Decision-maker

7.2
The decision which gave rise to the obligation to give this Second Supervisory Notice
was made by a Deputy Chair of the RDC. The RDC is a committee of the Authority
which takes certain decisions on behalf of the Authority. The members of the RDC
are separate from the Authority staff involved in conducting investigations and
recommending action against firms and individuals. Further information about the
RDC
can
be
found
on
the
Authority’s
website:

https://www.fca.org.uk/about/committees/regulatory-decisions-committee-rdc.

7.3
This Second Supervisory Notice is given under section 55Y(7) and in accordance
with section 55Y(9) of the Act. Section 394 of the Act does not apply to this Second
Supervisory Notice.


The Tribunal

7.4
The Firm has the right to refer the matter to which this Second Supervisory Notice
relates to the Tribunal, which considers references arising from decisions of the
Authority. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper
Tribunal) Rules 2008, the Firm has 28 days from the date on which this Second
Supervisory Notice is given to it to refer the matter to the Tribunal.

7.5
A reference to the Tribunal can be made by way of a reference notice (Form FTC3)
signed by the Firm and filed with a copy of this Second 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).

7.6
Further details are contained in “Making a Reference to the Upper Tribunal (Tax and
Chancery
Chamber)”
which
is
available
from
the
Tribunal
website:

7.7
A copy of the reference notice (Form FTC3) must also be sent to Zsuzsa Elek at The
Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN at the same
time as a reference is filed with the Tribunal.


Confidentiality and publicity

7.8
The Firm should note that this Second 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).

7.9
The Firm should note that section 391(5) of the Act requires the Authority, when
this Second Supervisory Notice takes effect (and this Second Supervisory Notice
takes immediate effect), to publish such information about the matter to which the
notice relates as it considers appropriate.

Contact

7.10 For more information concerning this matter generally, contact Zsuzsa Elek,
Enforcement and Market Oversight Division at the Authority (direct line: (020) 7066
8460 or email: zsuzsa.elek@fca.org.uk).

John A. Hull
Deputy Chair, Regulatory Decisions Committee


Annex

RELEVANT STATUTORY PROVISIONS

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

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

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

4.
Section 55P of the Act allows a requirement to be imposed under section 55L of the
Act prohibiting the disposal of, or other dealing with, any of an authorised person’s
assets (whether in the UK or elsewhere), or restricting such disposals or dealings.
Such a requirement is referred to in section 55P as an “assets requirement”.

5.
Section 55Y(3) of the Act allows a requirement 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).

6.
Section 391 of the Act provides:

“…

(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, 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

The Enforcement Guide

7.
The Authority's approach in relation to its enforcement powers is set out in Chapter
8 of the Enforcement Guide (EG), certain provisions of which are summarised below.


8.
EG 8.1.1 reflects the provisions of section 55L of the Act by stating that the Authority
may use its own-initiative power to impose requirements on an authorised person
where, amongst other factors, the person is failing or is likely to fail to satisfy the
threshold conditions for which the Authority is responsible (EG 8.1.1(1)), or it is
desirable to exercise the power in order to advance one or more of its operational
objectives (EG 8.1.1(3)).

9.
EG 8.2.1 states that when the Authority considers how it should deal with a concern
about a firm, it will have regard to its statutory objectives and the range of regulatory
tools that are available to it. It will also have regard to the principle that a restriction
imposed on a firm should be proportionate to the objectives the Authority is seeking
to achieve (EG 8.2.1(2)).

10.
EG 8.2.3 states that in the course of its supervision and monitoring of a firm or as
part of an enforcement action, the Authority may make it clear that it expects the
firm to take certain steps to meet regulatory requirements. In the vast majority of
cases the Authority will seek to agree with a firm those steps the firm must take to
address the Authority’s concerns. However, where the Authority considers it
appropriate to do so, it will exercise its formal powers under section 55L of the Act
to impose a requirement to ensure such requirements are met. This may include
where, amongst other factors, the Authority has serious concerns about a firm, or
about the way its business is being or has been conducted (EG 8.2.3(1)), or is
concerned that the consequences of a firm not taking the desired steps may be
serious (EG 8.2.3(2)).

11.
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.

12.
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.

13.
EG 8.3.3 states that it is not possible to provide an exhaustive list of the situations
that will give rise to such serious concerns, but they are likely to include one or more
of four listed characteristics, which include: 1) information indicating significant loss,
risk of loss or other adverse effects for consumers, where action is necessary to
protect their interests; 2) information indicating that a firm’s conduct has put it at
risk of being used for the purposes of financial crime, or of being otherwise involved
in crime.

14.
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, which include:

(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.

(2)
The extent to which customer assets appear to be at risk. Urgent exercise
of the Authority’s own-initiative power may be appropriate where the

information available to the Authority suggests that customer assets held
by, or to the order of, the firm may be at risk.

(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.

(7)
The risk that the firm’s conduct or business presents to the financial system
and to confidence in the financial system.

(9)
The impact that the use of the Authority’s own-initiative powers will have
on the firm’s business and on its customers. The Authority will need to be
satisfied that the impact of any use of the own-initiative power is likely to
be proportionate to the concerns being addressed, in the context of the
overall aim of achieving its statutory objectives.


The Threshold Conditions (“COND”)

15.
COND 2.5.1A states that a firm must be a fit and proper person, having regard to all
the circumstances, including –

(a) the firm’s connection with any person;

(b) the nature (including the complexity) of any regulated activity that the firm
carries on or seeks to carry on;

(c) The need to ensure that the firm’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 the firm 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 the firm has complied or is so complying, the manner of that
compliance;

(e) Whether those who manage the firm’s affairs have adequate skills and
experience and act with probity;

(f) Whether the firm’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;
and

(g) The need to minimise the extent to which it is possible for the business
carried on by the firm, or to be carried on by the firm, to be used for a
purpose connected with financial crime.

16. COND 2.5.4G provides examples of the kind of general considerations to which the
Authority may have regard when assessing whether a firm will satisfy, and continue
to satisfy, the Suitability Threshold Condition including, but not limited to, whether
the firm:

(a) conducts, or will conduct, its business with integrity and in compliance with
proper standards.