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First Supervisory Notice to Morgan Ingram Associates Limited

Sep 16, 2022 12:00:00 AM

What has happened?

In January 2022, the FCA publicised a First Supervisory Notice (FSN) issued to Morgan Ingram Associates, a crowdfunding firm formerly known as SeedTribe. The FSN had initially been issued to the firm in early December 2021.

It should be noted that the decision to issue the FSN to the firm was made by an FCA Head of Department under Executive Procedures.

What do you need to do?

The FCA concluded that the firm was failing, or was likely to fail, to satisfy the Threshold Conditions, as follows.

The Appropriate Resources Threshold Condition is that a firm’s resources must be appropriate in relation to the regulated activities that it carries on or seeks to carry on, on the basis that:

  • The firm appeared to have ceded day-to-day control of its business to individuals who have not approved persons at the firm, and
  • The firm had failed to adequately assess the business of its ARs in order to sufficiently identify and mitigate the risks their activities could pose to consumers.

The Suitability Threshold Condition is that a firm must be fit and proper having regard to all the circumstances including the need to ensure that its affairs are being conducted in an appropriate manner 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, on the basis of:

  • The firm’s lack of adequate systems and controls in relation to its onboarding and ongoing monitoring of its five ARs, in particular its failure to properly identify, assess, and mitigate the inherent risks that arose from its operation as a principal firm or to properly assess their fitness and propriety, or ascertain their solvency, and specifically,
  • The firm failed to properly oversee and conduct ongoing monitoring of its five ARs,
  • The firm had a lack of adequate controls over the ARs’ regulated activities, including its failure to ensure that an approved person would be appointed at its sole active AR,
  • The firm had failings in its onboarding and ongoing monitoring of the ARs that demonstrated a failure to comply with several of the FCA’s rules in SYSC 4 (General organisational requirements) and SUP (Appointed Representatives), and it appeared to also be in breach of Principle 3 of the FCA’s Principles for Business, which provides that a firm must take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems, and
  • The firm was unable to demonstrate that it conducted its affairs with the exercise of due skill, care, and diligence.

The FCA also took action because it considered it desirable in order to advance one or more of its operational objectives, which include securing an appropriate degree of protection for consumers. The FCA considered that the imposition of the requirements should take immediate effect because the matters set out in the FSN demonstrated that the firm was unable to manage its affairs in a sound and prudent manner, and was likely to put consumers at risk.

The Firm had previously declined to sign a voluntary requirement (“VREQ”) to terminate its relationship with its ARs, and in fact, had submitted shortly afterward an application to add a further AR that was undertaking no regulated activities.

The FCA, therefore, imposed the following requirements on the firm with immediate effect;

  1. The firm had to terminate its relationships with four of its ARs (none of which were conducting regulated business) by 17:00 on 6 December 2021 and notify the FCA in writing immediately on termination.
  2. The firm had to terminate its relationship with its one active AR by 17:00 on 5 January 2022 and notify the FCA in writing immediately on termination.
  3. The firm had to notify the active AR by 17:00 on 6 December 2021 that it must not conduct any regulated activity in respect of any new clients, with immediate effect upon notification by the firm and had to, by 12:00 on 23 December 2021, agree on wording with the FCA by which any existing retail clients of this AR would be notified in writing of the date that the AR would no longer be registered as an AR of the firm, setting out the effect on it, and by 17:00 on 5 January 2022 notify the FCA that it had sent out these notifications.
  4. The firm could not appoint any additional ARs without the prior written consent of the FCA.
  5. The firm had to withdraw all active financial promotions that it had either issued or approved and direct all of its ARs to withdraw all active financial promotions by 17:00 on 6 December 2021.
  6. The firm could not issue or approve any financial promotions without the prior written consent of the FCA.
  7. The firm could not add any new trading names without the prior written consent of the FCA.
  8. The firm had to remove all active trading names by 17:00 on 6 December 2021 and confirm to the FCA in writing once it had done so.
  9. The firm had to take down the website https://thecitydealmaker.com/ by 17:00 on 3 December 2021 and confirm to the FCA once it had done so;
  10. The firm had to secure all books and records, including but not limited to email, minutes, records, or verbal conversations between parties, that related to regulated activities carried on by it and its ARs, and had to retain these in a form and at a location such that they could be provided to the FCA promptly upon request, with immediate effect;

Emphasising that the FCA is taking a close interest in principal firms’ supervision of their ARs, it was disclosed in September 2022 that the FCA has sanctioned 13 principal firms over the misconduct of an appointed representative since 2019 (see the year-by-year analysis below). This figure was revealed through a Freedom of Information request submitted by Money Marketing to the regulator.

Year      Cases closed

2019         1

2020         9

2021         3

Among these 13 cases, the FCA closed eight without further action as the misconduct was “not sufficiently serious”. In addition, four cases were closed due to an alternative outcome, such as a supervisory response. A sanction was imposed in one instance. Here the FCA did not impose a fine due to serious financial hardship, but compensation to the sum of £400,000 was ordered to be paid.

How can we help you?

If you’d like to know more about how we can help you with your principal/AR governance and monitoring, or with any other regulatory compliance issues, our specialist team is here to help. We can review a firm’s AR onboarding, monitoring, and oversight and make recommendations to improve these where needed, and we can assist principal firms in situations where the FCA is involved, including s165 and s166 reviews, other regulatory investigations, and enforcement support.

Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.

See also our related blog post here FCA CP 21/34 – Stronger oversight of Appointed Representatives (ARs).