UT-2024-000094 - [2025] UKUT 00082 (TCC)

As it applies to Limited Permission applications, Threshold Condition 2C is as follows:

“(1)

A must be capable of being effectively supervised by the FCA having regard to all the circumstances including—

…

(c)

the way in which A’s business is organised;

(d)

if A is a member of a group, whether membership of the group is likely to prevent the FCA’s effective supervision of A;

…

(f)

if A has close links with another person (“CL”)—

(i)

the nature of the relationship between A and CL,

(ii)

whether those links are or that relationship is likely to prevent the FCA’s effective supervision of A, and

(iii)

if CL is subject to the laws, regulations or administrative provisions of a territory which is not an EEA State (“the foreign provisions”), whether those foreign provisions, or any deficiency in their enforcement, would prevent the FCA’s effective supervision of A.”

Mr Macdonald submits that the Authority is reliant on firms providing adequate information in a timely, open and cooperative manner in order to discharge its statutory objectives. This is particularly the case for smaller firms which are not subject to proactive supervision by allocated supervisors (as here).

This position was endorsed by this Tribunal’s predecessor in Eversure Financial Services Limited and Frederick George Young v FSA FIN 2005/0027; FIN 2005/0028 which related to a failure by the applicant to disclose relevant information on the application forms for the firm and Mr Young (its principal). The Tribunal upheld the Authority’s refusal decisions. At [58] the Tribunal stated:

“[…] We start by observing that the Authority’s regulatory function generally and its statutory approval function in particular is entirely dependent on its being provided with full and accurate information by the individuals seeking approval. […] The Authority cannot carry out its statutory approval responsibility without having the information to assess the candidate’s integrity and willingness to be open and honest with it. If it fails to insist on absolute disclosure, it will not be fulfilling its public function. In this regard the Authority is entitled to expect anyone who performs or intends to perform controlled functions to adhere to high standards of competence and capability. […]

Understandably the Authority, as Mr Honey explained, places a great deal of importance on an open and co-operative relationship with firms. Because small firms do not have regular contact with supervisory staff at the Authority, it is important that the Authority can rely on them to bring to its attention voluntarily any matters relating to their ability to comply with relevant rules and requirements.”

This passage was cited with approval by the Tribunal more recently in Jon Frensham v The Financial Conduct Authority [2021] UKUT 0222 (TCC) at [69] and [70] and Soszynski at [156].

The Effective Supervision Threshold Condition was considered in Lewis Alexander. Here the applicant (Mr Johnson) ultimately provided much of the information requested by the Authority, but the Tribunal noted that Mr Johnson reacted to information requests in a way that was overly aggressive, uncooperative and unwarranted and concluded (at [203]) that the Authority was correct in its “assessment that the amount of time that was taken, the level of resource used by the Authority to obtain (often straightforward) information and the level of resistance that requests for information met led properly to concerns that LAL would not be capable of being effectively supervised if authorised.”

Similarly, in Köksal, the Tribunal held (at [150]) that “the manner in which Dr Köksal dealt with the Authority in relation to its requests for information means that the Authority could not be satisfied that Dr Köksal would engage with the Authority in an open and cooperative manner in relation to his consumer credit business”. It noted that Dr Köksal had been confrontational and contemptuously dismissive of the abilities of the Authority’s staff he dealt with. It considered that this sort of behaviour is “not to be expected from a firm which seeks to be open and cooperative with its regulator. As the Authority’s guidance in COND, set out at [16] and [17] above demonstrates, the Authority is entitled to take into account, when considering whether a firm meets the Threshold Conditions, whether the firm is ready, willing and organised to be open and cooperative with the Authority and whether it has in fact been open and cooperative in all its dealings with the Authority.”

In Soszynski. The Tribunal (at [161](b) and [163]) concluded that the applicant’s refusal to comply with the Authority’s requests for information contributed to his inability to satisfy the effective supervision Threshold Condition: It observed:

“He is not willing; as he has repeatedly disputed the need to comply with certain rules rather than provide requested information demonstrating his compliance. Certain requested information also still remains outstanding up to 21 months after it was sought.

[…] For these reasons, we, like the Authority, are satisfied on the balance of probabilities that the Applicant cannot and will not provide the Authority with adequate information in a timely or open and co-operative manner as required by Principle 11. The Authority was therefore entitled to conclude that the Applicant therefore does not meet the standards described in COND 2.3.3 G.”

In justifying the Authority’s conclusion on the Effective Supervision Threshold Condition, Mr Macdonald points to the Applicant’s non-co-operation with the Authority and its failure to provide relevant information, the Applicant’s use of its criticisms of the Authority’s handling of the Application as an excuse to cease providing any further information, and Mr Dalipi’s initial statement that he was the sole director of the Applicant. On that latter point, the Applicant failed to provide adequate and accurate information regarding its ownership and directorship to the Authority and had to be prompted to do so.

We agree with Mr Macdonald’s analysis here. Whilst Mr Dalipi has (forcefully and repeatedly) criticised the behaviour of the caseworker, he did not initiate a formal complaint (despite being told that he could do so) and instead failed to respond to the Information Request (despite saying that he would) and ultimately made it clear that he would not cooperate with the application process. Whatever the rights and wrongs of what took place on the Call (which we are not in a position to judge), this cannot provide an excuse for the Applicant failing to provide the Authority with the information it needed, refusing to cooperate and behaving from the outset in a confrontational manner (for example, with the HoD).

As the authorities make clear, the Authority needs to feel confident that those it authorises (particularly small businesses like the Applicant, which do not have regular contact with the Authority) will be open, honest, cooperative and transparent and can be trusted to provide the Authority with the information it needs accurately and in a timely manner. Mr Dalipi’s behaviour here would justify the Authority concluding that the Applicant might not exhibit these traits and instead that there was a high risk of it being obstructive, unnecessarily confrontational/disruptive, failing to provide required information without being prompted into complying, and a level of risk of the Applicant not providing required information at all and of any information provided not being accurate.

For these reasons we are satisfied that the Authority’s conclusion that it was not satisfied that the Applicant was capable of being effectively supervised, having regard to all the circumstances, was one which was reasonably open to it.