The UK Financial Conduct Authority (FCA) has refused to grant a variation to Part 4A permission to Gedik International. The regulator published a final notice on the matter today.

Gedik was authorised by the FCA in February 2020. The firm is an agency brokerage with a focus on instruments of Turkish origin and with a specific emphasis on exchange traded equities and futures, bonds for professional clients and eligible counterparties.

The firm’s current permission includes the following activities, instruments and restriction:

• a) Dealing in investments as an agent;
• b) Arranging (bringing about) deals in investments;
• c) Making arrangements with a view to transactions in investments;
• d) Agreeing to carry on a regulated activity;
• e) Instruments: Shares, Debentures, Government and public securities, Rights (security & contractually-based), Options and Futures (excluding commodity futures and Rolling Spot FX contracts);
• f) Restriction: The firm may control but must not hold client money.

By an application received by the FCA on 27 March 2020, Gedik International Limited, Company number 11686331, applied under section 55H of FSMA for a variation to its Part 4A permission to include the following:

• a. Arranging, safeguarding and administration of assets; and
• b. Rolling Spot FX (across all current activities for which the firm has permission).

The FCA has refused the application.

The regulator explains that the requested VOP would permit the firm to carry out its existing regulated activities in relation to the additional regulated financial instrument of Rolling Spot FX contracts. It would also permit the firm to arrange the safeguarding and administration of assets, so that the firm could arrange an account with a prime broker to handle the custody of the Rolling Spot FX contracts on behalf of the firm’s clients.

The reason given for the requested VOP was that the firm had identified an increase in demand for the provision of FX trading. The firm stated that there would be no change to its overall business strategy and no change to its operational, legal or market risks as a result of the proposed variation.

Following submission of the Application, in correspondence dated 28 April 2020, the firm confirmed that there would be no change to its business plan or to the financial forecasts submitted in the second application, which had been approved in February 2020.

In that correspondence, the firm did, however, state that COVID-19 had created an ‘unprecedented situation’ in which the firm had to enact its ‘business continuity plan’ and was ‘unable to conduct any meaningful business development’. The firm said that the situation had prompted it to look afresh to determine new business opportunities to navigate the crisis.

In May 2020 at the FCA’s request, the firm submitted revised financial forecasts which contained a new line entry showing that the revenue anticipated from the Rolling Spot FX in the first twelve months would account for 29.98% of the firm’s total revenue. The firm also submitted a revised business plan, also at the Authority’s request, which showed changes consequent upon the proposed grant of the Rolling Spot FX permission.

In further correspondence on 9 June 2020, the firm restated its belief that no changes to its financial forecasts or business plan would arise from the VOP.

The FCA considers that permission to undertake Rolling Spot FX would necessarily change the firm’s financial forecasts, if only because a previously unavailable stream of prospective revenue should now feature in the revised forecasts, and that this should have been obvious to the firm at the time it submitted the Application.

Similarly, the pursuit of a new line of business in Rolling Spot FX (a high-risk investment product) which was previously not available to the firm would necessitate changes to the business model, in as much as the operational flow and settlement of an FX trade is different to the operational flow of the types of products in which the firm is currently authorised to trade. These differences would therefore necessitate the use of different software to manage transactions in a functional and compliant way.

The Authority considers that this should also have been obvious to the firm at the time it submitted the Application.

Accordingly, the FCA considers the firm’s contention that its business plan and financial forecasts would not change as a result of the VOP is unsupportable and therefore incorrect.