Victoria agreed to the proposal on 2September 1862 and gave permission to equip the vessels and hire crews. Lay appointed Captain Sherard Osborn as commander of the flotilla. It was felt that if the flotilla was to fly an internationally recognized ensign this might reduce the risk of capture and imprisonment but the British Admiralty would not sanction such an ensign without China's explicit consent. Although the Tongzhi Emperor had decreed that the Chinese flag would be a yellow triangle with a blue dragon trying to catch a red ball, Prince Kong did not mention this in his written instructions to Lay, and thus Lay himself designed an ensign to be used by the flotilla. On 13February 1863 the “Lay-Osborn” flotilla, also known as the Osborn or "Vampire" Fleet, with seven steam cruisers and a supply ship left England, arriving in China in September 1863. Upon reaching China, Osborn refused to take any orders from local Chinese officers, stating that his agreement with Lay stipulated that any Chinese orders must come directly from the Tongzhi Emperor, as transmitted via Lay. The Imperial court refused to ratify this, and Osborn resigned in pique on 9November 1863, disbanded the flotilla, and sent the ships back to England without them having fired a shot. Lay was fired that same year by the Chinese government and replaced with Sir Robert Hart. Subsequent career In 1864, Lay resigned from the diplomatic service and returned to England, where he engaged in financial affairs. In December 1869, Lay was hired as a foreign advisor by the Meiji government of the Empire of Japan to assist in raising its first foreign loan, for 1 million pound sterling which was needed to finance the construction of Japan's first railways and telegraph lines. Having led the Japanese government to believe that he would raise the money through private investors, Lay instead floated Japanese sovereign bonds on the London Stock Exchange, arranging to have the interest on the bonds credited to his private accounts. When the Japanese government discovered the fraud, they cancelled his contract and appointed the British Oriental Bank in his place. Two of Lay's brothers (Walter Thurlow Lay (1840–1917), Amoy Lay (1846–1911), two of his nephews (William George Lay (1862–1921), son of W.H. Lay, and Harry Lay (1894-?), son of Amoy Lay), and one grandnephew (Arthur Croall Hyde Lay (1900-) also served in the Chinese Maritime Customs Service.