There is no 19 seats limit. That is only relevant if you have an AOC and apply for an A Operating Licence (20 seats and up and subject to financial regulation) or a B Operating Licence (19 seats and under and not subject to financial regulation.
There has to be a contract between the airline and the ticket seller and when a passenger buys a ticket, that ticket has to be immediately issued informing the passenger what airline they have been booked on.
I would think that with Citywing not knowing from one day to the next who the carrier is going to be, it has been a challenge to comply with the regulations.