Here we explain who is required to submit a notification under the change in control regime.
Overseas authorised firms do not require FCA approval for changes in control. However, you must inform us of details of any changes in control so we can assess the new controller(s) and update our records.
In January 2018 PSD2 came into force, which means that the FSMA controllers’ regime now also applies to Authorised Payment Institutions. See our Payment Services Directive (PSD2) pages for information on change in control for PSD firms.
Controllers of E-Money firms (registered under the EMD) are already subject to the FSMA controllers’ regime.
Making a decision to acquire
Irrespective of whether or not a person has made a decision to acquire, and whether or not s178 FSMA applies to them, we must still assess their suitability as a controller of an authorised firm and we will require the necessary information to do so. There are obligations in respect of controllers of authorised firms to be suitable and to inform us of any changes that may impact their suitability.
Whether a person has decided to acquire/increase control over an authorised firm will ultimately depend on the specific facts. We take a case-by-case approach to considering whether a decision to acquire has been made depending on the relevant facts. Relevant matters in this regard can include (but are not limited to):
- whether the proposed controller was aware of the acquisition/increase in control and the transaction giving rise to it
- the proposed controller's ability to influence, object to or prevent the proposed acquisition/increase in control. This influence may be evidenced in a number of ways, such as Shareholders Agreements, Articles of Association, the Board's Terms of Reference or past instances of actual influence over other entities with influence over the transaction and/or the authorised firm
- relevant changes in the authorised firm's governance arrangements as a result of the transaction giving rise to the change in control. This may be evidenced in, for example, the Board's Terms of Reference or a revised business plan for the authorised firm
- the source of funding for the transaction giving rise to the change in control
A decision to acquire/increase control for the purposes of s178 FSMA may be inferred from any (or any combination) of the above factors together with (if any) other relevant matters. Not each of these factors must be present in each instance for there to be an obligation to give the FCA notice under s178 FSMA.
If the proposed controller does not believe that they are a decision maker, then they still ought to inform us as soon as possible that they will become a controller of the authorised firm. They should explain their reasons for thinking they do not have to make a formal notification under s178 FSMA. Please also provide all relevant documents supporting that position. In cases where s178 FSMA applies, it is a criminal offence to fail to get our approval before acquiring or increasing a control in an authorised firm or its parent undertaking.
Controllers that acquired a control while not being aware of the acquisition
If the proposed controller was not even aware of the acquisition, then they are unlikely to have fallen within the scope of s178 FSMA. If they do not fall within s178 FSMA, the pre-notification requirements will not apply, which means prior approval before becoming a controller would not be required.
Given the important influence that controllers can have over authorised firms (including whether those firms continue to meet the minimum standards for authorisation), we would nevertheless expect the controller to inform us that they had become a controller as soon as they became aware of that fact and, from then on, to cooperate with us in their capacity as a controller. There is also an obligation on the authorised firm to inform us of any changes to controllers, as soon as they become aware of the (proposed) change.
We have the ongoing power to object to an existing controller if (broadly speaking and amongst other things) we do not consider they are suitable or we consider the controller's influence will impact the authorised firm's ability to meet the minimum conditions for authorisation.
We would therefore still assess the suitability of a controller, irrespective of whether a decision to acquire has been taken or not, and will require adequate information to enable such assessment.
Parents of minority controllers
We consider parent undertakings of minority shareholders to be controllers of authorised firms due to the extended definition of ‘voting power’ in s422 (5)(a)(v) FSMA. Where a parent has a number of subsidiaries that hold shares or voting power, we would aggregate each of their holdings with that of the parent, and therefore each will be a controller.
Authorised firms exempt from the change in control regime
The following firms are exempt:
- an incoming EEA firm
- an incoming Treaty firm
- an overseas branch
- a sole trader
- a UCITS qualifier
See Sup 11.1 in our Handbook for further details.
Change in control: specific scenarios
Examples of situations that require prior approval
- The transaction is to insert a holding company and the ultimate controller will remain the same. Even though the ultimate controller is not changing, the new holding company will be a new controller so needs to gain FCA approval before acquiring the control.
- The shares the applicant is acquiring in the authorised firm or its parent undertaking do not have any voting rights attached to them.
- The applicant (proposed controller) lives outside the EU and wants to acquire an authorised firm. Failure to get approval before acquiring a control in an authorised firm or its parent undertaking is a criminal offence.
- A controller intends to pass ‘x’ amount of shares to a wife /husband/family member. This generally falls under the term ‘acting in concert’ (s422 (3) FSMA). So even where an individual holding is less than the threshold for control, we would consider the aggregated amount of holdings of all persons who act in concert, and each of them would be a controller.
Situations that do not require prior approval
- Increasing or decreasing control within an approved control band. Unless you are a controller of a directive firm and the increase will result in you becoming a new parent undertaking of the authorised firm.
- An intention to increase control by approved controllers of non-directive firms. A 20% or more band controller in a non-directive firm would not be required to seek and gain regulatory approval for any subsequent increases in control, including becoming a parent undertaking. However, where a controller will become a parent undertaking, thought should be given to any related parties that may become controllers as a result. Further, if any other controllers will cease to have control because of the increase, they are obliged to notify us of that.
- Controllers planning on decreasing control that will result in moving to a lower control band. The controller will still be required to tell us about the changes before they happen. Thought should be given as to whether the change will result in an acquisition or increase of control by another person.
- Ceasing control of an authorised firm. The controller will still be required to tell us about the cessation before it happens. Again, thought should be given as to whether the change will result in an acquisition or increase of control by another person.
Where there are numerous controllers, you should submit a notification form for each controller. You will not be required to duplicate general transactional information already provided in another form.
The proposed controller is an approved person acquiring (or increasing) control in an authorised firm. Regardless of whether or not you are an approved person, all individual proposed controllers should submit an individual notification form. For approved persons we waive the requirement to submit a CV.
Individuals intending to acquire a more than 50% control in an authorised firm must submit a business plan. Until we receive an adequate business plan, the notification will remain incomplete. The minimum requirements for a business plan are set out in the Supporting Documents section of the notification forms.
Where one of the proposed corporate controllers is currently not incorporated, an assessment cannot be made. The notification will therefore remain incomplete until all proposed corporate controllers are incorporated.
Requesting additional information
Once your notification has been acknowledged as complete, we may still need to ask for additional information. A complete notification means we have sufficient information to begin our assessment and the 60 working day assessment period will start. Depending on the outcome of our initial assessment, we may ask for additional information. Please note that on the first request for additional information, we can interrupt the 60 working day assessment period for up to 30 working days (20 days if the controller is regulated within the EEA).
If you don't submit the additional information we request, we could object to the notification on the grounds of missing/incomplete information.
Up to the 50th assessment day, we can request as much information as we need to make a decision.
Definition of terms
Other definitions of terms (such as parent undertaking) can also be found in the FCA Handbook Glossary.
You can find guidance on acting in concert in the Sup 11, Annex 6G of our Handbook.
Control is to be aggregated where 2 or more controllers have an implicit or explicit agreement to act together in respect of their control of an authorised firm (whether directly or indirectly). A number of scenarios are discussed in the guidance, including ‘passive controllers’.
Acquired shares in an authorised firm without prior approval
In this situation, the controller should submit the appropriate notification forms to us as soon as possible, and explain why approval was not sought or gained before the acquisition. We will consider whether to object to the transaction and/or whether to take action under s191A FSMA.
After submitting your notification
The only date by which we can guarantee a decision is the end of the statutory assessment period, which is 60 working days from the date we acknowledge a notification as complete. This can be extended by up to 30 working days if the assessment period is interrupted to request clarifying information.
A notification submitted for approval may be rejected. A completed section 178 notification must be in such form, include such information and be accompanied by such documents as the FCA may reasonably require under section 179 of Financial Services and Markets Act 2000. If we reject your notification we will give you the reason(s). You may resubmit a notification, containing all the relevant information, at any time.
The proposed controller cannot acquire the shares before we have made a decision. It is a criminal offence to proceed with the transaction before we have approved the transaction (or before the statutory assessment period has expired).
See the PRA webpage for further information.
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