Change in control - Cloned (mmaynard)

You must apply for approval from the Prudential Regulation Authority (PRA)[8].

Section 178 of FSMA refers specifically to UK authorised firms. There's no obligation to notify us of changes in control in respect of acquisitions of overseas firms.

However, overseas firms must themselves notify us of changes in control (see SUP 11.4.4[9]).

The FSMA controllers’ regime also applies to:

• authorised payment institutions
• e-money firms (registered under the Electronic Money Directive)

FCA-registered cryptoasset firms (ie a cryptoasset exchange provider and/or custodian wallet provider) are subject to the money laundering regulations (MLRs)[10] rather than the FSMA controllers regime.

However, note that the MLRs were amended[11] in 2022, and similar change in control provisions now apply (although there are some differences between the two regimes).

We consider parent undertakings of minority shareholders to be controllers of authorised firms.

You can read about the extended definition of voting power in Section 422 of FSMA[12].

Where a parent has several subsidiaries that hold shares or voting power, we aggregate each subsidiary's holdings with that of the parent – this means that each subsidiary becomes a controller.

The following firms are exempt or not covered by the change in control regime:

• EEA firms in the supervised run-off regime[13]
• incoming Gibraltar-based firms
• an overseas branch
• a sole trader
• a UCITS qualifier (undertakings for collective investment in transferable securities)
• a registered account information service provider (RAISP)
• an appointed representative (AR) firm
• an Investment Company with Variable Capital (ICVC) and Open-Ended Investment Company (OEIC)
• a UK Insurance Special Purpose Vehicle (ISPV)
• a Non-directive Friendly Society
• a UK Benchmark Administrator

See SUP 11.1[14] in our Handbook for further details.

We look at various factors when we're considering whether someone has made the decision to acquire or increase control over an authorised firm.

These include:

• 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 – the influence could be evidenced through 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 could be evidenced through, 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

• The transaction is to insert a holding company and the ultimate controller will remain the same. Even though the ultimate controller isn't changing, the new holding company will be a new controller so needs to gain our approval before acquiring the control.
• The shares the notifier is acquiring in the authorised firm or its parent undertaking don't have any voting rights attached to them. Section 422(2) of FSMA refers to a controller having shares or voting power so shareholdings without voting power above the thresholds would be captured by the controller regime.
• The notifier (proposed controller) lives outside the EU and wants to acquire an authorised firm. Where a proposed controller is based isn't relevant to whether they're captured by the controller regime, and failure to get approval before acquiring 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. These shareholdings generally fall within the term ‘acting in concert’ (see Section 422 (3) of 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 on an acting in concert basis.

• Increasing or decreasing control within an approved control band. Unless you're a controller of a directive firm and the increase will result in you becoming a new parent undertaking of the authorised firm, when you should make a Section 178 notification requesting prior approval.
• An intention to increase control by approved controllers of non-directive firms. A 20% or more band controller in a non-directive firm wouldn't 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 must notify us about this.
• 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 won't need to duplicate general transactional information already provided in another form.

If the proposed controller is an FCA/PRA approved person acquiring (or increasing) control in an authorised firm, regardless of whether or not you're 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 or corporate entities 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[4] page.

Where one of the proposed corporate controllers is currently not incorporated, the notification remains incomplete and would remain incomplete until all proposed corporate controllers are incorporated and complete forms submitted.

In these circumstances you should notify us as soon as possible after the event (we call this a 'post notification').

FSMA requires that a person who decides to acquire or increase control over an FCA/PRA UK authorised person must first obtain the FCA/PRA’s approval.