Recently the FCA and PRA presented their findings PS18/24 after a period of consultation, within CP 25/23, regarding prudential assessment of acquisitions and increases in control. The FCA has also issued finalised guidance (within FG24/5) to replace previous EU guidelines on the prudential assessment of acquisitions and increases in control of UK-authorised firms. This finalised guidance, effective as of 1st November 2024, outlines the expectations and processes for firms and individuals seeking to acquire or increase control in UK-authorised firms. This aims to ensure that any changes in control do not compromise the financial stability and soundness of UK-authorised firms.
Key Changes
- Identification of Controllers
Firms are obliged to accurately identify their ‘Controllers’ and notify the FCA of any changes in control.
Under Section 178(1) of the Financial Services and Markets Act 2000 (FSMA) anyone deciding to acquire or increase control over a UK-authorised person must notify the Regulator in writing before the acquisition. This includes situations where a person crosses a control threshold involuntarily (see ss. 181 and 182 FSMA).
Holdings will be aggregated if shares or voting power are held by persons acting in concert, i.e. exercising their share-related rights according to an agreement between them or if one person’s voting power is attributed to another.
The definition of ‘Controllers’ does not only capture persons with direct stakes in the authorised person, but also includes those with indirect holdings (s422 FSMA).
- Notification Process
Proposed Controllers will need to submit a Controller form and supporting documents, which can be found on the change in control webpage. Additional information may be required based on the post-acquisition impact on the UK authorised person.
Engaging with the FCA before submitting the notification helps ensure it meets expectations and is complete, allowing the assessment to start promptly. If already engaging with other FCA areas, firms are advised to discuss the acquisition with them to identify any additional required information.
The FCA may reduce or waive information requirements in certain cases. For example, in the case of acquisitions by means of a public offer, it is recognised that the proposed Controller may encounter difficulties in obtaining information which is usually required. On this occasion, the proposed Controller should bring such difficulties to the FCA’s attention who might then vary some of the information requirements.
A notification is deemed complete when it includes all the required information to a satisfactory level. The FCA will inform the notice giver within two working days for complete notifications and as soon as practicable for incomplete ones.
- The FCA’s Assessment
The FCA will assess the financial soundness of proposed Controllers and their ability to meet prudential requirements, having regard to the likely influence that the s178 notice-giver will have on the UK authorised person (s185(2)(b) of FSMA). This includes evaluating the reputation, experience and financial resources of the Controllers.
The Regulator may vary the intensity of the assessment and composition of the required information based on the nature, size and complexity of the transaction, as well as considering the UK regulatory history of the controller and whether or not the proposed controller (or its group) is supervised in a third country deemed equivalent.
The analysis of the proposed Controller’s reputation will cover two elements:
- integrity; and
- professional competence.
Notably, when assessing the integrity of the proposed Controller, the FCA may take into consideration the integrity of any person linked to the proposed controller. This will include any person who has, or appears to have, a close family or business relationship with the proposed Controller. The professional competence of the proposed Controller covers competence in management (the ‘management competence’) and in the financial activities carried out by the UK authorised person (the ‘technical competence’).
Other factors that will form part of the Regulator’s assessment, include past business dealings, transparency with regulators and history of insolvencies and criminal record.
- Other Considerations
The FCA retains the authority to impose conditions on approvals to safeguard the financial system, especially in situations where there are unresolved matters, such as outstanding proceedings against the proposed Controller. The Regulator’s powers include the right to reject applications or require additional information to be provided.
How can Complyport help
The FG24/5 guidance is a critical step in maintaining the integrity and stability of the UK financial sector. The FCA aims to protect consumers and ensure that UK-authorised firms remain financially sound and well-managed, by setting clear expectations and assessment criteria.
Firms are expected to adhere to this guidance from November 1st 2024, ensuring all necessary preparations and compliance measures are in place.
Complyport can support your firm by providing:
- Project management: assisting with the Change in Controller application and management of the process through to completion;
- Regulatory Guidance: helping your firm understand the FCA’s expectations and providing expert advice on the relevant regulatory requirements;
- Ongoing Support: providing ongoing support to ensure that your firm remains compliant as regulations evolve;
- Training: providing training on the practical requirements and best practices for compliance; and
- Application Support: assisting firms with FCA applications or understanding of application processes.
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