FCA Change in Control: Approval for New Controllers Explained

What counts as a change in control

The regime uses two related concepts: acquiring control and increasing control. Section 181 FSMA sets out when a person acquires control. Person A acquires control over a UK authorised person B when A holds 10 percent or more of the shares in B or in a parent undertaking of B, or 10 percent or more of the voting power in B or that parent, or shares or voting power as a result of which A is able to exercise significant influence over the management of B.

Section 182 FSMA deals with increasing control. A person increases control whenever the percentage of shares or voting power they hold in the firm or its parent increases by one of the defined steps, or when they become a parent undertaking of the firm. The steps are crossing from less than 20 percent to 20 percent or more, from less than 30 percent to 30 percent or more, and from less than 50 percent to 50 percent or more.

The definition of controller sits in section 422 FSMA. Two points catch people out. First, voting power held by two or more parties who have an agreement about how to use it can be aggregated. The FCA treats this as acting in concert, so a husband and wife each holding 5 percent under such an agreement can together be a 10 percent controller. Second, a parent of a minority controller can itself be a controller, because the definition of voting power extends up a group structure. That is why group restructures and transfers between divisions can amount to a change in control even where the ultimate ownership looks unchanged.

Shares and voting power are defined broadly. For an undertaking with share capital, shares means allotted shares across all classes. For an undertaking with capital but no share capital it means rights to share in the capital, and for one without capital it means interests conferring a right to share in the profits or a liability to contribute to the losses. Voting power includes power held by a subsidiary and power that parties can exercise together under an agreement. The breadth of these definitions is deliberate, and it means a person can be a controller through indirect or pooled holdings that a simple share register would not reveal.

Directive and non-directive firms

The four normal control bands of 10 to 20 percent, 20 to 30 percent, 30 to 50 percent and 50 percent or more apply to what the FCA calls directive firms. In its Quick Reference Guide the FCA describes these as firms such as credit institutions, MiFID investment firms, certain insurers and reinsurers. For these firms the first threshold is 10 percent, and each higher band is a separate trigger.

Non-directive firms work differently. The FCA guide states that for non-directive firms, meaning non MiFID investment firms, general insurance intermediaries and home finance firms, there is only one controller band of 20 percent or more. In practice this means a person becomes a notifiable controller of such a firm at 20 percent rather than 10 percent, and there is a single band rather than four.

Because the applicable threshold depends on the type of firm being acquired, the first step in any transaction is to confirm which regime the target sits in. Getting this wrong can mean either an unnecessary filing or, far worse, a completed acquisition that should have been approved first. Nasara Connect can help firms and acquirers map the target permissions before committing. See our controllers and change in control support for how we scope this.

The section 178 notification

The core obligation is in section 178 FSMA. A person who decides to acquire or increase control over a UK authorised person must give the appropriate regulator notice in writing before making the acquisition. The FCA refers to these filings as section 178 notices. The appropriate regulator is the PRA where the target is a PRA authorised person, and the FCA in other cases.

The trigger is the decision to acquire or increase control, not completion. The FCA looks at factors such as whether the proposed controller is aware of the transaction, whether they can influence it, and how it is being funded when deciding whether a decision has been made. Because the obligation bites at the decision stage, notice needs to go in well ahead of any target completion date, and completion cannot proceed until approval is in place.

Notifications are made using the FCA's controller forms, which differ for corporate and individual acquirers. The notice must give the regulator enough information to run its assessment, and an incomplete notice does not start the clock. Preparing a complete, well evidenced notice first time is the single biggest factor in keeping a transaction on schedule.

The assessment looks at the suitability of the proposed controller and the financial soundness of the acquisition. In practice the regulator wants to understand who the new controllers are, their reputation and financial standing, the source of funds behind the deal, and any changes to the firm's governance or business plan that will follow. Where the acquirer is itself part of a group, the notice needs to explain the group structure so the regulator can see the chain of control up to the ultimate owner. Thin or inconsistent information is the most common reason a notice is treated as incomplete or triggers an interruption.

The 60 working day assessment period

Once the regulator has a complete notice, section 189 FSMA sets the assessment period. The appropriate regulator must act within a period of 60 working days beginning with the day on which it acknowledges receipt of the section 178 notice. If the regulator neither objects nor imposes conditions within that period, and has not told the notice-giver that the notice is incomplete, the acquisition is treated as approved.

The clock can be paused. Section 189 provides that the assessment period may be interrupted no more than once, in accordance with section 190. Under section 190, on the first occasion that the regulator asks for further information, the period is interrupted from the date of the request until the regulator receives the information. Later information requests do not interrupt the period again.

The interruption has a cap. Section 190 provides that the interruption period may not exceed 20 working days. That cap rises to 30 working days where the notice-giver is situated or regulated outside the United Kingdom or Gibraltar, or is not subject to supervision under the relevant laws. So the longest an assessment can run is 60 working days plus a single interruption of up to 20 or 30 working days, which is why front loading a complete filing pays off.

The approval process step by step

The process runs from confirming that a change in control is happening through to the regulator's decision. Each stage has to be completed in order, and completion of the transaction cannot happen until approval is secured. The steps below map the typical route for an FCA led case.

At the end of the assessment the regulator can approve the acquisition unconditionally, approve it subject to conditions, or object. If it proposes conditions or an objection, it issues a warning notice, and any conditions can take effect as interim conditions. If the regulator does nothing within the assessment period and has not flagged the notice as incomplete, the acquisition is treated as approved.

Penalties for completing without approval

Completing an acquisition or increase in control without the required approval is a criminal offence. The FCA is explicit that under section 191F of FSMA it is a criminal offence to acquire or increase control without obtaining the regulator's approval, and that a person who does so may be liable to pay a fine.

Section 191F sets out the penalties. For the relevant offences a person is liable on summary conviction to a fine not exceeding the statutory maximum. For a prohibited acquisition the offence can be tried on indictment, carrying imprisonment for a term not exceeding two years, or a fine, or both. Beyond the criminal exposure, the regulator has powers to restrict the voting rights attached to shares acquired without approval and, in serious cases, to require their sale.

The practical message is simple. Notify first, obtain approval, then complete. Acquirers who leave the filing late, misjudge which threshold applies, or overlook aggregation across a group or an acting in concert arrangement can find a deal blocked, unwound or exposed to enforcement. Early scoping avoids all of it.

Conclusion

The FCA change in control regime is built on a single principle: control over an authorised firm cannot change hands without the regulator's prior approval. The section 178 notice must go in before completion, the relevant thresholds of 10, 20, 30 and 50 percent decide when it is needed, and the 60 working day assessment period, extendable by one interruption of up to 20 or 30 working days, sets the pace. Completing without approval is a criminal offence under section 191F.

For anyone buying into, restructuring or investing in an FCA authorised business, the safest path is to confirm the firm type, map the controllers including any group parents and acting in concert holdings, and file a complete notice early. If you are planning a transaction and want help scoping the filing, explore how Nasara Connect supports FCA authorisation and change in control.

Frequently asked questions