UK financial regulators issue guidance on authorised person changes in control

Financial services experts Elizabeth Budd and Josie Day were commenting after the joint policy statement (PS18/24) - PS18/24 – Supervisory statement – Prudential assessment of acquisitions and increases in control | Bank of England - was published.

The guidance is to assist potential controllers of an FCA or PRA authorised person better understand the regulators’ expectations for identifying controllers and the change in control process.

Josie Day, financial services expert at Pinsent Masons, said: “The new guidance in the policy statement replaces previous EU guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector. The UK regulators’ new guidance contains clarifications and their approach to use of their new power to impose conditions when approving a change in control to advance any of the relevant regulator’s objectives.”

The new guidance clarifies concepts in the change of control process for UK authorised persons relevant to identifying controllers for the purposes of the Financial Services and Markets Act 2000 (FSMA).

Under the act, a controller is a person who holds 10% or more of the shares in a UK-authorised firm or its parent undertaking, 10% or more of the voting power, or shares or voting power that allows them to exercise significant influence over the management of the authorised firm.

The new guidance gives clarity on significant influence, aggregation of holdings, acting in concert and on how control may arise within limited partnership structures. They have also explained their expectations in relation to the change in control notification and their approach for assessing the proposed acquisition.

In doing so the FCA and PRA explain that they may contact relevant UK authorities and non-UK regulators to request information relating to the statutory criteria in FSMA they assess in respect of the potential change in control.

The regulators’ clarification of “significant influence” aims to make clearer that such influence extends to directing or influencing decisions of the authorised firm’s board, not just being on the board of the authorised firm or its parent.

Annex 1 of both the PRA’s new supervisory statement and the FCA’s non-handbook guidance give example diagrams of how a controller relationship may arise in practice, to show how they expect those seeking to acquire or increase control are to identify controllers for FSMA purposes. Both regulators note that their illustrative guidance is not exhaustive.  In Annex 2 of their guidance the regulators provide further guidance on acting in concert. 

Elizabeth Budd, financial services expert at Pinsent Masons, said: “This guidance will assist potential controllers to prepare robust and complete applications including ensuring that not only all controllers are correctly identified but also that any supporting material is submitted up front.”

“Obtaining change in control approval as part of a transaction in the financial services sector is always a significant hurdle with deals often requiring a split completion conditional on that approval being granted. The application is usually submitted shortly after signing and then it is a matter of weeks if not months as the regulators assess the would-be controllers. Where the buyer includes PE fund structures identifying who is the controller is rarely straightforward,” said Budd.