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FCA Change in Control – an integral part of M&A

FCA Change in Control – an integral part of M&A

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Entities and individuals taking a stake in an FCA regulated firm are faced with a multitude of tasks, from due diligence, legal and tax considerations and logistical and business decisions. Among these, it is often the case that FCA approval is required before the acquisition can be finalised, and this process should be factored into the overall timing.

The FCA process is called a change in control and is sometimes referred to as a ‘Section 178’ application (named after the relevant section of the Financial Services and Markets Act). It applies whenever a minimum holding threshold, for example 10%, applies. It also sometimes applies where control is increased through a certain threshold, for example 20%, 30% or 50%.

The process involves submitting forms and backing documentation covering various aspects. Dependent upon the status of the target firm and the acquirer, the information requirements may include:

  • Background behind the change in control;
  • Identity of the controller, including group structure and the demonstration of solvency and fitness and propriety;
  • Information on directors/officers of a corporate controller;
  • Information about the transaction including the impact on the target firm, market sensitivity and acquisition funding; and
  • A business plan containing, for instance, a strategic developmental plan, due diligence report and forecasted financial statements.

The FCA has up to 60 days (excluding any interruption period) to process the application. However the time taken to process can vary – in December 2022, the FCA announced that they were experiencing processing delays including up to 4 weeks to allocate an application to a case officer. The FCA also stated that it’s important for an application to be as complete as possible to avoid further delays. Oftentimes, firms seek professional assistance with this process.

Once approval has been granted, the FCA will request that they are notified as soon as the change in control has taken place. This means that certain actions, such as signing heads of terms, can be enacted post-FCA approval.

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  • May 4, 2023

Navigating Change in Control: Submitting an Application to the FCA

business plan fca change in control

Introduction:

In the ever-evolving landscape of the financial industry, change is inevitable. When a change in control of a regulated firm takes place, it is essential to ensure compliance with regulatory requirements to maintain the integrity of the financial system. The Financial Conduct Authority (FCA) plays a pivotal role in overseeing these changes and safeguarding the interests of consumers and the market as a whole. In this blog, we will delve into the process of submitting a Change in Control (CiC) application to the FCA, outlining the key steps and considerations to help businesses navigate this crucial regulatory requirement.

Understanding Change in Control: Before diving into the application process, it's crucial to grasp the concept of Change in Control. It refers to any alteration in the ownership or control of a regulated firm that may have significant implications for its operation, governance, or risk profile. Examples include mergers, acquisitions, disposals, and transfers of controlling interests.

Identify Regulatory Thresholds: The FCA has established thresholds that determine when a Change in Control application must be submitted. It is vital to assess whether the proposed change triggers these thresholds. Thresholds may vary based on factors such as the type of authorization held by the firm and the nature of the proposed change. A careful analysis of the FCA's Handbook and regulatory guidance will help determine the applicable thresholds.

Prepare a Comprehensive Application: Submitting a well-prepared and comprehensive application is crucial to ensure a smooth process with the FCA. The application should include detailed information about the proposed change, the acquiring party, and any individuals who will assume significant roles within the regulated firm. The FCA expects a comprehensive business plan, details of financing arrangements, and an assessment of the impact on the firm's risk profile and compliance with regulatory requirements.

Engage in Pre-Application Dialogue: Engaging in pre-application dialogue with the FCA can be immensely beneficial. The FCA encourages firms to discuss proposed changes in advance to clarify expectations, address concerns, and ensure that the application meets regulatory requirements. This dialogue can help identify potential areas of concern early on, saving time and effort during the application process.

Ensure Adequate Due Diligence: Robust due diligence is crucial for both the acquiring and target firms involved in a Change in Control transaction. The FCA places considerable importance on assessing the fitness and propriety of individuals assuming key roles within regulated firms. Thorough due diligence should be conducted to assess the reputation, competence, and regulatory history of the acquiring party and proposed individuals.

Provide Supporting Documentation: The application must be supported by relevant documentation, including legal agreements, financial statements, organizational charts, and any other information deemed necessary by the FCA. It is essential to ensure that all supporting documents are accurate, up-to-date, and aligned with the information provided in the application.

Cooperate and Communicate with the FCA: During the application process, open and transparent communication with the FCA is vital. Respond promptly to any requests for additional information or clarifications from the FCA, as delays in providing the requested details may prolong the application process. Cooperating with the FCA throughout the process demonstrates a commitment to regulatory compliance.

Review and Compliance Monitoring: Once the FCA has reviewed the application and granted approval, it is essential to review and implement any conditions or requirements specified in the decision notice. Establish robust compliance monitoring procedures to ensure ongoing adherence to regulatory obligations following the Change in Control.

Conclusion:

Submitting a Change in Control application to the FCA is a significant regulatory undertaking that requires careful preparation, attention to detail, and proactive engagement with the regulatory authority. By understanding the process, conducting thorough due diligence, and providing comprehensive and accurate information, regulated firms can navigate the Change in Control process smoothly and efficiently. Compliance with regulatory requirements not only ensures the integrity and stability of the financial system but also helps to build trust among consumers and market participants.

Engaging in pre-application dialogue and maintaining open communication with the FCA throughout the process are crucial steps to address any concerns or questions promptly. By demonstrating a commitment to regulatory compliance and cooperating with the FCA, firms can establish a positive working relationship with the regulatory authority.

Post-approval, it is essential to review and implement any conditions or requirements specified by the FCA. Establishing robust compliance monitoring procedures will help ensure ongoing adherence to regulatory obligations and mitigate potential risks.

Ultimately, submitting a Change in Control application to the FCA is a critical step in facilitating smooth transitions and maintaining regulatory compliance in the financial industry. By carefully following the application process, firms can navigate regulatory requirements with confidence and contribute to a resilient and transparent financial system that protects the interests of all stakeholders.

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Change in control – the FCA Supervision Review explained

The Financial Conduct Authority (FCA) must approve a financial advisory firm or client bank purchase before it can be finalised. This includes having processes and a plan in place, to ensure a smooth transition for acquired clients and firms.

Therefore, we think it’s really important to get under the skin of the buyer – to make sure no stone has been left unturned – and that all appropriate documentation has been implemented, to make the FCA approval process easier.

Try asking yourself the appropriate questions, and, if you don’t know what these are, seek professional advice!

Following the FCA’s Supervision Review, we’ve highlighted our key takeaways from the report…

Section 178 Notices

Individuals or companies that wish to acquire or increase control in a company – which the FCA regulates – must seek prior approval. Regulated firms are also obliged to notify the organisation of any proposed or actual changes in control immediately (see SUP 11.4 in the Handbook for further information).

In addition, it is a criminal offence under FSMA section 191F to:

  • Acquire or increase control without notifying the FCA first
  • Fail to obtain prior approval in such circumstances

Notifications for changes in control are known as Section 178 notices – as soon as you have made the decision to acquire partial or full control in an authorised business, you should send this directly to the FCA. This includes circumstances where a proposed controller decides not to take any action, to prevent or reduce its increase in control to below the relevant threshold.

The FCA has 60 working days (excluding any interruption period) to assess a change of control case. This period begins on the day your 178 notice has been acknowledged.

How do I submit my application?

If your organisation is regulated by the FCA only, the notification for changes can be sent using the online system ‘Connect’. Similarly, if you’re seeking to be a controller of a firm authorised under the Markets in Financial Instruments Directive (MiFID), you can also complete it digitally, via the MiFID version of the form.

Are you regulated by both the FCA and PRA? If so, you can send the notifications document to both regulators via post or email. Alternatively, you can use ‘Connect’ to submit the paperwork to the FCA, and then send to the PRA separately, via post or email.

What should I send?

In addition to the above, you should also send the following supporting documents:

Post-transaction structure charts CVs for individual controllers and directors/members of corporate controllers Proof and source of funding Accounts for corporate controllers Comprehensive business plan Negative disclosure supporting information/documents We hope this has been useful in helping you to better understand how to notify the FCA of any changes in control. If you have any questions or would like someone to support you through this process – to ensure you cover all bases – please feel free to get in touch with one of our helpful team members here.

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  • The FCA's 2022 Strategy and Business Plan: outcomes-based, cross-sector regulation

Authors: Simon Treacy, Duncan Campbell

The FCA's 2022 Strategy and Business Plan: outcomes-based, cross-sector regulation

The FCA's latest three-year Strategy commits the FCA to three high-level focus areas: reducing and preventing serious harm; setting and testing higher standards; and promoting competition and positive change.

Its latest Business Plan describes the activities it plans for the coming year within each of these areas.

In this note we highlight key points from both documents.

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The FCA's Change in Control notification process

In this article, we look at the intricacies of the FCA's change of control process.

1. Understanding the FCA Change of Control Process

The FCA Change of Control process is a regulatory framework established by the Financial Conduct Authority in the United Kingdom. Its primary objective is to oversee and regulate changes in ownership and control of financial services firms. Any change of control, whether through mergers, acquisitions, or other means, must be reported to the FCA for approval before the transaction can proceed.

2. Key Steps in the FCA Change of Control Process

a. Initial Assessment: The process begins with the acquiring firm, typically referred to as the applicant, submitting a comprehensive application to the FCA. This application should provide detailed information about the proposed change of control, including the parties involved, the structure of the transaction, and potential impacts on consumers and markets.

b. FCA Suitability Assessment: Upon receiving the application, the FCA conducts a thorough assessment to determine the suitability of the acquiring firm. This assessment includes an evaluation of the financial standing, reputation, and competence of both the acquiring firm and its key individuals.

c. Supervisory and Prudential Considerations: The FCA examines the impact of the change of control on the acquiring firm's compliance with relevant regulations and its ability to meet prudential standards. This evaluation ensures that the firm will continue to operate effectively and safely following the change in ownership.

d. Consumer Considerations: Protecting consumers' interests is paramount in the FCA Change of Control process. The FCA assesses whether the proposed change of control will have any adverse effects on customer service, continuity, and protection. Safeguards must be in place to address any potential risks to customers.

e. Approval or Modifications: Based on its assessment, the FCA will either approve the change of control application or propose modifications that need to be implemented for approval. The applicant must address any concerns raised by the FCA to secure the necessary approval.

3. Additional Considerations in the FCA Change of Control Process

a. Timing: It is essential to consider the timing of the change of control process, as the FCA requires timely notification and sufficient lead time to conduct the assessment. Early engagement with the FCA is recommended to avoid unnecessary delays.

b. Regulatory Co-operation: In certain cases, where the change of control involves firms regulated by multiple authorities, close cooperation between the FCA and other relevant regulators is necessary. This collaboration ensures a comprehensive assessment of the proposed change of control.

c. Ongoing Obligations: Following the change of control, the acquiring firm is responsible for complying with ongoing regulatory obligations, such as reporting requirements and maintaining adequate systems and controls. Non-compliance can result in penalties or other enforcement actions.

Here's how Buckingham Capital Consulting can help

Engaging the services of an expert consultant can greatly facilitate the FCA Change of Control process.

- Expertise and Guidance: we specialise in regulatory compliance and financial services and can provide invaluable expertise and guidance throughout the change of control process. We possess in-depth knowledge of the FCA's requirements and can navigate the complexities of the application and assessment procedures.

- Application Preparation: we can assist in preparing a comprehensive and well-structured application, ensuring all necessary information is included. We can help identify potential areas of concern and address them proactively, increasing the chances of a smooth approval process.

- Regulatory Assessment: we can conduct a thorough assessment of the acquiring firm's suitability, identifying any gaps or deficiencies that may hinder approval. We can provide guidance on strengthening compliance frameworks, addressing any regulatory issues, and improving overall suitability.

- Compliance Framework Enhancement: We can can help enhance the acquiring firm's compliance frameworks to align with the FCA's expectations. We can provide recommendations on governance structures, risk management systems, and internal controls to ensure ongoing regulatory compliance after the change of control.

- Liaison with the FCA: We can act as a liaison between the acquiring firm and the FCA, facilitating clear communication and timely exchange of information. We can address any queries or concerns raised by the FCA and help navigate any discussions or negotiations required during the assessment process.

- Ongoing Support: Even after the FCA's change of control is approved, we can continue to provide ongoing support to ensure the acquiring firm meets its regulatory obligations.

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A Change in Control Is More than Just a Standard Notification

July 12, 2021 by clare curtis.

The Financial Conduct Authority (“FCA”) recently released a Final Notice opposing the Change in Control (“CiC”) and therefore acquisition of Kimberly Forex UK Limited (“Kimberly Forex”) and the details within the FCA Final Notice were a good reminder that the CiC process is more than just a standard notification.

The CiC process requires the FCA to review and approve the CiC in advance of it happening by receiving a Section 178 Notice (“s178”) from the firms and / or individuals involved. Most importantly, failure to request FCA approval prior to executing the CiC is a criminal offence, regardless of any mitigating circumstances that led to the procedure not being correctly followed.

FCA Final Notice Ms Sherrie Jean Thackray of Kimberly Forex (now Transfer Gurus Limited)

The FCA published their Final Notice for the Kimberly Forex decision on the 11 th May 2021 and it can be found here: Final Notice 2021: Ms Sherrie Jean Thackray (fca.org.uk) .

To summarise, Ms Sherrie Jean Thackray acquired 100% ownership of Transfer Gurus Limited on September 1, 2019. This information was confirmed via Companies House records.

However, the FCA notes that Ms Thackray submitted the s178 Notice on the 25 th August 2020, almost a year after the acquisition. In her email dated 11 September 2020 Ms Thackray clarified that she “became 100% shareholder before receiving FCA approval”, therefore admitting to the breach. Also, the information provided within the s178 was incomplete with only the first three pages completed and the rest left blank, meaning the FCA could not make a determination on the application.

On 16 September 2020, the FCA explained the post notification implications to Ms Thackray, including that it is a criminal offence to acquire control without the FCA’s approval. Ms Thackray did not respond to this email or to the subsequent two emails sent on 29 th September and 13 th October 2020. The Final Notice stated that as of the date of publication no response had been forthcoming.

It is clear from reviewing the Final Notice that Ms Thackray undertook a CiC without making any consideration of the process, or attempting to work with the FCA on reaching a conclusion. Had the s178 been submitted in advance of the CiC occurring and had Ms Thackray worked with the FCA to meet their requirements, it is likely this outcome could have been avoided.

Effecta has noted that some firms within the industry are only raising the requirement to make a s178 notification to the FCA post event and are therefore committing a criminal offence without realising the magnitude of this oversight. It is Effecta’s opinion that this issue can be avoided with pre-planning and an increased awareness of the rules.

What is a Change in Control

Part XII of the Financial Services and Markets Act 2000 (“FSMA”), requires controllers to seek approval via a s178 Notice from the FCA before gaining or increasing control over a firm or becoming a parent undertaking of a firm, that is authorised by the FCA and/or PRA.

Thresholds for control are divided into the following threshold:

  • 10% or more but less than 20%
  • 20% or more but less than 30%
  • 30% or more but less than 50%
  • 50% or more

These bands apply to Directive firms, which are classed as:

  • a credit institution as defined in the Banking Consolidation Directive
  • a Markets in Financial Instruments Directive (MiFID) investment firm
  • an insurance firm under the Consolidated Life Directive or the First Non-Life Directive
  • a firm carrying on reinsurance under the Reinsurance Directive

These thresholds are also relevant to Payment Institutions and Electronic Money Institutions

The FCA have produced a quick reference guide for a Change in Control that can be found here: Controllers Quick Reference Guide for Case Officers (fca.org.uk)

Section 78 Notices

Applicants should send the FCA a notification for a CiC as soon as they have made the decision to acquire a control in an authorised firm. Making a decision to acquire control includes circumstances where a proposed controller acquiring control will move their control through one of the threshold bands.

The FCA have up to 60 working days (excluding any interruption period) to assess a change in control case. This period begins on the day the FCA acknowledge receipt of a complete Section 178 notice.

Non-Directive firms

For non-Directive firms (e.g. non-MiFID investment firms, general insurance intermediaries, full permission consumer credit firms and home finance providers and Alternative Investment Fund Managers) there is only one threshold and one band of ‘20% or more’.

The requirements for non-Directive firms come from the FSMA (Controllers) (Exemption) Order 2009, which says that firms should notify the FCA when a person has decided to acquire, increase, or cease control in a non-Directive firm. This includes acquiring:

  • 20% or more of the shares or voting power of the non-Directive firm
  • 20% or more of the share or voting power of the parent undertaking of the non-Directive firm
  • shares or voting power in the directive firm or its parent undertaking so that the person will be able to exercise significant influence in the non-Directive firm

Other thresholds

A single threshold of 33% applies to limited permission consumer credit firms.

No changes and decreases in control

If a firm are increasing or decreasing control within the  same  control band you do not need to notify the FCA, unless it is regarding a controller of a Directive firm and the increase will mean that the firm becomes a new parent undertaking of the authorised firm.

If the firm or individual changes the level of control and moves into a  lower  control band and no firm or individual moves into a higher band, a firm should still tell the FCA about the change beforehand via your supervisory contact (likely to be the FCA Contact Centre), but a s178 notice is not required to be submitted.

Procedures to follow when changing control

If a firm is only regulated by the FCA, it can submit notifications for changes in control using the FCA Connect system.  

If the firm is regulated by both the FCA and PRA, you should send notifications for changes in control to both regulators via post or email. Alternatively, you can use Connect to submit the forms to the FCA and send the forms separately via post or email to the PRA.

Please note that the guidance below is not an exhaustive list and there may be additional factors that need to be considered on a case-by-case basis.

Preparing your notification

A firm must identify all controllers of the authorised firm subject to the change in control, and submit section 178 notification forms for each of them.

A firm will also need to:

  • produce detailed ownership charts, explaining any close links and regulated entities
  • Produce a business plan, including any risks associated with the CiC and how these will be mitigated
  • identify current and potential conflicts of interest, and how these will be managed
  • provide evidence of any funding secured

The business plan should cover all key areas, for example:

Business to be undertaken:  This should include how a firm intends to run the business going forward and any planned changes to the regulated activities and strategy of the target firm(s) post CiC.

The FCA would also expect to see complete projected financials that explain how a firm will maintain your minimum capital requirements.

Governance:  Provide an overview of the firm’s governance arrangements, including Board composition and any Board sub-committees.

Staff:  Include an organisation chart that shows your current controllers and close links, including what business they conduct and whether they are regulated entities.

Outsourcing:  Are any areas of the business going to be outsourced and if so how will this be overseen.

Systems and controls / Risk Management:  Consider how the firm will identify and manage any conduct risks. Provide an overview of the firm’s financial crime controls, anti-money laundering procedures and due diligence processes.

*This is a non-exhaustive list and business plans should be considered on a case by case basis

Practical examples of where a change in control has been missed:

  • Changes to entities within the group structure made by a top level entity, which indirectly means a CiC occurs at the FCA authorised firm level, without the firm being aware;
  • An Individual buys or sells a relatively minor equity stake in a company but goes through a threshold – up or down (see above) e.g. 9% control increases to 11%;
  • Structure charts become outdated and it is only when reviewed internally by Compliance is it noted that CiC has occurred; and
  • Firms are aware of the CiC occurring but due to a lack of training believe a post notification event is the correct procedure when it is actually a criminal offence

How Effecta can help:

  • Review proposed structure changes at corporate or individual level to advise whether a CiC application should be submitted to the FCA;
  • Assist your firm to produce a business plan that covers all of the required areas and supports the full CiC application;
  • Work alongside your firm to prepare, submit and manage the entire CiC until the FCA decision is made;
  • If a post notification CiC does need to be submitted, we can work alongside your firm to address this issue to ensure it is has minimal impact rather than considered a criminal offence;
  • Provide training to staff on Change of Control rules and process and other areas of regulatory compliance; and
  • Provide a full Healthcheck of your firms structure and governance to ensure procedures are in place to allow for s178 notices to be submitted in good time and / or highlight s178 issues to be addressed.

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The FCA Business Plan: What does it mean from a governance perspective?

EMEA |  Publication |  June 2022

Earlier this year the Financial Conduct Authority ( FCA ) published its latest Business Plan. The Business Plan itself took a different form when compared to previous incarnations by having a shorter summary of priorities and planned activities and cross referring to other documents including the three-year strategy and the regulatory initiatives grid. Notwithstanding this, the Business Plan contained, as usual, a number of nuggets for firms which will help guide them on the regulator’s expectations in certain areas. Governance is clearly an area of focus for the FCA and the Business Plan contains both explicit comments which firms should take on board and references to the FCA’s own governance arrangements which may be of assistance to firms considering potential enhancements in this area. In this article we will cover both these types of comments.

Appointed Representatives: One of the key reforms this year will be the changes to the Appointed Representatives Regime (AR). The FCA has already published a consultation paper outlining its proposed reforms, the catalyst of which has been a concern that principal firms are not adequately overseeing the activities of their ARs leading to a risk that consumers are being mis-led and mis-sold. Improving oversight of ARs was a topic mentioned in the Business Plan and principal firms were reminded in the consultation that they must effectively oversee their ARs and ensure that they have appropriate governance arrangements, effective risk frameworks, internal controls and adequate resources.  Operational Resilience: The Business Plan also mentioned that whilst operational disruptions are inevitable, firms must be operationally resilient. An important part of any operational resilience strategy should focus on having effective governance arrangements in place. Having clear organisational direction, transparency over roles and responsibilities and effective internal co-ordination all lead to better resilience outcomes. Market Abuse: The Business Plan also spoke of the FCA delivering assertive action on market abuse and working to ensure that firms and issuers have robust controls in relation to inside information and to disclose it to the market in an accurate and timely way. Understanding what good governance over the control of market abuse risks looks like and implementing the requisite processes to manage this, is critical for senior managers. ESG: Unsurprisingly, the Business Plan referenced the FCA’s environmental, social, and governance (ESG) priorities and this included embedding consideration of ESG issues in the authorisation process. This includes considering factors such as D&I, the nature of the firm and the products and services to be offered and increasing supervisory focus on asset managers. Crypto-assets: In relation to crypto-assets, the FCA made the point in the Business Plan that the UK currently only regulates such assets for money laundering purposes but these assets are increasingly being adopted and incorporated into existing financial services.  As per its statement in March the FCA reminded firms that when interacting with or exposed to crypto-asset services they remain responsible for assessing the risks to their business and consumers.  As mentioned above, the FCA made a number of comments regarding its own governance arrangements which may also be applicable to firms. These include the FCA:

  • Noting that the Business Plan was being published when the external environment is changing rapidly and flagging its adaptive approach to allocating resources and monitoring performance to make it more agile and able to respond to market needs; respond to today’s challenges and prepare for those of tomorrow (such as by understanding the impacts of digital developments).
  • Recognising the need to use resources efficiently so the FCA has weighed the different outcomes it wants to achieve, looking at factors such as severity and probability of harm.
  • Framing its activities by reference to the outcomes they achieve rather than the processes it follows.
  • Committing to reporting publicly on outcomes and developing a set of metrics to be used to measure progress.
  • Investing in its capability to become a data-led regulator as part of its transformation programme and exploring how it can use technology such as AI and increasing resource in intelligence and analytics to help spot and track fraudulent activity.
  • Streamlining its decision-making process (so that the Regulatory Decisions Committee focusses on contentious enforcement cases) so it can act more decisively and swiftly.
  • Engaging with devolved administrations and having a Devolved Nations team, recognising that different areas of the UK often have different needs.
  • Challenging itself to find the limits of its powers.

Firms may find it useful to consider how they can incorporate and evidence similar approaches to governance in the context of their own businesses with a view to being in a better position to demonstrate compliance with the FCA’s expectations.  

Katie Stephen

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The FCA’s Business Plan continues to be heavily outcomes-focused and there is less sector-specific detail, revealing a conscious change of approach. It notes that the digitalisation of financial services brings profound changes in the way consumers make decisions and global markets operate, that the transition to a net zero economy will require an entirely different approach to markets and investment products, and that persistently low interest rates may lead to consumers taking excessive financial risk or broader systemic risks in wholesale markets.

The plan continues the theme that the current regulatory framework is overly focused on rules and process, and not enough on principles and outcomes. This sentiment is echoed by the addition of Consumer Duty to its existing four consumer priorities. The FCA sees too many resources devoted to redress and remediation, and not enough to empowering consumers to take good decisions and regulatory action to prevent harm and safeguard consumers’ financial wellbeing. We see this driving principle featuring prominently as the FCA continues its transformation programme.

In wholesale markets, the FCA continues its focus on market integrity with the LIBOR transition and prevention of market abuse and financial crime. With more freedom post-Brexit for the UK to tailor rules in the wholesale markets, there is a new focus on effectiveness in primary and secondary markets. In investment management and pensions, the FCA wants fair value and products that meet investors’ needs. It continues to work with the Bank of England and international bodies on the framework to manage liquidity in open ended funds, including money market funds. The FCA also wants improved oversight by principal (regulated) firms over their appointed representatives (ARs).

Unsurprisingly, the priorities across all markets include fraud, financial resilience and resolution, and operational resilience. New and significant entries are diversity and inclusion (within both the FCA and regulated firms) and environmental, social and governance (ESG) issues. The FCA’s international aims have shifted away from Brexit – other than ensuring firms exit smoothly from transitional arrangements – to global standard-setting, open markets and effective cross-border supervision. 

To ensure firms start with high standards and maintain them, the FCA will more intensively assess and scrutinise applicants’ financials and business models, but the application process will be more straightforward. It will also increase its oversight of newly authorised firms (a regulatory “nursery”) and of firms that are growing significantly.

The plan describes how the FCA’s role will change as it develops towards “a more innovative, assertive and adaptive approach”. Whilst these are laudable aims, it will represent a significant challenge for the FCA as it juggles a raft of other regulatory challenges. However, despite this, the FCA has also made a commitment to be more accountable with a promise to report on its progress against metrics to be determined.  

The FCA’s budget will increase by 4%, with the costs of ongoing regulatory activity (ORA) up 4.9%. The FCA appears to have removed its freeze on the fees paid by the smallest firms – a concession that had been in place for the last two years. This is a signal that the FCA is seeking to transition out of its pandemic measures, where appropriate. 

Highlights featured in this update:

Consumer priorities, wholesale markets priorities, cross-cutting priorities, transforming how the fca works and regulates.

Whilst the FCA continues the focus on its four strategic priorities from last year’s Business Plan, it acknowledges that the shape and scope of some of these priorities have changed to reflect changes in consumers’ finances and behaviour. Further, it has added the Consumer Duty initiative as a fifth priority, underlining the intended regulatory impact of the new duty, which is a “raising of the bar” in the treatment of customers. For further details, see KPMG’s paper on the potential impact of the new Consumer Duty.

1)    Enabling consumers to make effective financial decisions

The FCA has broadened out this priority to all consumers (last year it was limited to just investment consumers). However, the outcomes the FCA seeks have not fundamentally changed.

The FCA has made some progress, such as in looking to strengthen financial promotion rules and awareness of ScamSmart. The FCA’s next near-term priorities are:  

  • Publishing shortly its Consumer Investments Strategy (which will include how the FCA tackles firms and individuals who cause consumer harm) and a second data report, detailing the FCA’s work to protect consumers
  • Creating a “consumer investment coordination group” with the FSCS, the FOS and the Money and Pension Service (MaPS), to gather information on sharp practices and so better target interventions
  • Beginning a review of aspects of the rules on the scope and coverage of FSCS compensation

2)    Ensuring consumer credit markets work well The underlying outcomes for this priority are unaltered. In order to achieve these outcomes, the FCA will focus on :

  • How firms are providing tailored support to borrowers in financial difficulty
  • Reviewing its approach to the debt advice rules to help over-indebted consumers get high-quality advice
  • Bringing “Deferred Payment Credit” into its regulatory remit
  • Considering possible future changes in credit information markets where consumers can choose to use credit information to make better-informed decisions

3)    Making payments safe and accessible

The FCA has extended both the scope and remit of this priority, placing greater emphasis on consumer protection by ensuring access to payments services and the payments market being competitive and innovative – especially for smaller businesses. The FCA will:

  • Focus supervisory activity on ensuring payment services and e-money firms are financially robust and customers understand FCSC coverage 
  • Seek to continue to protect access to cash – particularly for consumers in vulnerable circumstances
  • Work with HMT to develop policy and recommendations on payments, e-money and crypto-assets

4)    Delivering fair value in a digital age 

The underlying outcomes for this priority are unaltered and much of the FCA’s activity will be a continuation of existing work. However, as it builds its digital markets strategy, it will develop a framework to identify and assess potential harms and benefits arising from the increasing digitalisation of financial services markets. In the meantime, the FCA will focus on:

  • Assessing the implementation of the GI pricing practices requirements (January 2022) by using firms’ reporting data to measure success, track market changes and identify firms that continue to engage in price walking
  • Continuing to assess the impact that digitalisation can have on competition to help ensure that digital financial services markets operate effectively to generate good customer outcome
  • Investigating practices, such as “sludge practices”, which make it difficult for consumers to cancel a product or service online

5)    Consumer Duty

This is a new priority driven from the FCA’s recent consultation on a New Consumer Duty, which signals a “paradigm shift in its expectations” of firms. Therefore, the impact of this publication cannot be under-estimated in terms of its regulatory intentions. The outcomes the FCA is seeking to achieve are that:

  • Communications equip consumers to make effective, timely and properly informed decisions
  • Products and services are specifically designed to meet consumers’ needs and sold to those whose needs they meet
  • Customer service meets the needs of consumers, enabling them to get the benefits of products and services and act in their interests without unnecessary barriers
  • The price of products and services represents fair value for consumers

The consultation closes on 31 July 2021 and the FCA will set the proposed new rules or guidance in a subsequent consultation at the end of 2021, with a view to finalising and introducing any new rules before end-July 2022. 

The FCA’s focus in relation to wholesale markets is widening from market integrity to also include market effectiveness and efficiency. The FCA highlights the ”gamefication’ of finance due to the digital access consumers now have to wholesale markets. Given that retail consumers do not have the same protections when accessing wholesale markets directly, it is important that wholesale firms must meet conduct obligations around conflicts of interest, price manipulation and information. 

1) Review of rules in primary and secondary markets

The rules framework supports the needs of investors and companies seeking to raise finance and manage risks through capital markets.

The focus is on improving the effectiveness of the markets. The FCA is consulting on amendments to the Listing rules, including recommendations for the Lord Hill’s UK Listing Review Report , and the proposed rules around special purpose acquisition vehicles (SPACs). The FCA is proposing to extend climate-related financial disclosures from premium listed companies to standard listed companies. In the secondary markets, the FCA is working with HM Treasury to simplify and improve the effectiveness of the on-shored MiFID II/ MIFIR regimes. 

2) LIBOR Transition

Firms and markets complete an orderly transition away from LIBOR to alternative risk-free rates, with customers treated fairly throughout this transition.

With the cessation of non-USD LIBOR at end-2021, the FCA will focus on using its powers to support an orderly transition (i.e. finalising the framework around the use of synthetic LIBOR). Firms should also expect increased monitoring of their transition plans by both the FCA and the PRA. 

3) Market abuse and financial crime

Firms effective in preventing market abuse and reducing the risks of financial crime

No new initiatives are announced, but the FCA will seek to measure the impact of its work in this area.

4) Asset management and non-bank finance

Firms to offer investors products that are fair value, meet their investment needs and offer an appropriate level of protection; marketing and disclosures to be fair, clear and not misleading 

Asset managers should manage liquidity in funds to avoid unnecessary risks to investors and market integrity

Enable investment in less liquid assets for those with a long-term investment view who can cope with the risk of these investments

The FCA will continue to focus on how asset managers ensure value for consumers, increase its supervisory focus on whether disclosures on ESG properties of funds are fair, clear and not misleading, and continue to seek to identify funds that are outliers to their peers (e.g. due to high fees). It will follow up the findings in its June report on governance weaknesses in host Authorised Fund Managers and its work with the Bank of England on liquidity management in open-ended funds and reform of money market funds. It will introduce the new “LTAF” structure, designed to accommodate relatively illiquid assets, and will decide whether to proceed with requirements for notice periods for open-ended property funds.

5) Pension products

Pension providers offer good value products, and consumers use guidance and support to help them make effective choices.

The FCA will be working with the Pensions Regulator (TPR) on reviewing how to best drive value for money in pensions. The FCA wants pension providers to offer good value products and consumers to be able to make effective choices. The FCA will also be consulting on changes for non-workplace pension providers to help ensure consumers are offered an appropriate default solution where they need it.

6) Appointed Representatives regime

Principals and ARs that are competent, financially stable and ensure fair outcomes for consumers when selling products or giving advice.

The FCA is concerned that the oversight of principal firms (which have regulatory permissions) over their appointed representatives (ARs) is not strong enough and leading to unfair outcomes for consumers. The FCA will increase its supervision in this area and consult on cross-sector changes to improve and strengthen elements of the AR regime – this may include fundamental legislative change.

The FCA notes that the seven priorities in the Plan that are across all markets are not exhaustive. It points readers to the Regulatory Initiatives Grid for more information.

1)    Fraud

The FCA’s focus will be on:

  • keeping fraudsters out of financial services at the gateway
  • stopping regulated firms from facilitating fraud
  • detecting and pursuing FCA-supervised and improperly unauthorised/ unapproved fraudsters
  • informing and empowering the public to protect themselves

It will conduct proactive surveillance and monitoring, use effective triage to prioritise, disrupt the work of fraudsters and identify the right intervention, remove FCA-supervised fraudsters from the financial system, and work closely with anti-fraud partners to maximise the collective fight against fraud. 

2)    Financial resilience and resolution

  • Firms to have appropriate capital, liquidity and reserves to cover outstanding redress liabilities, so they do not fail in a disorderly manner
  • Firms to hold financial resources proportionate to the potential harm caused if they do fail, reducing the level of FSCS pay-outs over time
  • Scale of compensation liabilities to stabilise in the medium-term and reduce longer-term as firms hold more capital and liquidity, and fewer cause misconduct that requires them to pay redress on a large scale

The FCA will support firms as they adapt to the new Investment Firms Prudential Regime (IFPR), strengthen its data-driven monitoring of the financial resilience of solo-regulated firms, target interventions at firms with weak financial resilience and those that are likely to cause material harm if they fail, continue work to automate and combine financial resilience data with other data on firms, review aspects of the compensation framework to ensure it remains appropriate and proportionate, and tackle the root causes of harm that create compensation liabilities.

3)    Operational resilience

Firms should be operationally resilient against multiple forms of disruption to minimise the harm caused to consumers and markets. Over time, the FCA would expect to see a reduction in the number, type, duration of incidents and the level of harm they cause. The FCA will assess firms’ progress in implementing its 2021 Policy Statement. From April 2022, it will assess how able firms are to remain within their impact tolerances.

4)    Diversity and inclusion

The FCA wants to improve its own diversity and inclusion so it has an inclusive working environment with diverse teams who are confident to share their experience and opinions, its people reflect the society it serves, and regulation supports improved outcomes for different groups in the population. For firms are:

  • Regulated firms and listed companies have more diverse representation at all levels
  • Regulated firms and listed companies foster cultures that are inclusive so that staff can share their diverse experiences and backgrounds
  • Firms design and deliver products that reflect the diverse needs of consumers, offer fair value and are delivered in a fair and accessible way

To support these three outcomes, the FCA expects to see better data collection by regulated firms. It will develop how it measures progress against these outcomes to ensure a consistent approach across financial services.

5)    Environment, social and governance (ESG)

  • High-quality climate- and sustainability-related disclosures to support accurate market pricing, helping consumers choose sustainable investments and drive fair value
  • Promote trust and protect consumers from mis-leading marketing and disclosure around ESG-related products
  • Regulated firms have governance arrangements for more complete and careful consideration of material ESG risks and opportunities
  • Active investor stewardship that positively influences companies’ sustainability strategies, supporting a market-led transition to a more sustainable future
  • Promote integrity in the market for ESG-labelled securities, supported by the growth of effective service providers – including providers of ESG data, ratings, assurance and verification service
  • Innovation in sustainable finance, making use of technology to bring about change and overcome industry-wide challenges

The FCA will:

  • Continue its “world-leading” work on TCFD-aligned disclosures for listed companies and asset managers/owners
  • Work to address concerns about greenwashing
  • Promote standardisation of wider ESG-related disclosures
  • Collaborate domestically with the government and industry
  • Monitor the exercise of investor stewardship by institutional investors
  • Gather market intelligence to gauge how well firms are supported by service providers (such as ESG rating providers)
  • Encourage innovation in sustainable finance
  • Enhance its role as a facilitator of sustainability in financial markets and firms by acting as a convener, agent of change and role model

6)    International

The FCA says it is committed to robust international standards, strong relationships with authorities around the globe and effective supervision of cross-border financial services. It will be an active member of international standard-setting bodies, participate in the IMF’s 2021 review of the UK, ensure smooth operation of the Temporary Permission Regime and engage with firms to ensure orderly exits from Brexit transitional arrangements.

7)    Market access, equivalence and trade negotiations

  • Future trade relationships that support open markets in a way that respects and promotes our objectives and ensures regulatory and supervisory autonomy
  • A domestic market access regime that addresses regulatory and supervisory risks from cross-border access, operates effectively post EU-withdrawal and recognises the benefits of open markets

The FCA will provide technical advice to trade negotiations and engage with HMT on its work on the UK’s overseas framework.

Nikhil Rathi, Chief Executive says, “We operate in a world of rapid and disruptive change. To be an effective regulator, we can’t just respond to today’s challenges. We need to prepare for those of tomorrow.” The Plan says that the FCA will be:

  • More innovative – taking advantage of data and technology to increase its ability to act decisively in the interests of consumers
  • More assertive – testing the limits of its powers and engaging with partners to make sure they bring their powers to bear
  • More adaptive – constantly learning and always adjusting its approach as consumer choices, markets, services and products evolve

It expects its approach and delivery of work to exhibit six traits: purposeful, professional, partnering, proactive, pace and pride. The plan does not provide explicit feedback against the four outcomes the FCA set itself last year, but it has set out its first strategic overarching outcomes and metrics to align with its transformation programme:

  • Setting the bar high to support sustainable innovation for consumers: publish the aggregate amount by which consumers benefit from its policy work to improve market outcomes.
  • Setting the bar high to support market integrity in wholesale markets: continue to monitor, and expect improvements in, its suite of market cleanliness statistics
  • Ensuring firms start with high standards and maintain them: monitor. refusal/withdrawal/rejection rates (expected to increase initially) and complaints about newly authorised firms (expected to reduce).
  • Using new approaches to find issues and harm faster: monitor the value and volume of FSCS claims.
  • Tackling misconduct to maintain trust and integrity: expect an initial increase as firms’ permissions are removed.
  • Enabling consumers to make informed financial decisions: expect a reduced number and proportion of calls to the FCA that need to be directed elsewhere and increased effectiveness of its ScamSmart campaigns.
  • Diversity and inclusion across the industry: monitor and set targets for itself and drive stronger outcomes across the industry.

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FCA intervenes on change in control

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Charlotte Hill

Daniel Hirschfield

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21 December 2022

On 12 September 2022, the FCA published a decision notice explaining its conditional approval of the proposed acquisition of Link Fund Solutions Ltd (LFS), a subsidiary of Link Group, by Dye and Durham. LFS managed the LF Woodford Equity Income Fund (WEIF). Since June 2019, the FCA has been investigating the circumstances relating to the suspension of the WEIF. Having concluded that it was likely that LFS could be required to pay a redress payment of up to £306 million, the FCA required the proposed controllers to agree to make available funds not exceeding £306 million to meet any shortfall within LFS to cover the redress payments it may be required to make.

Change in control regime

One of the stock-in-trades of a financial services lawyer is advising on change in control requirements for the acquisition or disposal of FCA or PRA authorised firms. The principal obligation in the change in control regime, which is set out in Part XII of the Financial Services and Markets Act 2000 (FSMA), is found in s.178 FSMA.  This requires a person who decides to acquire or increase control over a UK authorised firm to notify and obtain the prior consent of the relevant regulator before the change in control occurs. It is a criminal offence to fail to notify the regulator or to complete a transaction without the regulator's consent.

Control is determined on the basis of whether the controller holds shares or voting power in the authorised firm or a parent undertaking of the firm exceeding a particular threshold, which is determined on the basis of the activities the firm undertakes. A person can also be a controller if as a result of having power or shares in the authorised firm or a parent of the authorised firm if can exercise significant influence over the management of the UK authorised firm. The notification by the proposed controller to the regulator is referred to as a "s. 178 notice".

As part of its assessment of the proposed change in control, the regulator must assess the suitability of the proposed controller and the financial soundness of the acquisition in order to ensure the sound and prudent management of the UK authorised firm and must have regard to the likely influence of the proposed controller on the UK authorised firm; it is required to disregard the economic needs of the market.

The regulator may approve or reject the proposed acquisition.  If it approves the acquisition, then this will either be unconditionally or with conditions.  It is a criminal offence to proceed with an acquisition in breach of conditions that the regulator has imposed.

s. 187 FSMA sets out the basis on which the regulator can impose conditions.  It can only do so where if it did not, it would propose to object to the acquisition or there is direction from the FCA to the PRA or vice versa that approval of the transaction should not occur unless it is subject to conditions. 

s.185(3) FSMA provides that regulator may only object to an acquisition, if there are reasonable grounds for doing so on the basis of a number of prescribed matters (referred to as "assessment criteria") or if the information provided in the s.178 notice is incomplete.

What are the assessment criteria?

The assessment criteria are listed in s.186 FSMA and include factors such as the reputation and financial soundness of the s.178 notice giver, the ability of the FCA to supervise any group created that will be created as a result of the change in control, and whether there are any financial crime implications of the change in control.  s. 186(d) relates to whether the UK authorised firm will be able to comply with its prudential requirements (including the threshold conditions relating to all of the regulated activities for which it has permission).  This threshold condition includes the appropriate resources threshold condition, which is set out in paragraph 2D of Schedule 6 to FSMA.

LFS and prudential requirements

When assessing the proposed change in control, the FCA concluded that the total sum of redress that LFS would be required to pay may exceed its currently available resources.  This would put in danger its ability to comply with its prudential requirements (including the appropriate resources threshold condition).  The proposed controllers indicated to the FCA that while supportive of the unitholders of WEIF achieving redress, they were not at that time able to commit to provide LFS with the additional resources beyond its own resources, prior to the completion of the proposed acquisition to.  Consequently the FCA reached the view that there was an unacceptable risk that were the acquisition to complete, LFS would not be able to meet its prudential requirements (including the appropriate resources threshold condition) and there was as a result a significant risk to the sound and prudent management of LFS i.e. on the basis of the assessment criteria, it would have objected to the proposed acquisition.

To mitigate this risk, the FCA decided that the change in control should be approved subject to the condition that should LFS be required to pay redress and the amount of redress is greater than its available resources, monies will be made available to LFS by the proposed controllers to ensure that LFS can pay the shortfall.   As required by FSMA, the FCA communicated its decision to the proposed controllers by way of a warning notice. While the proposed controllers submitted representations to the FCA asserting that the FCA should not make the proposed acquisitional subject to conditions, the FCA decided it was nonetheless appropriate to do so. 

The acquisition did not in the end complete.  In an announcement to the market published on 20 October 2022, Link Group said that it intended to commence a process to "explore divestment options for the Link Fund Solutions business, which includes Link Fund Solutions Limited…".  Following the September decision notice, it is reasonable to assume that any future proposed acquirer is likely to face the same condition should the FCA require LFS to make redress payments and LFS is unable to pay these in full.

Financial Services and Markets Bill 2022/23

The Financial Services and Markets Bill 2022/23 ( Bill ) includes an amendment that will widen the regulators' ability to impose conditions.  In addition to the two existing grounds ((a) if the regulator did not impose conditions, it would object to the acquisition and (b) in response to directions from the other regulator), the regulator will also be able to impose conditions where it appears to the regulator that is desirable to impose the conditions in order to advance any of the regulator's objectives (subject to disregarding the economic needs of the market). 

The Bill is currently with the House of Lords having completed its committee and report stages and third reading in the House of Commons.  It is expected to get the Royal Assent in spring 2023.

Lessons learnt

The FCA's decision regarding LFS is a timely reminder that when it comes to determining a change in control application, the regulators have significant powers to attach conditions to any approval that they may give.  Proposed acquirers should undertake sufficient due diligence regarding the prudential requirements of any authorised firm, particularly where that firm may be under scrutiny from the regulators because of alleged historic misconduct.  While it is too early to assess the full impact of the proposed changes in the Bill, on paper it will widen the basis upon which a conditional approval may be given and therefore could lead to more conditional approvals.      

This article was first published in Law360.

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Change in Control

16 January 2023. Published by Whitney Simpson , Of Counsel

As early as possible in a corporate transaction, you or one of your team should check the Financial Services Register (the " FCA Register "). The FCA Register will reveal whether or not the entity or one of the entities in the group you are purchasing is an Prudential Regulatory Authority (" PRA ") and/or Financial Conduct Authority (" FCA ") authorised firm, the Buyer (and to a certain extent the Seller) will need to consider the Change in Control Regime under Part 12 of the Financial Services and Markets Act 2000 (" FSMA ").  What is the Change in Control Regime? Part 12 of FSMA sets out that persons who decide to acquire or increase control (i.e. changes in shareholding or voting rights above a certain threshold) in an authorised firm are obligated to notify the appropriate regulator of the proposed changes in control in that business.  This notification must be sought prior to the change in control in order to seek the FCA's prior approval.  It is a criminal offence if such persons proceed with the acquisition or increase in control without notifying or receiving approval from the appropriate regulator.  The process of notifying is contained in section 178 of FSMA.   In addition, any authorised firm that is subject to a change in control must notify the appropriate regulator about the change in control, and then also make a notification when the change of control has taken place.  This means that in practice if there is a change in ownership contemplated as part of a group restructuring, public takeover or private acquisition, approval must be received from the regulator before completion can take place.  When does the Change in Control Regime apply? By way of reassurance, not all changes in control will need to be notified to the appropriate regulator.  Banks, insurers, payment/electronic money institutions and investment firms follow the approach taken in the EU qualifying holdings regime under the Acquisitions Directive, which means that a person with a 10% (20%; 30%; or 50% or more) holding will be considered a controller.   For firms referred to as non-directive firms e.g. insurance intermediaries, consumer credit lenders the threshold for a controller is 20% or more. While limited permission consumer credit firms have a threshold of 33%.  Since 11 August 2022, registered cryptoasset firms also fall within the change in control regime if 25% or more of the business is being acquired.   Some authorised firms fall outside of the regime such as, open-ended investment companies, UCITS qualifiers and sole traders, and others benefit from an adapted version like fund managers.  Which regulator is deemed to be the appropriate regulator? The regulator who you will submit your section 178 notification to will depend on whether the authorised firm is authorised by the PRA or the FCA. If the firm is authorised by the PRA, the appropriate regulator is the PRA and for all other firms, the appropriate regulator will be the FCA.  A section 178 change in control notification  The obligation to complete and submit a change in control notification is on the Buyer, with the notification being made using the forms specified by the appropriate regulator.  The obligation is triggered once the Buyer "decides" to acquire or increase control over an authorised firm.  This generally means once a decision has been made. In the context of a share purchase sale, the FCA guidance states that notification will not usually be requires before the Buyer enters into an SPA, with the SPA including a condition to obtain change in control approval before the transaction completes. The FCA's forms are on its notification forms webpage and the PRA forms on its change in control webpage.  There are specific forms depending on the Buyer's legal status e.g. corporate controller form for limited company and limited liability partnership.  In addition, the form will be supported by a number of supplemental documents.  Once completed, the section 178 notification should be sent to the appropriate regulator via email to the allocated email address set out on the PRA and FCA webpages.   Assessment period The date the appropriate regulator acknowledges receipt marks the start of the assessment period. The appropriate regulator has 60 working days but if can interrupt the assessment period should it require further information and extend the assessment period by a further 20 working days. This interruption will "stop the clock", meaning that the assessment period will not start to run again until the appropriate regulator has received the information it requires.      Over the past few years, experience has shown that the regulators, particularly the FCA, have found it difficult to process notifications in a timely manner and some clients have found themselves waiting more than 6 months for approval.  The FCA has acknowledged this and provided updates to its own webpages relating to delays in allocating notifications. A December 2022 update to the FCA's website is now showing that notifications should be taking between 2 to 4 weeks to allocate to case officers. We are starting to see progress on this and will continue to monitor this issue. Some Top Tips when it comes to change in control notifications

  • What if there is more than one prospective controller?  If there is more than one prospective controller a notification must be submitted for each but there is no need to duplicate information already provided in another form.  One controller form can be treated as the base document and then there is opportunity to indicate on the other forms that this information is contained in that base document.  
  • Is a business plan needed? This obligation applies to individual, partnership and corporate controllers.  In addition, not all thresholds will trigger a business plan so make sure that you review the form carefully to see whether or not you need to account for the drafting of a business plan.  If a business plan is needed, make sure that it covers all minimum requirements noted in the section 178 form and provides sufficient detail on these areas.  You will ideally want to compile some of this information in cooperation with the authorised firm or its parent.  
  • Allow for sufficient time in your transaction plan as there could be delays to your schedule if the application is deemed incomplete. You should also factor in the time it takes to complete, submit and wait for the appropriate regulator's assessment when agreeing the Long Stop Date in the Purchase Agreement.  
  • In the Purchase Agreement, ensure that it contains conditions that need to be satisfied which set out the change in control process, Seller/Buyer obligations, each parties roles and timing expectations.  Completion of the Purchase Agreement should be conditional on receipt of the appropriate regulator's approval. 
  • Can a section 178 notification be submitted before a Purchase Agreement is signed?  Yes, it is possible to submit a notification prior to signing the Purchase Agreement with the Buyer enclosing a copy of the draft agreement.  However, the appropriate regulator may consider that the notification is incomplete or require it to be furnished with the final form of the Purchase Agreement in order to conclude its assessment period to ensure it has the full measure of the transaction.
  • What happens if the appropriate regulator requests further information?  If you receive requests for further information from the appropriate regulator, make sure that you respond to these as quickly as possible within the deadline set by the regulator.

business plan fca change in control

Change in control regime for cryptoasset businesses

As of 11 August 2022, the UK Financial Conduct Authority (FCA) has expanded its change in control regime to include FCA-registered cryptoasset businesses. An acquisition of more than 25% of a cryptoasset business now requires prior FCA approval. 

From 11 August 2022, a person wishing to acquire 'control' of a FCA-registered cryptoasset business, directly or indirectly, must receive prior FCA approval. A failure to obtain FCA approval if required to do so is now a criminal offence. This obligation arises by virtue of the new Regulation 60B and Schedule 6B to the UK's Money Laundering Regulations (MLRs), which apply Part 12 of the Financial Services and Markets Act 2000 (FSMA) to cryptoasset businesses, albeit with some modifications. The changes give the FCA the opportunity to undertake a 'fit and proper' assessment of the proposed controller, as well as the power to object to the transaction and to make its reasons for objecting public. 

A body corporate or partnership will be a "controller" if it falls within the definition of "beneficial owner" under the MLRs. This means a person who owns more than 25% of the shares or voting rights in the cryptoasset business, or otherwise has significant influence or control over the cryptoasset business or its management. A different test applies to proposed acquirers that are trusts or similar legal arrangements.

The FCA has also published new forms for proposed controllers of cryptoasset businesses, which are very closely aligned to the existing notices that proposed controllers of FCA-authorised firms must submit under section 178 of FSMA. The process will therefore involve significant information disclosure for proposed controllers as well as the preparation of a business plan where a 50%+ investment is concerned.    The MLRs already provide the FCA with the powers to refuse to register a cryptoasset firm and/or take steps to suspend or cancel the registration of a cryptoasset business if it is not satisfied that the firm/its beneficial owner is ‘fit and proper’. As it can take up to 90 days from the date of acquisition to cancel a firm’s registration, the FCA’s main concern was that unsuitable controllers could bypass the registration process under the MLRs by acquiring cryptoasset firms that were already registered. This would have potentially enabled controllers to undertake illicit activities before the FCA could take any action. Bringing cryptoasset businesses within the scope of the FCA’s change in control regime is expected to close this gap in the MLRs by: 

(i)    requiring proposed acquirers of cryptoasset firms to notify the FCA ahead of such acquisitions; 

(ii)    allowing the FCA to undertake a ‘fit and proper’ assessment of the acquirer; and

(iii)    providing the FCA with powers to object to any acquisition before it takes place and cancel registration of the firm being acquired.

As a result of this development, transactions involving cryptoasset businesses will now be subject to regulatory change in control conditions precedent, which will inevitably extend the deal timetable. The FCA has issued a public statement noting that its Change in Control team is also experiencing unprecedented delays, with an estimated delay of approximately one and a half months between submission of a complete notification and allocation to a case officer for assessment.

Anita Edwards (Professional Support Lawyer - Financial Services Regulatory, White & Case, London) co-authored this publication

White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.

This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

© 2022 White & Case LLP

Kristen DiLemmo

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  • United Kingdom
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Financial Conduct Authority

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SYSC 13.8 External events and other changes

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The exposure of a firm to operational risk may increase during times of significant change to its organisation, infrastructure and business operating environment (for example, following a corporate restructure or changes in regulatory requirements). Before, during, and after expected changes, a firm should assess and monitor their effect on its risk profile, including with regard to:

untrained or de-motivated employees or a significant loss of employees during the period of change, or subsequently;

inadequate human resources or inexperienced employees carrying out routine business activities owing to the prioritisation of resources to the programme or project;

process or system instability and poor management information due to failures in integration or increased demand; and

inadequate or inappropriate processes following business re-engineering.

A firm should establish and maintain appropriate systems and controls for the management of the risks involved in expected changes, such as by ensuring:

the adequacy of its organisation and reporting structure for managing the change (including the adequacy of senior management oversight);

the adequacy of the management processes and systems for managing the change (including planning, approval, implementation and review processes); and

the adequacy of its strategy for communicating changes in systems and controls to its employees .

Unexpected changes and business continuity management

SYSC 3.2.19 G provides high level guidance on business continuity. This section provides additional guidance on managing business continuity in the context of operational risk.

The high level requirement for appropriate systems and controls at SYSC 3.1.1 R applies at all times, including when a business continuity plan is invoked. However, the FCA 1 recognises that, in an emergency, a firm may be unable to comply with a particular rule and the conditions for relief are outlined in GEN 1.3 (Emergency).

A firm should consider the likelihood and impact of a disruption to the continuity of its operations from unexpected events. This should include assessing the disruptions to which it is particularly susceptible (and the likely timescale of those disruptions) including through:

loss or failure of internal and external resources (such as people, systems and other assets);

the loss or corruption of its information; and

external events (such as vandalism, war and "acts of God").

A firm should implement appropriate arrangements to maintain the continuity of its operations. A firm should act to reduce both the likelihood of a disruption (including by succession planning, systems resilience and dual processing); and the impact of a disruption (including by contingency arrangements and insurance).

A firm should document its strategy for maintaining continuity of its operations, and its plans for communicating and regularly testing the adequacy and effectiveness of this strategy. A firm should establish:

formal business continuity plans that outline arrangements to reduce the impact of a short, medium or long-term disruption, including:

resource requirements such as people, systems and other assets, and arrangements for obtaining these resources;

the recovery priorities for the firm's operations; and

communication arrangements for internal and external concerned parties (including the FCA , clients 2 and the press);

escalation and invocation plans that outline the processes for implementing the business continuity plans, together with relevant contact information;

processes to validate the integrity of information affected by the disruption; and 2

processes to review and update (1) to (3) following changes to the firm's operations or risk profile (including changes identified through testing).

The use of an alternative site for recovery of operations is common practice in business continuity management. A firm that uses an alternative site should assess the appropriateness of the site, particularly for location, speed of recovery and adequacy of resources. Where a site is shared, a firm should evaluate the risk of multiple calls on shared resources and adjust its plans accordingly.

business plan fca change in control

Create a form in Word that users can complete or print

In Word, you can create a form that others can fill out and save or print.  To do this, you will start with baseline content in a document, potentially via a form template.  Then you can add content controls for elements such as check boxes, text boxes, date pickers, and drop-down lists. Optionally, these content controls can be linked to database information.  Following are the recommended action steps in sequence.  

Show the Developer tab

In Word, be sure you have the Developer tab displayed in the ribbon.  (See how here:  Show the developer tab .)

Open a template or a blank document on which to base the form

You can start with a template or just start from scratch with a blank document.

Start with a form template

Go to File > New .

In the  Search for online templates  field, type  Forms or the kind of form you want. Then press Enter .

In the displayed results, right-click any item, then select  Create. 

Start with a blank document 

Select Blank document .

Add content to the form

Go to the  Developer  tab Controls section where you can choose controls to add to your document or form. Hover over any icon therein to see what control type it represents. The various control types are described below. You can set properties on a control once it has been inserted.

To delete a content control, right-click it, then select Remove content control  in the pop-up menu. 

Note:  You can print a form that was created via content controls. However, the boxes around the content controls will not print.

Insert a text control

The rich text content control enables users to format text (e.g., bold, italic) and type multiple paragraphs. To limit these capabilities, use the plain text content control . 

Click or tap where you want to insert the control.

Rich text control button

To learn about setting specific properties on these controls, see Set or change properties for content controls .

Insert a picture control

A picture control is most often used for templates, but you can also add a picture control to a form.

Picture control button

Insert a building block control

Use a building block control  when you want users to choose a specific block of text. These are helpful when you need to add different boilerplate text depending on the document's specific purpose. You can create rich text content controls for each version of the boilerplate text, and then use a building block control as the container for the rich text content controls.

building block gallery control

Select Developer and content controls for the building block.

Developer tab showing content controls

Insert a combo box or a drop-down list

In a combo box, users can select from a list of choices that you provide or they can type in their own information. In a drop-down list, users can only select from the list of choices.

combo box button

Select the content control, and then select Properties .

To create a list of choices, select Add under Drop-Down List Properties .

Type a choice in Display Name , such as Yes , No , or Maybe .

Repeat this step until all of the choices are in the drop-down list.

Fill in any other properties that you want.

Note:  If you select the Contents cannot be edited check box, users won’t be able to click a choice.

Insert a date picker

Click or tap where you want to insert the date picker control.

Date picker button

Insert a check box

Click or tap where you want to insert the check box control.

Check box button

Use the legacy form controls

Legacy form controls are for compatibility with older versions of Word and consist of legacy form and Active X controls.

Click or tap where you want to insert a legacy control.

Legacy control button

Select the Legacy Form control or Active X Control that you want to include.

Set or change properties for content controls

Each content control has properties that you can set or change. For example, the Date Picker control offers options for the format you want to use to display the date.

Select the content control that you want to change.

Go to Developer > Properties .

Controls Properties  button

Change the properties that you want.

Add protection to a form

If you want to limit how much others can edit or format a form, use the Restrict Editing command:

Open the form that you want to lock or protect.

Select Developer > Restrict Editing .

Restrict editing button

After selecting restrictions, select Yes, Start Enforcing Protection .

Restrict editing panel

Advanced Tip:

If you want to protect only parts of the document, separate the document into sections and only protect the sections you want.

To do this, choose Select Sections in the Restrict Editing panel. For more info on sections, see Insert a section break .

Sections selector on Resrict sections panel

If the developer tab isn't displayed in the ribbon, see Show the Developer tab .

Open a template or use a blank document

To create a form in Word that others can fill out, start with a template or document and add content controls. Content controls include things like check boxes, text boxes, and drop-down lists. If you’re familiar with databases, these content controls can even be linked to data.

Go to File > New from Template .

New from template option

In Search, type form .

Double-click the template you want to use.

Select File > Save As , and pick a location to save the form.

In Save As , type a file name and then select Save .

Start with a blank document

Go to File > New Document .

New document option

Go to File > Save As .

Go to Developer , and then choose the controls that you want to add to the document or form. To remove a content control, select the control and press Delete. You can set Options on controls once inserted. From Options, you can add entry and exit macros to run when users interact with the controls, as well as list items for combo boxes, .

Adding content controls to your form

In the document, click or tap where you want to add a content control.

On Developer , select Text Box , Check Box , or Combo Box .

Developer tab with content controls

To set specific properties for the control, select Options , and set .

Repeat steps 1 through 3 for each control that you want to add.

Set options

Options let you set common settings, as well as control specific settings. Select a control and then select Options to set up or make changes.

Set common properties.

Select Macro to Run on lets you choose a recorded or custom macro to run on Entry or Exit from the field.

Bookmark Set a unique name or bookmark for each control.

Calculate on exit This forces Word to run or refresh any calculations, such as total price when the user exits the field.

Add Help Text Give hints or instructions for each field.

OK Saves settings and exits the panel.

Cancel Forgets changes and exits the panel.

Set specific properties for a Text box

Type Select form Regular text, Number, Date, Current Date, Current Time, or Calculation.

Default text sets optional instructional text that's displayed in the text box before the user types in the field. Set Text box enabled to allow the user to enter text into the field.

Maximum length sets the length of text that a user can enter. The default is Unlimited .

Text format can set whether text automatically formats to Uppercase , Lowercase , First capital, or Title case .

Text box enabled Lets the user enter text into a field. If there is default text, user text replaces it.

Set specific properties for a Check box .

Default Value Choose between Not checked or checked as default.

Checkbox size Set a size Exactly or Auto to change size as needed.

Check box enabled Lets the user check or clear the text box.

Set specific properties for a Combo box

Drop-down item Type in strings for the list box items. Press + or Enter to add an item to the list.

Items in drop-down list Shows your current list. Select an item and use the up or down arrows to change the order, Press - to remove a selected item.

Drop-down enabled Lets the user open the combo box and make selections.

Protect the form

Go to Developer > Protect Form .

Protect form button on the Developer tab

Note:  To unprotect the form and continue editing, select Protect Form again.

Save and close the form.

Test the form (optional)

If you want, you can test the form before you distribute it.

Protect the form.

Reopen the form, fill it out as the user would, and then save a copy.

Creating fillable forms isn’t available in Word for the web.

You can create the form with the desktop version of Word with the instructions in Create a fillable form .

When you save the document and reopen it in Word for the web, you’ll see the changes you made.

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IMAGES

  1. The FCA Business Plan & Strategy 2022 A Change in Regulatory Style

    business plan fca change in control

  2. On 15 July 2021, Nikhil Rathi unveiled his first Business Plan as the

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  3. Introducing the FCA business plan 2020/21 and assessing the impact on

    business plan fca change in control

  4. What is the Change Control Process & How Can it Benefit Your

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  5. FCA Business Plan and Priorities

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  6. The FCA Business Plan & Strategy 2022

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COMMENTS

  1. Change in Control

    Section 178 notices Notifications for changes in control are known as Section 178 notices. You should notify us when you've made a decision to acquire or increase control in an authorised firm.

  2. FCA Change in Control

    The FCA process is called a change in control and is sometimes referred to as a 'Section 178' application (named after the relevant section of the Financial Services and Markets Act). It...

  3. FCA Compliance FCA Changes in Control: In-depth Analysis.

    The FCA process is called a change in control and is sometimes referred to as a 'Section 178' application (named after the relevant section of the Financial Services and Markets Act). It applies whenever a minimum holding threshold, for example 10%, applies.

  4. Navigating Change in Control: Submitting an Application to the FCA

    The FCA expects a comprehensive business plan, details of financing arrangements, and an assessment of the impact on the firm's risk profile and compliance with regulatory requirements. ... Submitting a Change in Control application to the FCA is a significant regulatory undertaking that requires careful preparation, attention to detail, and ...

  5. New FCA webpage

    The FCA states that some change in control notifications take longer because the business plan is not detailed enough. To help firms, the FCA has published a business plan contents template which provides that the following sections should be included: business to be undertaken.

  6. Change in control

    The FCA has 60 working days (excluding any interruption period) to assess a change of control case. This period begins on the day your 178 notice has been acknowledged. How do I submit my application? If your organisation is regulated by the FCA only, the notification for changes can be sent using the online system 'Connect'.

  7. The FCA's 2022 Strategy and Business Plan: outcomes-based ...

    The FCA's latest three-year Strategy commits the FCA to three high-level focus areas: reducing and preventing serious harm; setting and testing higher standards; and promoting competition and positive change. Its latest Business Plan describes the activities it plans for the coming year within each of these areas. In this note we highlight key points from both documents.

  8. The FCA's Change in Control notification process

    The FCA Change of Control process is a regulatory framework established by the Financial Conduct Authority in the United Kingdom. Its primary objective is to oversee and regulate changes in ownership and control of financial services firms. Any change of control, whether through mergers, acquisitions, or other means, must be reported to the FCA ...

  9. A Change in Control Is More than Just a Standard Notification

    The FCA have up to 60 working days (excluding any interruption period) to assess a change in control case. This period begins on the day the FCA acknowledge receipt of a complete Section 178 notice.

  10. The FCA Business Plan: What does it mean from a governance perspective

    Market Abuse: The Business Plan also spoke of the FCA delivering assertive action on market abuse and working to ensure that firms and issuers have robust controls in relation to inside information and to disclose it to the market in an accurate and timely way. Understanding what good governance over the control of market abuse risks looks like ...

  11. FCA Business Plan

    July 2021. The FCA's Business Plan continues to be heavily outcomes-focused and there is less sector-specific detail, revealing a conscious change of approach. It notes that the digitalisation of financial services brings profound changes in the way consumers make decisions and global markets operate, that the transition to a net zero economy ...

  12. FCA intervenes on change in control

    The assessment criteria are listed in s.186 FSMA and include factors such as the reputation and financial soundness of the s.178 notice giver, the ability of the FCA to supervise any group created that will be created as a result of the change in control, and whether there are any financial crime implications of the change in control. s.

  13. Change in Control

    Part 12 of FSMA sets out that persons who decide to acquire or increase control (i.e. changes in shareholding or voting rights above a certain threshold) in an authorised firm are obligated to notify the appropriate regulator of the proposed changes in control in that business.

  14. Change in control regime for cryptoasset businesses

    As of 11 August 2022, the UK Financial Conduct Authority (FCA) has expanded its change in control regime to include FCA-registered cryptoasset businesses. An acquisition of more than 25% of a cryptoasset business now requires prior FCA approval. From 11 August 2022, a person wishing to acquire 'control' of a FCA-registered cryptoasset business ...

  15. Submit a change in control notification

    If your strong is only regulated by the FCA, you can submit notifications for changed in control using our online system Connect.. If is firm is regulated by both the FCA both PRA, you must send declarations for changes in tax the bot regulators via post or email, using the detailed into the forms on the change for control notification forms page. . Alternatively, you can use Connect to submit ...

  16. Change in Control

    A section 178 change in control notification. The obligation to complete and submit a change in control notification is on the Buyer, with the notification being made using the forms specified by ...

  17. FCA Business Plan 2022/23

    The Financial Conduct Authority have published their Business Plan for 2022/23. David Morrey explains what it means for businesses, and shares own our sector-specific guide. The Financial Conduct Authority (FCA) Business Plan for 2022/23 takes a different form to its predecessors. It's a shorter summary of priorities and planned activity that ...

  18. SYSC 13.8 External events and other changes

    A firm should establish and maintain appropriate systems and controls for the management of the risks involved in expected changes, such as by ensuring: (1) the adequacy of its organisation and reporting structure for managing the change (including the adequacy of senior management oversight); (2)

  19. FCA Business Plan 21/22

    The FCA is planning to consult on policy changes on debt advice before the end of 2021, whilst continuing to monitor firms and their ongoing treatment of customer in arrears. High-cost credit remains high on the FCA agenda, especially as many consumers use this type of borrowing as they are excluded from mainstream lending.

  20. Create a form in Word that users can complete or print

    Options let you set common settings, as well as control specific settings. Select a control and then select Options to set up or make changes. Set common properties. Select Macro to Run on lets you choose a recorded or custom macro to run on Entry or Exit from the field.