FCA Change of Control Application: Navigating FCA Approval for Ownership Changes

FCA Change of Control Application: Navigating FCA Approval for Ownership Changes

When ownership or control of a regulated firm changes, FCA approval is mandatory. Whether you're acquiring a payment institution, EMI, bank, or other regulated firm, or you're the firm experiencing ownership change, understanding change of control requirements is critical. The FCA's Section 178 approval process is rigorous, invasive, and often takes three to six months or longer.

For acquirers, failure to obtain approval before completing a transaction is a criminal offence carrying potential imprisonment and unlimited fines. For regulated firms, failing to notify the FCA of potential change of control is a regulatory breach. The stakes are high, and the process demands careful management.

What Constitutes Change of Control

Change of control occurs when a person or group of persons acting in concert acquires or increases control over a regulated firm. Control thresholds are defined at 10%, 20%, 30%, and 50% of shares or voting power, or the ability to exercise significant influence over management.

The key test isn't just shareholding. The FCA examines whether you can exercise significant influence over the firm's management, even if your shareholding falls below the formal thresholds. This means shareholder agreements, board representation, veto rights, and other control mechanisms all matter.

For groups of persons acting in concert, the FCA aggregates their interests. If multiple parties coordinate their actions, they're treated as a single controller for change of control purposes, even if individually they fall below thresholds.

The Section 178 Approval Process

Anyone proposing to acquire or increase control must notify the FCA in writing before acquiring control. The FCA has 60 working days to assess the application, extendable by 30 working days if additional information is needed, and a further 20 working days in exceptional cases. In practice, applications often take three to six months.

During assessment, the FCA evaluates whether the proposed controller is fit and proper to have control, whether the acquisition would undermine sound and prudent management of the firm, and whether the acquisition might affect the FCA's ability to supervise the firm effectively.

If the FCA objects to the proposed acquisition, it can issue a warning notice and ultimately a decision notice prohibiting the acquisition. If an acquisition completes without approval or despite objection, the FCA can impose restrictions on the firm, require shares to be sold, or take enforcement action against the acquirer.

What the FCA Assesses

The FCA's assessment focuses on the proposed controller's fitness and propriety. This includes reputation including any regulatory breaches, convictions, or adverse findings, financial soundness demonstrated through financial resources and stability, and competence and capability based on experience and expertise relevant to the firm's business.

For corporate controllers, the FCA examines the controller's own business and financial position, the controller's group structure and related parties, the controller's regulatory history across all jurisdictions, the controller's strategic intentions for the regulated firm, and how the controller will ensure the firm maintains adequate resources and sound management.

The FCA also assesses the acquisition's impact on the regulated firm. Will the firm maintain adequate financial resources post-acquisition? Will governance and management remain appropriate? Will the FCA's supervisory access be preserved? Will any conflicts of interest arise?

Recent Regulatory Changes

The FCA updated change of control guidance in 2024 reflecting lessons from problematic acquisitions. Key changes include enhanced scrutiny of private equity and financial sponsor acquirers, particularly those with limited operational involvement in regulated firms, closer examination of group structures and related party relationships where controllers have complex corporate structures, increased focus on the controller's strategic intentions and whether they understand the regulated firm's obligations, and greater emphasis on demonstrating adequate financial commitment particularly where acquisitions are leveraged.

The FCA has also become more willing to object to acquisitions where controllers have poor regulatory track records, where business plans appear unrealistic or inconsistent with regulatory obligations, or where governance arrangements post-acquisition are inadequate.

Special Considerations for Different Firm Types

For payment institutions and EMIs, the FCA examines whether the controller understands payment services or e-money requirements, whether the controller will maintain adequate safeguarding arrangements, whether financial crime controls will remain robust, and whether the controller's business model aligns with regulatory obligations.

For banks, additional PRA approval is required. The PRA assesses safety and soundness implications including whether the bank will maintain adequate capital and liquidity, whether the controller could undermine prudential management, and whether group structures create contagion risks.

Dual-regulated firms face both FCA and PRA assessments, which must be coordinated. Applications to one regulator must be copied to the other, and both must approve before the acquisition can complete.

Timing and Transaction Structure

Change of control applications should be submitted well before intended completion dates. The 60-working-day statutory period excludes time for additional information requests, which are routine. Budget three to six months minimum from application submission to approval.

Transaction documents should condition completion on FCA approval. Attempting to structure transactions to avoid change of control requirements is viewed extremely unfavourably by the FCA and risks both transaction failure and enforcement action.

Some transactions involve staged acquisitions, acquiring control in steps. Each step crossing a control threshold requires separate notification and approval. The FCA assesses whether staged structures are genuine or designed to circumvent scrutiny.

Documentation Requirements

Change of control applications require extensive documentation. Section 178 notice must identify the proposed controller, specify the level of control being acquired, and explain the proposed controller's intentions for the firm.

Supporting documentation includes detailed personal or corporate information on the proposed controller, financial information demonstrating the controller's soundness, business plan for the regulated firm post-acquisition, governance arrangements showing how the firm will be managed, and funding information explaining how the acquisition will be financed.

For corporate controllers, group structure charts, ultimate beneficial ownership information, financial statements, and details of all related parties must be provided. The FCA examines the entire corporate group, not just the immediate acquiring entity.

The Firm's Role

The regulated firm must cooperate fully with the FCA's assessment. This includes providing information about current operations and performance, assessing the proposed controller's suitability, explaining how the acquisition will affect operations, and confirming that post-acquisition resources and governance will be adequate.

Firms that fail to engage constructively with the FCA's assessment, or that provide inadequate or misleading information, risk regulatory action independent of the change of control application's outcome.

How Buckingham Capital Consulting Helps

Since 2013, we've specialised in helping acquirers and regulated firms navigate change of control applications successfully.

For acquirers, we provide end-to-end support from initial assessment through approval. We assess whether your proposed acquisition triggers change of control requirements, determine control thresholds and notification timing, evaluate regulatory risks and potential FCA concerns, and advise on transaction structuring and timing.

We prepare Section 178 applications comprehensively addressing all FCA requirements, drafting notifications that clearly explain the acquisition, preparing supporting documentation on the controller's fitness and propriety, developing business plans for the regulated firm post-acquisition, and documenting governance and management arrangements.

Throughout the application process, we provide FCA liaison managing relationships with supervisors, responding to information requests efficiently, addressing concerns or objections constructively, and keeping you informed of progress and timing.

For sellers and regulated firms being acquired, we provide the firm's perspective on change of control applications. We assess the proposed controller's suitability from the firm's perspective, identify issues that could affect the firm's operations or regulatory standing, prepare the firm's submissions to the FCA, and ensure the firm's regulatory interests are protected throughout the process.

When the FCA raises concerns about proposed controllers, we help you address the issues. We assess whether concerns are substantive or can be resolved through additional information or commitments, propose solutions that satisfy the regulator whilst preserving transaction value, and negotiate outcomes that enable transactions to proceed.

For complex group structures, we provide analysis showing group structure and control relationships clearly, explaining ultimate beneficial ownership transparently, addressing any regulatory concerns about group complexity, and demonstrating how supervisory access will be maintained.

Financial information and business planning must satisfy the FCA's expectations for rigour. We prepare financial information on controllers demonstrating soundness, develop business plans for regulated firms showing viability post-acquisition, prepare capital and liquidity assessments, and document funding arrangements supporting the acquisition.

Governance documentation shows appropriate oversight post-acquisition. We document board composition and expertise, describe Senior Management Function arrangements, explain how the controller will oversee the firm, and demonstrate compliance with Senior Managers & Certification Regime requirements.

Post-approval, we support implementation ensuring the firm meets any conditions attached to approval, updating regulatory submissions reflecting new ownership, managing relationships with supervisors post-acquisition, and ensuring smooth transition to new ownership.

Why Change of Control Demands Expertise

Change of control applications are amongst the most complex regulatory submissions firms undertake. Applications that are incomplete, unclear, or fail to address the FCA's assessment criteria face delays, additional information requests, and potential refusal. For time-sensitive transactions, delays can destroy value or cause transactions to fail.

The cost of refusal extends beyond the immediate transaction. Acquirers face reputational damage and potential enforcement action if they proceed without approval. Regulated firms face uncertainty and potential instability if acquisitions fail.

Well-prepared applications that address FCA expectations comprehensively proceed more efficiently with greater certainty of approval. The investment in proper application preparation is modest compared to the value at risk in the underlying transaction.

Contact Buckingham Capital Consulting to discuss your change of control application. With over a decade of specialist expertise helping acquirers and regulated firms obtain FCA approval for ownership changes, we know what the FCA expects and how to deliver applications that succeed whilst protecting your transaction timeline and value.

Email us at info@buckinghamcapitalconsulting.co.uk or call 0207 866 2512.