Change of Control for FCA-Regulated Firms: Process, Requirements & Timelines

What Is a Change of Control?

A change of control occurs when a person or entity acquires, increases, reduces or ceases to have control over an FCA-authorised firm. Under Part XII of the Financial Services and Markets Act 2000 (FSMA), any person proposing to acquire or increase control over a UK-authorised firm must notify the FCA in advance and receive approval before the transaction completes.

The regime exists to ensure that persons who control regulated firms are suitable — that they have appropriate financial standing, competence and integrity, and that the proposed acquisition will not pose risks to the firm's customers, the financial system or the FCA's statutory objectives.

When Does the Obligation Arise?

The notification obligation is triggered when a person proposes to:

• Acquire control: Crossing the 10% threshold of shares or voting rights for the first time, or acquiring the ability to exercise significant influence over the management of the firm.
• Increase control: Moving from one control band to the next — 10% to 20%, 20% to 30%, or 30% to 50%.
• Acquire majority control: Crossing the 50% threshold, giving the acquirer majority voting rights.
• Acquire effective control: Regardless of shareholding percentage, if a person acquires the ability to exercise significant influence over the firm's management — for example, through shareholder agreements, board appointment rights or contractual arrangements.

The obligation also applies to reductions in control (crossing down through the same thresholds) and the complete disposal of control, although these require notification rather than approval.

The Assessment Process

Step 1: Pre-notification. For complex transactions, the FCA recommends pre-notification engagement. This allows the FCA case team to understand the transaction structure, identify potential issues early and advise on the information required. Pre-notification is not mandatory but is strongly recommended for transactions involving overseas acquirers, complex group structures, private equity investors or acquisitions of firms with significant customer bases.

Step 2: Formal notification. The proposed controller submits a Section 178 Notice to the FCA using the prescribed form. The notification must include comprehensive information about the proposed controller, including:

• Identity and background of the acquirer (individual or corporate)
• Financial standing, including audited accounts, bank references and evidence of the source of funds
• Business plan for the regulated firm post-acquisition
• Details of other regulatory authorisations held by the acquirer
• Corporate structure charts showing the pre- and post-acquisition ownership
• Details of any previous regulatory applications, refusals or enforcement actions
• Fitness and propriety information for key individuals associated with the acquirer

Step 3: FCA assessment. The FCA has 60 working days from receipt of a complete notification to assess the application. This period can be interrupted if the FCA requests additional information — the clock stops until the information is provided. The FCA may also extend the assessment period by up to 30 working days in certain circumstances.

The FCA assesses the proposed acquisition against five criteria:

• Reputation of the proposed acquirer: Including financial soundness, honesty, integrity and absence of criminal convictions or regulatory sanctions.
• Reputation, knowledge, skills and experience of any new senior management: If the acquisition will result in changes to the firm's board or senior management.
• Financial soundness of the proposed acquirer: Whether the acquirer has the financial resources to support the firm and will not place inappropriate financial strain on it.
• Impact on the firm's compliance: Whether the firm will continue to meet its regulatory requirements post-acquisition.
• Risk of financial crime: Whether there are reasonable grounds to suspect money laundering or terrorist financing in connection with the acquisition.

Step 4: Decision. The FCA will either approve the change of control (with or without conditions) or object to it. If the FCA objects, it must provide written reasons and the proposed controller has the right to refer the matter to the Upper Tribunal.

Documentation Requirements

The FCA requires extensive documentation to support a change of control notification. Key documents include:

• Completed Section 178 Notice form
• Certified copies of identification documents for individual acquirers
• Corporate documents for corporate acquirers (certificate of incorporation, articles of association, shareholder register)
• Audited financial statements for the previous three years
• Source of funds evidence (bank statements, loan agreements, investment documentation)
• Business plan for the regulated firm covering at least three years post-acquisition
• Corporate structure charts (pre- and post-acquisition)
• Shareholder agreements and any side arrangements
• Details of professional advisers involved in the transaction
• Completed fitness and propriety forms for new senior managers

Common Pitfalls

Failing to notify. Completing a change of control without FCA approval is a criminal offence under s191F FSMA. The FCA can also apply to court to void the transaction. Firms and their legal advisers must identify all transactions that trigger the notification obligation.

Incomplete applications. Notifications that lack required information will be returned or will result in the assessment clock being stopped while additional information is requested. This delays the transaction timeline.

Underestimating the timeline. The 60 working day assessment period (approximately 12 calendar weeks) does not include the time required for pre-notification engagement, document preparation or information requests. Complex transactions can take six months or more from initial engagement to approval.

Ignoring indirect control. The obligation applies to indirect control as well as direct control. If a person acquires control of a holding company that itself controls a regulated firm, the obligation is triggered even though the person is not acquiring shares in the regulated firm directly.

Source of funds issues. The FCA scrutinises the source of funds for the acquisition closely, particularly where the acquirer is a private individual, a private equity fund or an overseas entity. Inadequate evidence of the source and legitimacy of acquisition funds is a common cause of delay or objection.

Payment Institution and EMI Considerations

For payment institutions and EMIs, the change of control regime operates under the Payment Services Regulations 2017 and Electronic Money Regulations 2011 respectively, rather than Part XII FSMA. The principles are similar, but the specific notification forms and some procedural details differ. PI and EMI controllers are assessed against equivalent criteria, and the FCA applies the same rigour to these assessments.

Key differences include:

• The notification threshold for PIs and EMIs is also 10% of shares or voting rights
• The FCA applies the same five assessment criteria
• The assessment period mirrors the FSMA regime
• Firms must also notify changes to directors and senior management separately

Practical Advice

• Engage with the FCA early, particularly for complex transactions
• Prepare a comprehensive documentation pack before submitting the formal notification
• Allow sufficient time in the transaction timeline for FCA assessment (minimum 12 weeks, often longer)
• Ensure source of funds documentation is robust and independently verifiable
• Consider the impact on the firm's existing permissions and conditions
• Plan for potential conditions that the FCA may attach to the approval
• Brief incoming controllers on their ongoing regulatory obligations

Regulatory Outlook

The FCA's approach to change of control assessments has become increasingly rigorous, particularly regarding source of funds, beneficial ownership transparency and the suitability of overseas controllers. Firms involved in M&A transactions should ensure that change of control considerations are addressed early in the deal process to avoid delays or complications at completion.