The FCA’s Controllers and Close Links regime: don’t get caught out!

May 25, 2015

Many of you have recently submitted, or will shortly be submitting, your Annual Close Links (REP001) and Controllers (REP002) returns to the FCA. This may therefore be a good time to remind you of the FCA’s overlapping regimes for Close Links and Controllers and the on-going requirements for notification and (in some cases) pre-approval for changes which may occur throughout the year.

In our experience, these requirements can be overlooked amidst the detail and time pressures that surround a change in ownership – either at group or local level. For example, a change in control at a US parent company which impacts on the control of a UK regulated firm may well require prior approval from the FCA.This alert attempts to provide a high-level summary of the requirements (including trigger points and timing) which you must build into your restructuring plan.

What is a Controller?
Of the two regimes, the concept of a controller is the more straightforward one: any person (natural or legal) holding 10% or more of the shares (economic ownership) and/or voting rights of the FCA regulated entity is a controller. Note that this is a lower threshold than other definitions (e.g. the Companies Act 2006 meaning of “subsidiary”). The definition covers all persons effectively exercising control of such a percentage higher up the ownership “tree”, as far as and including the ultimate owners.

When must I report a change in Controller?
The Financial Services and Markets Act 2000 (“FSMA”) requires that firms must seek pre-approval for:

  •  Any person acquiring control (at or above 10%); or
  • Any existing controller increasing their interest and passing through a control threshold (20%, 30% or 50%).

Note that pre-approval of such changes must be made through what is known as a Section 178 notice, and that it is a criminal offence under FSMA to acquire or increase control (defined by the above thresholds) without approval from the FCA. The Section 178 notice must be submitted as soon as the intention to acquire is agreed in principle to cic-notifications@fca.org.uk. The FCA has up to 60 business days from receipt of a complete notice to make a determination.

Reductions in control (i.e. a controller passing down through a 10%, 20%, 30% or 50% control threshold) must also be notified to the FCA prior to the disposition. This can be done through a simple email (to the same address) with details of who the interest is being transferred to.

What is a Close Link?
“Close Link” is a broader concept than Controller, meaning any legal or natural persons linked by economic participation or ownership (where 20% or more of the whole) or for any controlling relationship (i.e. that which exists between a parent undertaking and a subsidiary). Close links thus look both up and down the ownership structure, and may be any of the following:

  •  A parent undertaking of the firm;
  • A subsidiary undertaking of the firm;
  • A parent undertaking of a subsidiary undertaking of the firm;
  • A subsidiary undertaking of a parent undertaking of the firm;
  • A person owning or controlling 20% or more of the voting rights or capital of the firm; or
  • A person where the firm owns or controls 20% or more of the voting rights or capital.

What must I do to report a change in Close Links?
Fortunately, this is more straightforward: as soon as reasonably practicable (and no later than one month) after the event, the firm must complete a Close Links Notification Form which can be emailed, together with a new ownership structure chart, to regulatory.reports@fca.org.uk.

Practical considerations
We recommend that firms appoint one person with specific responsibility for tracking all change of ownership events, liaising with other personnel such as group legal where necessary, and for making the necessary notifications that arise. In many cases this will be the Compliance Officer but it must be an individual with access to the appropriate information and possessing the authority to act on it.

Please contact Adam Palmer, Martin Lovick or your regular ACA consultant with any questions on this e-mail.


ACA Compliance (Europe) Limited