Controllers and close links

Part

SUP Supervision manual

Chapter

Controllers and close links

Printed on: 06/11/2024

Rulebook at: 21/09/2009

SUP 11

Controllers and close links

SUP 11.1

Application

01/12/2004

Application to firms

SUP 11.1.1

This chapter applies to every firm except:

(1) an ICVC;

(2) an incoming EEA firm;

(3) an incoming Treaty firm;

(4) [deleted]

(5) a sole trader;

(6) a UCITS qualifier;

as set out in the table in SUP 11.1.2 R.

01/01/2003

SUP 11.1.2

Applicable sections (see SUP 11.1.1 R)

Category of firm

Applicable sections

(1)

A UK domestic firm other than a building society, a non-directive friendly society or a non-directive firm

All except SUP 11.3, SUP 11.4.2A R and SUP 11.4.4 R

(1A)

A building society

(a) In the case of an exempt change in control (see Note), SUP 11.1, SUP 11.2 and SUP 11.9
(b) In any other case, all except SUP 11.3, R and SUP 11.4.4 R

(2)

A non-directive friendly society

SUP 11.1, SUP 11.2, and SUP 11.9

(2A)

A non-directive firm

all except SUP 11.3, SUP 11.4.2 R, and SUP 11.4.4 R

(3)

An overseas firm

All except SUP 11.3, SUP 11.4.2 R, SUP 11.4.2A R, SUP 11.4.9 G, SUP 11.5.8 G to SUP 11.5.10 G, SUP 11.6.2 R, SUP 11.6.3 R, SUP 11.7

Note

In row (1A), a change in control is exempt if the controller or proposed controller is exempt from any obligation to notify the FSA under Part XII of the Act (Notices of acquisitions of control overUK authorised persons) because of The Financial Services and Markets Act 2000 (Controllers) (Exemption) Order 2009 (SI 2009/774). (See SUP 11.3.2A G).

28/03/2009

SUP 11.1.3

This chapter may apply to directive friendly societies in the circumstances described in SUP 16.4.2 G (1) to (3).

21/06/2001

Application to controllers

SUP 11.1.4

SUP 11.1, SUP 11.2.1 G, SUP 11.3 and SUP 11.7 apply to a controller or a proposed controller of a UK domestic firm not listed in SUP 11.1.1 R (1) to SUP 11.1.1 R (6).

28/03/2009

SUP 11.1.5

This chapter may apply to controllers and proposed controllers of directive friendly societies in the circumstances described in SUP 16.4.2G (1) to (3).

21/06/2001

SUP 11.2

Purpose

01/12/2004

SUP 11.2.1

Part XII of the Act (Notices of acquisitions of control over UKauthorised persons) places an obligation on the controllers and proposed controllers of those UK domestic firms not listed in SUP 11.1.1 R (1) to SUP 11.1.1 R (6) to notify the FSA of changes in control, including acquiring, increasing or reducing control or ceasing to have control over a firm. Furthermore, those persons are required to obtain the FSA's approval before becoming a controller or increasing their control over a firm. SUP 11.3 is intended to assist those persons in complying with their obligations under Part XII of the Act.

28/03/2009

SUP 11.2.2

The rules in SUP 11.4 to SUP 11.6 are aimed at ensuring that the FSA receives information it needs to assist the FSA with its responsibility to monitor and, in some cases, give prior approval to firms' controllers.

28/03/2009

SUP 11.2.3

As the approval of the FSA is not required under the Act for a new controller of an overseas firm, the notification rules on such firms are less prescriptive than they are for UK domestic firms. Nevertheless, the FSA still needs to monitor such an overseas firm's continuing satisfaction of the threshold conditions, which normally includes consideration of a firm's connection with any person, including its controllers and parent undertakings (see COND ). The FSA therefore needs to be notified of controllers and parent undertakings of overseas firms.

21/06/2001

SUP 11.2.4

As part of the FSA's function of monitoring a firm's continuing satisfaction of the threshold conditions, the FSA needs to consider the impact of any significant change in the circumstances of one or more of its controllers, for example, in their financial standing and, in respect of corporate controllers, in their governing bodies. Consequently, the FSA needs to know if there are any such changes. SUP 11.8 therefore requires a firm to tell the FSA if it becomes aware of particular matters relating to a controller.

21/06/2001

SUP 11.2.5

Similarly, the FSA needs to monitor a firm's continuing satisfaction of threshold condition 3 (Close links) (see COND 2.3), which requires that a firm's close links are not likely to prevent the FSA's effective supervision of that firm. Accordingly the FSA needs to be notified of any changes in a firm's close links. This requirement is contained in SUP 11.9.

01/12/2004

SUP 11.2.6

Every firm, other than a firm listed in SUP 11.1.1 R (1) to SUP 11.1.1 R (6)or a firm excluded from the operation of SUP 16.4 or SUP 16.5 by SUP 16.1.3 R, is required to submit an annual report on its controllers and close links as set out in SUP 16.4 and SUP 16.5.

01/12/2004

SUP 11.2.7

The requirements in SUP 11 implement certain provisions relating to changes in control and close links required under the Single Market Directives.

01/12/2004

SUP 11.2.8

An event described in SUP 11.4.2R, SUP 11.4.2A R and SUP 11.4.4Ris referred to in this chapter as a "change in control".

28/03/2009

SUP 11.3

Requirements on controllers or proposed controllers under the Act

01/12/2004

SUP 11.3.1

The notification requirements are set out in sections 178, 179, 191D and 191E of the Act and holdings which may be disregarded are set out in section 184 of the Act.A summary of the notification requirements described in this section is given in SUP 11 Annex 1.

28/03/2009

Requirement to notify a proposed change in control

SUP 11.3.2

Sections 178(1) and 191D(1)of the Act require a person (whether or not he is an authorised person) to notify the FSA in writing if he decides toacquire, increase or reduce control or to cease to have controlover a UK domestic firm. Failure to notify is an offence under section 191F of the Act (Offences under this Part).

28/03/2009

SUP 11.3.2A

The Treasury have made the following exemptions from the obligations under section 178 of the Act:

(1) controllers and potential controllers of non-directive friendly societiesare exempt from the obligation to notify a change in control (The Financial Services and Markets Act 2000 (Controllers) (Exemption) Order 2009 (SI 2009/774));
(2) controllers and potential controllers of building societies are exempt from the obligation to notify a change in control unless the change involves the acquisition of a holding of a specified percentage of a building society's capital or the increase or reduction by a specified percentage of a holding of a building society's capital (The Financial Services and Markets Act 2000 (Controllers) (Exemption) Order 2009 (SI 2009/774.)). The "capital" of a building society for these purposes consists of:

(a) any shares of a class defined as deferred shares for the purposes of section 119 of the Building Societies Act 1986 which have been issued by the society (in practice, likely to be permanent interest bearing shares (PIBS)); and
(b) the general reserves of that building society:

(3) potential controllers of non-directive firms("A") are exempt from the obligation to notify a change in control unless the change results in the potential controller holding:

(a) 20% or more of the shares in A or in a parent undertaking of A ("P");
(b) 20% or more of the voting power in A or P; or
(c) shares or voting power in A or P as a result of which the controller is able to exercise significant influence over the management of A;

or where the change in control over A would lead to the controller ceasing to fall into any of the cases (a), (b) or (c) above (The Financial Services and Markets Act 2000 (Controllers) (Exemption) Order 2009 (SI 2009/774)).

28/03/2009

Approval required before acquiring or increasing control

SUP 11.3.4

If a persondecidesto acquire control or increase control over a UK domestic firm in a way described in SUP 11.4.2 Ror acquire control in a way described in SUP 11.4.2AR (1), he must obtain the FSA's approval before doing so. Making an acquisition before the FSA has approved of itis an offence under section 191F of the Act (Offences under this Part).

28/03/2009

SUP 11.3.5

The FSA's approval is not required before a controller reduces control or ceases to have controlover a UK domestic firm.

28/03/2009

Pre-notification and approval for fund managers

SUP 11.3.5A

The FSA recognises that firms acting as investment managers may have difficulties in complying with the prior notification requirements in sections 178 and 191D of the Act as a result of acquiring or disposing of listed shares in the course of that fund management activity. To ameliorate these difficulties, the FSA may accept pre-notification of proposed changes in control, made in accordance with SUP D, and may grant approval of such changes for a period lasting up to a year.

28/03/2009

SUP 11.3.5B

The FSA may treat as notice given in accordance with sections 178 and 190(1)of the Act a written notification from a firm which contains the following statements:

(1) that the firm proposes to acquire and/or dispose of control, on one or more occasions, of any UK domestic firm whose shares or those of its ultimate parent undertaking are, at the time of the acquisition or disposal of control, listed or which are admitted to listing on a designated investment exchange;;

(2) that any such acquisitions and/or disposals of control will occur only in the course of the firm's business as an investment manager;

(3) that the level of control the firm so acquires in the pre-approval period will at all times remain less than 20%; and

(4) that the firm will not exercise any influence over the UK domestic firm in which the shares are held, other than by exercising its voting rights as a shareholder or by exercising influence intended to promote generally accepted principles of good corporate governance.

28/03/2009

SUP 11.3.5C

Where the FSA approves changes in control proposed in a notice given under SUP 11.3.5B D:

(1) the controller remains subject to the requirement to notify the FSA when a change in control actually occurs; and

(2) the notification of change in control should be made no later than five business days after the end of each month and set out all changes in the controller's control position for each UK domestic firm for the month in question.

At that stage, the FSA may seek from the controller further information.

28/03/2009

Forms of notifications when acquiring or increasing control

SUP 11.3.7

A section 178 notice given to the FSA by a person who is acquiring control or increasing his control over a UK domestic firm, in a way described in SUP 11.4.2 R (1) to (4), or acquiring control in a way described in SUP 11.4.2A R, mustcontain the information and be accompanied by such documents as are required by the controllers form approved by the FSA for the relevant application.

28/03/2009

SUP 11.3.7A

The controllers forms approved by the FSA may be found at the FSA's website (www.fsa.gov.uk/Pages/Doing/Regulated/Notify/Control/index.shtml)

28/03/2009

SUP 11.3.10

(1) A person who has submitted a section 178 notice under SUP 11.3.7 D must notify the FSA immediately if he becomes aware, or has information that reasonably suggests, that he has or may have provided the FSA with information which was or may have been false, misleading, incomplete or inaccurate, or has or may have changed, in a material particular. The notification must include:

(a) details of the information which is or may be false, misleading, incomplete or inaccurate, or has or may have changed;

(b) an explanation why such information was or may have been provided; and

(2) If the information in (1) (c) cannot be submitted with the section 178 notice (because it is not immediately available), it must instead be submitted as soon as possible afterwards.

(3) The requirement in (1) ceases if the change in control occurs or will not take place.

28/03/2009

SUP 11.3.11

The FSA will inform a section 178 notice giver as soon as reasonably practicable if it considers the section 178 notice to be incomplete.

28/03/2009

SUP 11.3.12

The FSA has power, under section 179(3) of the Act (Requirements for section 178 notices ), to vary or waive these requirements in relation to a section 178 notice in particular cases if it considers it appropriate to do so.

28/03/2009

SUP 11.3.13

A controller or proposed controller which is an authorised person is required to submit less information under SUP 11.3.7 D than other persons and consequently the FSA may ask for confirmation of details already held or any additional information required under SUP 11.5.1R.

28/03/2009

SUP 11.3.14

Pursuant to section 188 of the Act (Assessment: consultation with EC competent authorities), the FSA is obliged to consult any appropriate Home State regulatorbefore making a determination under section 185 of the Act (Assessment: general).

28/03/2009

Notification when reducing control

SUP 11.3.15A

A notice given to the FSA by a person who is reducing or ceasing to have control over a UK domestic firm, as set out in SUP 11.4.2Ror SUP 11.4.2A R must:

(1) be in writing; and

(2) provide details of the extent of control (if any) which the controller will have following the change in control.

28/03/2009

Joint notifications

SUP 11.3.17

Notifications to the FSA by proposed controllers and controllers under Part XII of the Act may be made on a joint basis outlined in SUP 11.5.8 G to SUP 11.5.10 G.

28/03/2009

SUP 11.4

Requirements on firms

01/12/2004

SUP 11.4.1

A summary of the notification requirements in this section is given in SUP 11 Annex 1.

21/06/2001

Requirement to notify a change in control

SUP 11.4.2

A UK domestic firm, other than a non-directive firm, must notify the FSA of any of the following events concerning the firm:

(1) a person acquiring control;

(2) an existing controllerincreasing control;

(3) an existing controllerreducing control;

(4) an existing controllerceasing to have control.

28/03/2009

SUP 11.4.2A

A non-directive firm must notify the FSA of any of the following events concerning the firm:

(1) a person becoming controller of the firm; or
(2) an existing controller ceasing to be controller of the firm.

28/03/2009

SUP 11.4.4

An overseas firm must notify the FSA if a person becomes a controller of the firm, increases or reduces control over the firm or ceases to have control over the firm

28/03/2009

SUP 11.4.6

If a firm is required to obtain approval from the Society of Lloyd's for any changes in its controllers, it should apply for this approval as well as notifying the FSA.

21/06/2001

Content and timing of the notification

SUP 11.4.7

The notification by a firm under SUP 11.4.2 R, R or SUP 11.4.4 R must:

(1) be in writing;

(2) contain the information set out in:

(a) in the case of acquiring or increasing control, SUP 11.5.1 R (subject to SUP 11.5); or

(b) in the case of reducing control, SUP 11.5.7 R; and

(3) be made:

(a) as soon as the firm becomes aware that a person, whether alone or acting in concert, has decided to acquire control or to increase or reduce control; or

(b) if the change in controltakes place without the knowledge of the firm, within 14 days of the firm becoming aware of the change in control concerned.

28/03/2009

SUP 11.4.8

Principle 11 requires firms to be open and cooperative with the FSA . A firm should discuss with the FSA , at the earliest opportunity, any prospective changes of which it is aware, in a controller'sor proposed controller's shareholdings or voting power (if the change is material). These discussions may take place before the formal notification requirement in SUP 11.4.2 R, R or SUP 11.4.4 R arises. (See also SUP 11.3.2 G). As a minimum, the FSA considers that such discussions should take place before a person:

(1) enters into any formal agreement in respect of the purchase of shares or a proposed acquisition or merger which would result in a change in control (whether or not the agreement is conditional upon any matter, including the FSA's approval); or

(2) purchases any share options, warrants or other financial instruments, the exercise of which would result in the person acquiring control or any other change in control.

28/03/2009

SUP 11.4.9

The obligationsin SUP 11.4.2 R and SUP 11.4.2A R apply whether or not the controller himself has given or intends to give a notification, in accordance with his obligations under the Act.

28/03/2009

Identity of controllers

SUP 11.4.10

A firm must take reasonable steps to keep itself informed about the identity of its controllers.

21/06/2001

SUP 11.4.11

The steps that the FSA expects a firm to take to comply with SUP 11.4.10 R include, if applicable:

(1) monitoring its register of shareholders (or equivalent);

(2) monitoring notifications to the firm in accordance with Part 22 of the Companies Act 2006;

(3) monitoring public announcements made under the relevant disclosure provisions of the Takeover Code or other rules made by the Takeover Panel;

(4) monitoring the entitlement of delegates, or persons with voting rights in respect of group insurance contracts, to exercise or control voting power at general meetings.

06/10/2007

SUP 11.5

Notifications by firms

28/03/2009

SUP 11.5.1

Information to be submitted by the firm (see SUP 11.4.7 R (2)(a))

(1)

The name of the firm;

(2)

the name of the controller or proposed controller and, if it is a body corporate and is not an authorised person, the names of its directors and its controllers;

(3)

a description of the proposed event including the shareholding and voting power of the person concerned, both before and after the change in control; and

(4)

any other information of which the FSA would reasonably expect notice.

28/03/2009

SUP 11.5.2

The notification from a firm under SUP 11.4.7 R (2)(a) need only contain as much of the information set out in SUP 11.5.1 R as the firm is able to provide, having made reasonable enquiries from persons and other sources as appropriate.

21/06/2001

SUP 11.5.4

Firms are reminded that a change in control may give rise to a change in the group companies to which the FSA's consolidated financial supervision requirements apply. Also, the firm may for the first time become subject to the FSA's requirements on consolidated financial supervision (or equivalent requirements imposed by another EEA State). This may apply, for example, if the controller is itself an authorised undertaking. The FSA may therefore request such a firm, controller or proposed controller to provide evidence that, following the change in control, the firm will meet the requirements of these rules, if appropriate.

21/06/2001

SUP 11.5.4A

Firms are also reminded that a change in control may give rise to a notification as a financial conglomerate or a change in the supplementary supervision of a financial conglomerate (see GENPRU 3.1 (Cross sector groups) and GENPRU 3.2 (Third country groups)).

01/01/2007

Form of notification when a person reduces control

SUP 11.5.7

A notification of a proposed reduction in control must:

(1) give the name of the controller; and

(2) provide details of the extent of control (if any) which the controller will have following the change in control.

21/06/2001

Joint notifications

SUP 11.5.8

A firm and its controller or proposed controller may discharge an obligation to notify the FSA by submitting a single joint section 178 notice containing the information required from the firm and the controller or proposed controller. In this case, the section 178 notice may be used on behalf of both the firm and the controller or proposed controller.

28/03/2009

SUP 11.5.9

If a person is proposing a change in control over more than one firm within a group, then the controller or proposed controller may submit a single section 178 notice in respect of all those firms. The section 178 notice should contain all the required information as if separate notifications had been made, but information and documentation need not be duplicated.

28/03/2009

SUP 11.5.10

When an event occurs (for example, a group restructuring or a merger) as a result of which:

(1) more than one firm in a group would undergo a change in control; or

(2) a single firm would experience more than one change in control;

then, to avoid duplication of documentation, all the firms and their controllers or proposed controllers may discharge their respective obligations to notify the FSA by submitting a single section 178 notice containing one set of information.

28/03/2009

SUP 11.6

Subsequent notification requirements by firms

01/12/2004

Changes in the information provided to the FSA

SUP 11.6.1

Firms are reminded that SUP 15.6.4 R requires them to notify the FSA if information notified under SUP 11.4.2 R, R or SUP 11.4.4 R was false, misleading, inaccurate, incomplete, or changes, in a material particular. This would include a firm becoming aware of information that it would have been required to provide under SUP 11.5.1 R if it had been aware of it.

21/06/2001

SUP 11.6.2

After submitting a section 178 notice under SUP 11.4.2 R or SUP 11.4.2A R and until the change in control occurs (or is no longer to take place), SUP 15.6.4 R and SUP 15.6.5 R apply to a UK domestic firm in relation to any information its controller or proposed controller provided to the FSA under SUP 11.5.1 R or SUP 11.3.7 D.

28/03/2009

SUP 11.6.3

During the period in SUP 11.6.2 R, a UK domestic firm must take reasonable steps to keep itself informed about the circumstances of the controller or the proposed controller to which the notification related.

21/06/2001

Notification that the change in control has taken place

SUP 11.6.4

A firm must notify the FSA :

(1) when a change in control which was previously notified under SUP 11.4.2 R, SUP 11.4.2A Ror SUP 11.4.4 R has taken place; or

(2) if the firm has grounds for reasonably believing that the event will not now take place.

21/06/2001

SUP 11.6.5

The notification under SUP 11.6.4 R must be given within 14 days of the change in control or of having the grounds (as applicable).

21/06/2001

SUP 11.7

Acquisition or increase of control: assessment process and criteria

28/03/2009

SUP 11.7.1

The assessment process and the assessment criteria are set out in sections 185 to 191 of the Act.

28/03/2009

SUP 11.7.2

Section 191A deals with the procedure the FSA must follow where there has been a failure to notify or a default.

28/03/2009

SUP 11.7.3

The FSA may serve restriction notices in certain circumstances in accordance with section 191B of the Act.

28/03/2009

SUP 11.7.4

The FSA may apply to the court for an order for the sale of shares in accordance with section 191C of the Act.

28/03/2009

SUP 11.7.9

.[deleted]

28/03/2009

SUP 11.7.13

Before making a determination under section 185 orgiving a warning notice under section 191A, the FSA must comply with the requirements as to consultation with EC competent authorities set out in section 188 of the Act.

28/03/2009

SUP 11.8

Changes in the circumstances of existing controllers

01/12/2004

SUP 11.8.1

A firm must notify the FSA immediately it becomes aware of any of the following matters in respect of one or more of its controllers:

(1) if a controller, or any entity subject to his control, is or has been the subject of any legal action or investigation which might put into question the integrity of the controller;

(2) if there is a significant deterioration in the financial position of a controller;

(3) if a corporate controller undergoes a substantial change or series of changes in its governing body;

(4) if a controller, who is authorised in another EEA State as an MiFID investment firm or BCD credit institution or under the Insurance Directives or the Insurance Mediation Directive, ceases to be so authorised (registered in the case on an IMD insurance intermediary).

01/11/2007

SUP 11.8.2

In assessing whether a matter should be notified to the FSA under SUP 11.8.1 R (1), SUP 11.8.1 R (2) or SUP 11.8.1 R (3), a firm should have regard to the guidance on satisfying threshold condition 5 (Suitability) contained in COND 2.5.

21/06/2001

SUP 11.8.3

In respect of SUP 11.8.1 R (3), the FSA considers that, in particular, the removal or replacement of a majority of the members of a governing body (in a single event or a series of connected events) is a substantial change and should be notified.

21/06/2001

SUP 11.8.4

If a matter has already been notified to the FSA (for example, as part of the firm's application for a Part IV permission ), the firm need only inform the FSA of any significant developments.

21/06/2001

SUP 11.8.5

The level of a firm's awareness of its controller's circumstances will depend on its relationship with that controller. The FSA does not expect firms to implement systems or procedures so as to be certain of any changes in its controllers' circumstances. However, the FSA does expect firms to notify it of such matters if the firm becomes aware of them, and it expects firms to make enquiries of its controllers if it becomes aware that one of the events in SUP 11.8.1 R may occur or has occurred.

21/06/2001

SUP 11.8.6

The FSA may ask the firm for additional information following a notification under SUP 11.8.1 R in order to satisfy itself that the controller continues to be suitable (see SUP 2: Information gathering by the FSA on its own initiative).

21/06/2001

SUP 11.9

Changes in close links

01/12/2004

Requirement to notify changes in close links

SUP 11.9.1

A firm must notify the FSA that it has become or ceased to be closely linked with any person. The notification must include the information set out in SUP 16.5.4 R(4).

01/12/2004

SUP 11.9.2

Guidance on what constitutes a close link is provided in COND 2.3.

21/06/2001

SUP 11.9.3

The FSA may ask the firm for additional information following a notification under SUP 11.9.1 R in order to satisfy itself that the firm continues to satisfy the threshold conditions (see SUP 2: Information gathering by the FSA on its own initiative).

21/06/2001

Timing of notification requirement

SUP 11.9.4

The firm must make a notification to the FSA under SUP 11.9.1 R:

(1) as soon as reasonably practicable and no later than one month after it becomes aware that it has become or ceased to be closely linked with any person; or

(2) where a firm has elected to report on a monthly basis, within fifteen business days of the end of each monthand:

(a) including the information set out in SUP 16.5.4R(4) for that month; and

(b) if there is no person required to be included in the notification for a particular month, confirming this fact in the notification.

01/12/2004

Electing to notify changes in close links monthly

SUP 11.9.5

(1) A firm elects to report changes in close links on a monthly basis by sending a written notice of election to the firm's usual supervisory contact at the FSA.

(2) An election to report changes in close links on a monthly basis will stand until such time as the firm gives its usual supervisory contact at the FSA at least one month's written notice of its intention to cease reporting changes in close links on a monthly basis.

01/12/2004

SUP 11.9.6

The FSA considers that monthly reporting of changes in close links will ordinarily only be appropriate for firms forming part of large groups.

01/12/2004

SUP 11 Annex 1

Summary of notification requirements

01/12/2004

SUP 11 Annex 1G

28/03/2009