SUP 11.7 Acquisition or increase of control: approval procedures

The approval procedures are summarised in SUP 11 Annex 3.

If the FSA decides to approve a proposed acquisition or increase of control unconditionally, it must give an 'approval notice' without delay (section 184(1) of the Act).

Alternatively, the FSA may decide to approve the proposed acquisition or increase of control subject to such conditions as it considers appropriate, having regard to the FSA's duty to ensure that the firm concerned will satisfy, and continue to satisfy, the threshold conditions (section 185 of the Act).

1. (1)

   If the FSA proposes to approve subject to conditions, it must give a warning notice.2

2. (2)

   If the FSA decides to proceed to approve subject to conditions, it must give a decision notice.2

A notice which approves a change of control (with or without conditions) is effective only for a limited period as set out in the notice (or, if no such period is specified, for one year) (section 184(3) of the Act). An approved change in control may not therefore take place after the end of this period.

The FSA may object to a proposed acquisition or increase of control unless it is satisfied that the approval requirements are met (section 186 of the Act). These are that:

1. (1)

   the acquirer is a fit and proper person to have the control over the firm that he has or would have if he acquired the control in question; and

2. (2)

   the interests of consumers would not be threatened by the acquirer's control or by his acquiring that control.

In deciding whether the approval requirements are met, the FSA must have regard, in relation to the control that the acquirer:

1. (1)

   has over the firm; or

2. (2)

   will have over the firm if the proposal to which the notification relates is carried out;

to the FSA's duty to ensure that the firm will satisfy, and continue to satisfy, the threshold conditions (section 186(3) of the Act).

1. (1)

   If the FSA proposes to object, it must issue a warning notice.2

2. (2)

   If the FSA decides to proceed with its proposed objection, it must issue a decision notice.2

3. (3)

   If the FSA considers that the approval requirements would be met if a particular step were taken or not taken, the decision notice must identify that step (section 186(4) of the Act).2

The FSA may also object if it has not received sufficient information from either the controller or the firm to satisfy itself that the approval requirements are met.2

The procedure followed by the FSA in relation to the giving of warning notices and decision notices and the process for referrals to the Financial Services and Markets Tribunal are set out in DEC 2.

If the FSA receives a valid notification from a controller or proposed controller, the FSA must respond within three months (section 183(1) of the Act). The response from the FSA will be either an approval notice or a warning notice.2

1. (1)

   Where the FSA becomes aware of a possible breach by the controller or proposed controller of his obligations under section 178(1) or (2) of the Act (Obligation to notify the Authority), it may require the person concerned to provide additional information or documents (section 188(4) of the Act).2

2. (2)

   If the FSA is satisfied that a breach has occurred, but is not satisfied that the approval requirements are met, the FSA may give a warning notice to the controller or proposed controller (section 187(1) and 188(1) of the Act).2

3. (3)

   Alternatively, the FSA may retrospectively approve the change in control as if a notification had been received from the controller or proposed controller (section 187(2) of the Act).2

If the FSA does not receive a notification from the controller or proposed controller and proposes to give a warning notice, it must do so within three months of the date on which it became aware that the controller or proposed controller had failed to comply with his duty to notify (section 188(3) of the Act).

Before giving an approval notice orwarning notice , the FSAmust comply with certain requirements as to consultation with 1competent authorities outside the United Kingdom (sections 183(2) and 188(2) of the Act and the Financial Services and Markets Act 2000 (Consultation with Competent Authorities) Regulations 2001). The Financial Groups Directive Regulations make special provision in relation to (the change in control over a UK authorised person (within the meaning of section 178(4) of the Act) which is a member of a third-country group1

If a controller fails to give a notification under section 178 of the Act on acquiring or increasing control, and the FSA is not satisfied that the approval requirements are met, the FSA may propose to object to the controller by giving him a warning notice (sections 187(1) and 188(1) of the Act).2

The FSA may propose to object to a controller by giving him a warning notice at any time if it becomes aware of matters as a result of which it is satisfied that:

1. (1)

   the approval requirements are not met with respect to the controller; or

2. (2)

   a condition attached to an approval required the controller to do (or refrain from doing) a particular thing and that condition has been breached by the controller (sections 187(3) and 188(1) of the Act).

If the FSA gives a warning notice as described in SUP 11.7.14 G or SUP 11.7.15 G, section 188 of the Act sets out various requirements as to timetable, consultation and provision of information.

Following a warning notice as described in SUP 11.7.14 G or SUP 11.7.15 G, the FSA may decide to object to the controller and give him a decision notice. If the FSA does so, or if a conditional approval has been contravened, it may impose restrictions on some or all of the controller's shares by notice in writing or apply to the court for an order that the controller dispose of them (section 189 of the Act).

If it appears to the FSA that the likely effect of an acquisition of control on a firm, or on any of its activities, is uncertain, the FSA may, in accordance with section 46 of the Act (Variation of permission on acquisition of control), vary the firm's Part IV permission by:

1. (1)

   imposing a requirement (see SUP 7: Individual requirements); or

2. (2)

   varying an existing requirement.

The warning notice and decision notice procedure does not apply to action taken under section 46 of the Act, but the FSA will operate a procedure that is fair in the circumstances.