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

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).1

Part XII of the Act (Notices of acquisitions of control 3 over UK3 authorised 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.3 Furthermore, those persons are required to obtain the FSA's approval before becoming a controller or increasing their control over a firm3. SUP 11.3 is intended to assist those persons in complying with their obligations under Part XII of the Act.

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.21

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.

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.

Similarly, the FSA needs to monitor a firm's continuing satisfaction of threshold condition 3 (Close links) (see COND 2.32), 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 11.9.2

Every firm, other than a firm listed in SUP 11.1.1 R (1) to SUP 11.1.1 R (6)2or 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.

The requirements in SUP 11 implement certain provisions relating to changes in control and close links required under the Single Market Directives.2

2An event described in SUP 11.4.2R, SUP 11.4.2A R and SUP 11.4.4R3is referred to in this chapter as a "change in control".

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.10A summary of the notification requirements described in this section is given in SUP 11 Annex 1.4

Sections 178(1) and 191D(1)10 of the Act require a person (whether or not he is an authorised person) to notify the FSA in writing if he decides 10to acquire, increase or reduce10control or to cease to have control10 over a UK domestic firm . Failure to notify is an offence under section 191F10 of the Act (Offences under this Part).46

The Treasury have made the following exemptions from the obligations under section 178 of the Act10:

1. (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 2009/77410));

   10
2. (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's10 capital or the increase or reduction by a specified percentage of a holding of a building society's10capital (The Financial Services and Markets Act 2000 (Controllers) (Exemption) Order 2009 (SI 2009/77410.)). The "capital" of a building society10 for these purposes consists of:

   1010
   1. (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

   2. (b)

      the general reserves of that building society: 10

      103
3. (3)

   10potential 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:

   1. (a)

      20% or more of the shares in A or in a parent undertaking of A ("P");

   2. (b)

      20% or more of the voting power in A or P; or

   3. (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)).

If a person decides10 to 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)4, he must obtain the FSA's approval before doing so. Making an acquisition before the FSA has approved of it10is an offence under section 191F of the Act (Offences under this Part).

The FSA's approval is not required before a controller reduces control or ceases to have control10 over a UK domestic firm.

6The FSA recognises that firms acting as investment managers may have difficulties in complying with the prior notification requirements in sections 178 and 191D 10of 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.

6Where the FSA approves changes in control proposed in a notice given under SUP 11.3.5B D:

1. (1)

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

2. (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.

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)

The FSA will inform a section 178 notice giver as soon as reasonably practicable if it considers the section 178 notice to be incomplete.10651

8 6 The FSA has power, under section 179(3) 10of the Act (Requirements for section 178 notices10), to vary or waive these 10requirements in relation to a section 178 notice in particular cases 10if it considers it appropriate to do so.8

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 11.5.1R10.

Pursuant to section 188 of the Act (Assessment: consultation with EU11 competent authorities), the 10FSA is obliged to consult any appropriate Home State regulator10before making a determination under section 185 of the Act (Assessment: general)10.7

6Notifications 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.

A summary of the notification requirements in this section is given in SUP 11 Annex 1.1

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.

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's4or proposed controller's4shareholdings 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

1. (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. (2)

   purchases any shareoptions, warrants or other financial instruments, the exercise of which would result in the person acquiring control or any other change in control.

The obligations 4in SUP 11.4.2 R andSUP 11.4.2A R apply 4 whether or not the controller himself has given or intends to give a notification, in accordance with his obligations under the Act.1

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

1. (1)

   monitoring its register of shareholders (or equivalent);

2. (2)

   monitoring notifications to the firm in accordance with Part 223 of the Companies Act 20063;

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3. (3)

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

   2
4. (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.

Firms are reminded that a change in control may give rise to a change in the groupcompanies 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.

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 3.14(Cross sector groups) and GENPRU 3.24(Third country groups)). 1

A firm and its controller or proposed controller may discharge an obligation to notify the FSA by submitting a single joint section 178 notice5containing the information required from the firm and the controller or proposed controller. In this case, the section 178 notice53 may be used on behalf of both the firm and the controller or proposed controller.

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 notice5 in respect of all those firms. The section 178 notice5should contain all the required information as if separate notifications had been made, but information and documentation need not be duplicated.

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

1. (1)

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

2. (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 notice5 containing one set of information.

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.1

The assessment process and the assessment criteria are set out in sections 185 to 191 of the Act4.

Section 191A deals with the procedure the FSA must follow where there has been a failure to notify or a default.4

The FSA may serve restriction notices in certain circumstances in accordance with section 191B of the Act4.

The FSA may apply to the court for an order for the sale of shares in accordance with section 191C of the Act4.

Before making a determination under section 185 or4 giving a4warning notice under section 191A4, the FSAmust comply with the 4 requirements as to consultation with EC41competent authorities set out in section 188 of the Act .4

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.

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.

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.

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.

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).

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

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).

1The FSA considers that monthly reporting of changes in close links will ordinarily only be appropriate for firms forming part of large groups.

SUP 11 Annex 1G