Review of FCA's Prudential Assessment of Acquisitions and Increases in Control
Purpose: To provide a comprehensive overview of the FCA's updated guidance on change in control notifications, focusing on key themes and requirements.

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Source Documents:
The FCA's updated guidance on acquisitions and increases in control (FG24/5), effective 1st November 2024, replaces previous Joint European Supervisory Authority guidelines. It provides a detailed framework for understanding and complying with the change in control regime, including identifying controllers, notification procedures, assessment criteria, and potential conditions for approval.

Key Themes:
1. Defining Control and Controllers:
•	The guidance provides extensive clarification on the concept of "control," encompassing both direct and indirect ownership, significant influence over management, and acting in concert with other parties.
•	The FCA's definition of "voting power" extends to controlled undertakings and requires aggregation of holdings in cases of acting in concert. "We view persons as ‘acting in concert’ when each of them decides to exercise their rights linked to the shares they acquire in accordance with an explicit or implicit agreement made between them." (FG24/5)
•	The guidance outlines specific situations where aggregation is required, including family relationships, common parent undertakings, and shared agreements on voting rights.

2. Notification Obligations and Exemptions:
•	Any person deciding to acquire or increase control over a UK authorized person must submit a Section 178 notice to the FCA before the acquisition takes place.
•	Notifications are assessed within 60 working days, excluding any periods where the FCA requests further information.
•	The guidance clarifies that a decision to acquire can include situations where inaction by the proposed controller results in crossing a control threshold.
•	Specific types of firms are exempt from the change in control regime, including EEA firms in supervised run-off, incoming Gibraltar-based firms, overseas branches, sole traders, and specific investment vehicles.

3. Assessment Criteria:
•	The FCA assesses the suitability of proposed controllers based on several criteria outlined in Section 186 of FSMA, including integrity, professional competence, financial soundness, and the impact on the firm's compliance with prudential requirements.
•	Integrity assessment considers criminal records, regulatory sanctions, and other relevant information. “We may judge the relevance of criminal records differently according to the type of conviction or decision, whether it is still possible to appeal against the sanction (definitive vs. non-definitive convictions), the type of punishment (imprisonment vs. less severe sanctions), the length of the sentence (more vs. less than a specified period), the phase of the judicial process reached (conviction, trial, indictment) and the effect of rehabilitation." (FG24/5)
•	Professional competence is evaluated based on experience, qualifications, and past performance, particularly in the financial sector.
•	The FCA assesses the financial soundness of the proposed controller to ensure they can finance the acquisition and maintain a sound financial structure for the foreseeable future (usually three years).


S178 Acquisition and Control of UK Authorised Firm

This briefing document analyses essential themes and regulations from the FCA regarding the Payment Services Regulations 2017 (PSRs 2017) and the Electronic Money Regulations 2011 (EMRs). It examines critical elements such as authorisation, registration, capital requirements, safeguarding, and temporary permissions, which are vital for firms navigating this regulatory framework.

Scope & Applicability:
The PSRs 2017 and EMRs govern the authorisation, registration, and conduct of various entities, including Authorised Payment Institutions (PIs), Small PIs (SPIs), Authorised Electronic Money Institutions (EMIs), Small EMIs (SEMIs), Registered Account Information Service Providers (RAISPs), and Credit Institutions that handle payment services and e-money. These regulations also encompass firms operating under temporary permissions, supervised run-off, and contractual run-off regimes.

Key Definitions:
Payment Service Providers (PSPs) are entities that offer payment services regularly in the UK, while e-money issuers include authorised and small EMIs, credit institutions, and select exempt bodies.

Authorisation & Registration:
Firms providing payment services or e-money in the UK must be authorised or registered by the FCA, barring certain exemptions. Authorised PIs and EMIs must fulfil stringent conditions, including assessments of business plans, reputations of controllers, financial forecasts, and IT systems. Small institutions may register provided they meet specific criteria related to their transaction volume and e-money issuance limits. RAISPs need FCA registration to provide Account Information Services solely.

Capital Requirements:
Authorised PIs and EMIs must adhere to initial and ongoing capital requirements to ensure financial stability. Initial capital varies by service type, and ongoing requirements adapt to the firm’s risk profile.

Safeguarding Requirements:
To protect customer funds against insolvency, authorised PIs and EMIs must safeguard relevant funds, utilising segregated accounts or insurance. There are strict rules governing these safeguards, especially concerning insolvency.

Temporary Permissions & Brexit:
The UK's exit from the EU (Brexit) requires EEA-based payment and e-money firms to operate under temporary permission schemes while applying for full UK authorisation. This shift from passporting rights necessitates compliance with new UK regulations.

Conduct of Business Requirements:
The PSRs 2017 establish rules for PSPs and EMIs, emphasising transparency, information requirements, payers' and payees' rights, transaction execution timeframes, and complaint-handling. There are prohibitions on certain benefits associated with e-money handling.
Supervision & Enforcement:
The FCA supervises compliance with PSRs and EMRs, enforcing rules and imposing penalties for breaches. They conduct investigations and oversee reporting requirements for potential regulatory issues.

Conclusion:
Understanding these significant regulatory elements is crucial for firms involved in payment services and electronic money in the UK. Full compliance requires a thorough grasp of specific regulations and guidance from legal professionals.


FCA Approach to Payment Institutions and E-Money Authorisations

Lee Werrell

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