Change in Control Under Section 178: A Practical Guide
Anyone acquiring or increasing control of an FCA-authorised firm must obtain approval before completing. The obligation sits on the acquirer rather than the firm, it applies at thresholds lower than most people expect, and completing without approval is a criminal offence.
This guide covers who needs approval, the thresholds, what the assessment involves, and the practical problems that derail transactions involving regulated firms.
The Basic Obligation
Under section 178 of the Financial Services and Markets Act, a person proposing to acquire or increase control over a UK authorised firm must notify the regulator and obtain approval before the acquisition takes effect. The FCA’s change in control pages set out the process and forms.
Two features catch people out. The obligation falls on the acquirer, not the target, so a firm being bought cannot discharge it on the buyer’s behalf. And approval must be obtained before completion, not after — this is not a notification regime.
The Thresholds
Control is assessed by reference to shares or voting power, and the first threshold is ten per cent — considerably lower than the twenty-five per cent figure familiar from beneficial ownership work.
Further approvals are required on crossing twenty per cent, thirty per cent and fifty per cent. For some firm types the structure differs, and significant influence can constitute control even below the percentage thresholds.
Holdings of connected persons aggregate. A family or a group of persons acting in concert can cross a threshold collectively while no individual does, and that is a frequent source of inadvertent breach rather than deliberate avoidance.
Indirect Control Catches People Out
Control can be held indirectly through a chain of entities, which means the obligation reaches further up a structure than a cursory look suggests.
Where an authorised firm is owned by a holding company, a person acquiring control of the holding company is acquiring indirect control of the authorised firm, and approval is required. In private equity and corporate group transactions this frequently means approvals are needed several layers above the regulated entity, including for fund structures and their controlling persons.
Mapping the control chain early is the single most useful piece of transaction preparation, because the answer determines how many applications are needed and from whom.
What Is Assessed
The assessment examines the suitability of the proposed controller and the financial soundness of the acquisition. In practice that covers the controller’s reputation and integrity, the reputation and experience of anyone who will direct the firm’s business as a result, financial soundness including the funding of the acquisition, whether the firm will continue to meet its threshold conditions, and whether the transaction raises money laundering or terrorist financing concerns.
The last element is where structures matter. A transaction funded through opaque arrangements, or involving controllers in higher-risk jurisdictions, attracts materially more scrutiny, and the firm should expect to evidence source of funds for the acquisition itself.
Timing
A statutory assessment period applies once a complete notification is received, with provision for the regulator to interrupt the clock while it waits for requested information.
The practical consequences for a transaction are two. First, the clock runs from completeness, so an incomplete notification does not start it. Second, the interruption mechanism means a single unanswered question can add materially to the elapsed time, which is why preparing thoroughly beats submitting early.
Transactions involving several controllers in a chain need the applications coordinated, because approval of one is of limited use without the others.
Where Transactions Go Wrong
Four problems account for most difficulties.
Discovering the requirement late. Deal timetables set without reference to the approval period, then compressed to fit, which produces rushed applications and more questions.
Mapping the chain incorrectly. Missing an indirect controller means an application that is incomplete in a way that is not obvious until the regulator asks.
Thin information on the controller. Where the acquirer is an individual or a vehicle without an established regulatory history, the evidence required is more extensive than the parties expect, and assembling it takes time.
Ignoring what happens after. A change of ownership frequently changes who runs the firm, which brings senior manager applications of its own.
Due Diligence on a Regulated Target
Buyers of regulated firms frequently run commercial and financial due diligence thoroughly and regulatory due diligence lightly, which is the wrong way round given what can be inherited.
The areas worth examining are the firm’s permissions and whether they match what it actually does, any requirements or limitations attached to them, its supervisory history including correspondence and any past enforcement, the state of its compliance arrangements, open complaints and any redress exposure, and whether past business reviews have been conducted or avoided.
Conduct liability is the one that most often surprises. Historic business can generate redress obligations years later, and a buyer acquiring the entity acquires that exposure. A firm with thin file records from an earlier period is carrying a risk that cannot be quantified, which is a pricing question as much as a legal one.
The First Hundred Days Afterwards
Approval is the beginning rather than the end, and the period immediately after completion is where regulated acquisitions most often lose value.
Three things need attention early. Senior manager documentation must reflect reality — statements of responsibilities describing the previous structure are a visible failure. The compliance function frequently loses people during a change of ownership, and the functions that cannot sit vacant need continuity planned rather than assumed. And where the buyer intends to change the business model, that may itself require a variation of permission, which is a separate application with its own timetable.
Supervisors take an interest in firms that have recently changed hands, so the period after completion is a poor time for the firm’s arrangements to be in transition without anyone owning them.
The Senior Manager Dimension
New owners usually want their own people on the board, and those appointments are separate pre-approval applications with their own timetable.
Planning these alongside the change in control, rather than after it, avoids the common position where ownership has transferred but the people intended to run the firm are not yet approved. Where incumbent senior managers are expected to leave, the firm also needs to consider continuity — particularly for Compliance Oversight and the MLRO function, where a gap is more consequential than for most roles.
Our guide to how long SMF approval takes covers that timetable, and temporary cover and the 12-week rule covers what to do if a gap opens.
Decreasing or Ceasing Control
Notification obligations also apply to reductions in control, on crossing the thresholds downward and on ceasing to be a controller.
These are more straightforward than acquisitions but are frequently forgotten, particularly where a shareholding is diluted by a funding round rather than sold. The practical control is to review the controller position whenever the share register changes rather than only on transactions.
Preparing the Notification
The firms that get through efficiently prepare four things before submitting: a complete control chain showing every person requiring approval, full information on each controller including financial position and regulatory history, a clear explanation of how the acquisition is funded with evidence, and a statement of what will change at the firm afterwards.
That last item is worth attention. The regulator is assessing whether the firm will continue to meet its threshold conditions under new ownership, and an application that describes the transaction without describing the firm’s future is only half an answer.
Frequently Asked Questions
Who applies, the buyer or the firm?
The acquirer. The target firm cannot discharge the obligation on their behalf, though in practice it is closely involved.
What if we complete without approval?
Completing without the required approval is a criminal offence, and the regulator has powers in relation to the shares acquired. It is not a procedural irregularity to be regularised afterwards.
Does ten per cent really trigger it?
Yes, and aggregation with connected persons can take a holding over the threshold even where no individual crosses it.
Do private equity structures need approval at fund level?
Frequently yes. Indirect control reaches up the chain, and mapping it early determines how many applications are required.
Hiring for compliance?
We place the people who own this function
Compliance Oversight holders on a permanent, part-time, fractional and interim basis. Tell us what the firm does and we will give you an honest view on what the role actually needs.
Related guides and services
Practice area
Authorisation
Practice area
Wider compliance
About the author
Adrian Lawrence FCA
Adrian is the founder and Managing Director of FD Capital. A Chartered Accountant and ICAEW Fellow, he became a finance director at 28 and has spent more than 25 years at C-suite level, including as finance director of a listed company and of a private equity backed management buy-out. Every search is run by our specialist team, with Adrian overseeing each mandate.
Start a search
Tell us about your finance hire
Share a few details about your business and the role. A member of our team will review your brief and come back to you to talk it through.
- Reply within one working day, from a consultant who places finance leaders every day
- Confidential from the first conversation, with no obligation to go ahead
- Shortlists typically within three to seven days, faster for urgent interim cover
Your details are used only to respond to your enquiry.
Accredited Member of GBC 
Accredited Member of LWF 
Carbon Offset via TreeNation