Part Xii: Control Over Authorised Persons
349.This Part is concerned with persons who intend to acquire control over UK authorised persons by virtue of their shareholding or voting rights. The Part also deals with increases and decreases in the extent of a person’s control. Specifically, a person who proposes either to acquire control or to increase the level of their control must notify the Authority and secure its approval. The Authority may object to a particular acquisition or increase in control or it may attach certain conditions to its approval. A person proposing to decrease their control must merely notify the Authority of their intention. A breach of the obligations imposed by this Part is a criminal offence. The requirements in this Part are necessary to meet certain single market directive obligations. They carry forward similar requirements in the predecessor legislation. For consistency, the requirements have been extended to cover controllers of all authorised persons incorporated in or formed under the law of any part of the United Kingdom and not just those persons which are included in the scope of the single market directives. This Part does not place notification requirements on persons who exercise control over authorised persons by virtue of their position in that firm or in a parent firm, for example as a director or chief executive. Such people may, however, need to be approved by the Authority under Part V of the Act.
Section 178: Obligation to notify the Authority
350.This section imposes a requirement on persons who propose to acquire control (or acquire an additional kind of control) or increase their control over a UK authorised person to give the Authority a “notice of control” informing them of their intentions. What constitutes “control” and a “kind of control” for these purposes is described in section 179. The circumstances in which a person is taken to “increase” their control are set out in section 180.
351.Subsection (2) provides for passive acquirers of control. These are persons who acquire control without themselves taking any action, for example, through inheriting a large number of shares. A passive acquirer may not be able to notify the Authority in advance, but under this subsection, they must do so within fourteen days of first becoming aware that they have acquired the control.
352.A person who is required by subsection (1) to notify the Authority of his proposal to acquire or increase control is also required by subsection (3) to make a further notification when the acquisition or increase has taken place.
353.Subsection (4) defines the range of authorised persons with whose control this Part is concerned. In line with single market directive requirements this is limited to authorised persons incorporated in or formed under the law of any part of the United Kingdom, “UK authorised persons”. This is because under the single market directives, the supervision of those who have control is subject to home State regulation. The requirements do however cover all classes of UK authorised persons and not just those included in the scope of the single market directives.
Section 179: Acquiring control
354.This section defines the circumstances in which a person acquires control and is therefore subject to the obligation to notify the Authority under section 178(1)(a) or (b).
355.A person may acquire control either directly via a shareholding or voting power in the UK authorised person itself, or indirectly via a shareholding or voting power in a parent of the UK authorised person. This is required by the single market directives.
356.Subsection (3) provides that for the purposes of determining whether a person has acquired control, the percentage shareholding or voting power is aggregated with that of their associates as defined in section 422. This means, for example, that where a firm has a holding of 5 per cent of the shares in a UK authorised person and one of its subsidiaries has a holding of 7 per cent of the shares in the same UK authorised person, the firm will be required to notify the Authority.
357.Subsection (4) sets out what constitutes a “kind” of control. A person who has control of one kind would be required under section 178 to notify the Authority again were they to acquire control of a different kind either as well as, or instead of, the control they had before.
Section 180: Increasing control
358.This section sets out the circumstances in which an increase in a person’s control causes them to be subject to the obligation to notify the Authority under section 178(1)(c). These are that a person’s shareholding or voting power must cross one of the thresholds set out in subsection (2), or they must become a parent of the UK authorised person. These thresholds are determined largely by the single market directives.
Section 181: Reducing control
359.This section sets out the circumstances in which a reduction in a person’s control causes them to be subject to the obligation to notify the Authority under section 190. These are that a person’s shareholding or voting power must cross one of the thresholds set out in subsection (2), or they must cease to be a parent of the UK authorised person. The level of these thresholds is as for an increase in control and again they are determined largely by the single market directives.
Section 182: Notification
360.This section concerns the procedure to be followed when notifying the Authority. It specifies that the Authority may indicate the information and documents that must be supplied in support of a notification.
361.Subsection (2) confers a power on the Authority to require persons giving a notice of control to provide the Authority with such additional information as the Authority may reasonably considers necessary to determine the application.
Section 183: Duty of Authority in relation to notice of control
362.This section gives the Authority up to three months from the date it receives a completed notice to determine whether to approve the application or issue a warning notice indicating that it is proposing to object to the acquisition of, or increase in, control.
363.Subsection (2) imposes a requirement on the Authority to consult home State competent authorities when required to do so by regulations made by the Treasury. The nature of this requirement is determined by the single market directives.
Section 184: Approval of acquisition of control
364.The Authority is obliged by this section to notify the applicant without delay if it gives its approval.
365.If the Authority fails to indicate its approval or to issue a warning notice within three months, subsection (2) provides that the applicant is to be treated for the purposes of the Part as having been approved.
366.As a result of subsection (3), the approval is valid for a year, unless the Authority notifies the person intending to acquire control of a another time period. If the person does not acquire the control in that period, a fresh application is required.
Section 185: Conditions attached to approval
367.This section concerns the ability of the Authority to make its approval subject to the imposition of conditions on the applicant. The Authority is able to impose such conditions as it considers desirable, having regard to its duty under section 41 to ensure that, in general, the threshold conditions will continue to be met in relation to the UK authorised person subject to the control concerned.
368.If the Authority imposes conditions, subsections (3) and (4) require it to issue the person with a warning notice and a decision notice. The person has a right to refer the matter to the Tribunal.
369.Under subsection (5), persons on whom conditions are imposed may apply to the Authority to have the conditions varied or cancelled. The Authority may itself cancel a condition.
370.The Authority may serve a notice of objection on persons who breach any conditions imposed by this section. This is provided for in section 187.
Section 186: Objection to acquisition of control
371.This section gives the Authority the power to object to the acquisition of new or additional control, or to an increase in control.
372.The Authority can object to a person acquiring or increasing their control where it is not satisfied that the approval requirements set out in subsection (2) are met.
373.Subsection (4) confers a duty on the Authority to notify the applicant if it considers that the conditions for approval would be met if the applicant took or refrained from taking a particular step.
Section 187: Objection to existing control
374.This section provides the Authority with the power to object to an existing controller if it is satisfied that the approval requirements are not met or that a condition imposed under section 185 has been breached. The Authority may also object to a person who acquired or increased control without notifying the Authority in the required manner.
Section 188: Notices of objection under section 187: procedure
375.This section sets out the process by which the Authority can object under section 187 to an existing controller. If the Authority wishes to object to a controller, it is obliged to give him a warning notice.
376.Subsection (2) has the effect that the Authority must comply with any requirements prescribed by the Treasury with respect to the consultation of other competent authorities outside the UK before it gives a warning notice. The Treasury will exercise this power to ensure that effect is given to requirements imposed by the single market directives to consult home State competent authorities.
Section 189: Improperly acquired shares
377.This section makes provision enabling the Authority to restrict rights deriving from shares in the case of persons who continue to hold shares in breach of a notice of objection. It is a requirement of the single market directives that these powers should be available.
378.The Authority also has the option of applying to the court for an order directing the sale of shares under subsection (3). If shares are sold in this way, subsection (6) provides that the proceeds (net of the costs of the sale) will be paid, via the court, to persons beneficially interested in them.
379.Subsection (7) provides that the powers in this section may only be exercised in relation to shares acquired in breach of a notice of objection or in contravention of a condition imposed by the Authority, and not to any other shares held by the person or his associates.
Section 190: Notification
380.This section concerns notification of reductions in, and cessations of, control, whether or not the reduction or cessation is intentional.
381.Under subsection (1) a person who proposes to reduce the control that they have over a UK authorised person, or to cease to have any control, must notify the Authority that that is their intention. The circumstances in which a reduction in control triggers this notification requirement are set out in section 181. A person required to notify the Authority under this subsection must, under subsection (3), notify the Authority again when the proposed reduction or cessation of control actually occurs.
382.Subsection (2) requires persons whose control is reduced, or ceases, without themselves taking any action, to notify the Authority within 14 days of becoming aware of the reduction or cessation.
383.Subsection (4) sets out various requirements in relation to the notices given pursuant to this section.
384.The Authority has no power to make any objection in these circumstances but it is an offence to fail to give the necessary notification.
Section 191: Offences under this Part
385.This section sets out the offences in relation to this Part.
386.Subsections (1) and (2) provide that it is an offence not to notify the Authority in accordance with the requirements in this Part when acquiring, increasing, reducing or ceasing to have control over a UK authorised person.
387.Subsections (3) and (4) provide that where proper notification has been given, it is an offence to carry out a proposal before the Authority has given its approval or, where it has issued a warning notice, before it has decided whether to follow the warning notice with a notice of objection.
388.A person guilty of any of the above offences is liable on summary conviction to a fine not exceeding level 5 on the standard scale, currently £5,000.
389.It is also an offence, under subsection (5), to acquire control in contravention of a notice of objection. This is a more serious offence and a person guilty of it may be convicted on indictment to imprisonment for a term of up to two years and to a fine. There are lesser fines on summary conviction. The penalties are set out in subsections (7) and (8), and include provision for a daily fine if the offence continues.
390.Subsection (9) provides a defence for those who are prosecuted for failing to notify the Authority of their influence. The defence is available if a person can show that he was unaware of the act or circumstance by virtue of which the duty to notify the Authority arose. In these circumstances, the person must notify the Authority within 14 days subsequently of becoming aware. Failure to do so is a criminal offence, the penalty on summary conviction being a fine not exceeding level 5 on the standard scale, currently £5,000.
Section 192: Power to change definitions of control etc.
391.This section gives the Treasury power to amend by order certain definitions in this Part and others which are relevant to it, and to provide for exemption from the obligation to notify increases or reductions in control under sections 178 and 190.
392.The Treasury may alter the cases in which a person is said to acquire control as set out in section 179, and therefore it also has a power to change the definition of controller in section 422 to ensure the two remain aligned. The Treasury may also alter the thresholds the crossing of which triggers the requirements in this Part to notify an increase or decrease in control. This power is necessary to give effect to any future change in the single market directive requirements for controllers of UK authorised persons who are not currently covered by the single market directives.
