• GEN 8.8 GEN 8.8 Changes relating to control

    • GEN 8.8.1 GEN 8.8.1

      (1) This Rule applies, subject to (2) and (3), to:
      (a) an Authorised Person; or
      (b) a Person who is, or is proposing to become, a Controller specified in Rule 8.8.2.
      (2) This Chapter does not apply to a Representative Office or a Person who is a Controller of such a Representative Office.
      (3) A Credit Rating Agency must comply with the requirements in this Rule as if it were a non-ADGM established company.

      • Guidance

        The requirements in respect of notification of changes relating to control of Branches (i.e. non-ADGM established companies) are set out in Rule 8.8.10. Although some Credit Rating Agencies may be companies established in the ADGM, such companies will only be subject to the notification requirements relating to their Controllers. Accordingly, regardless of whether a Credit Rating Agency is a company established in the ADGM or a Branch operation, it is subject to the notification requirements only and not to the requirement for prior approval by the Regulator of changes relating to its Controllers.

    • Definition of a Controller

      • GEN 8.8.2 GEN 8.8.2

        (1) A Controller is a Person who, either alone or with any Associate:
        (a) Holds 10% or more of the Shares in either the Authorised Person or a Holding Company of that Authorised Person;
        (b) is entitled to exercise, or controls the exercise of, 10% or more of the voting rights in either the Authorised Person or a Holding Company of that Authorised Person; or
        (c) is able to exercise significant influence over the management of the Authorised Person as a result of Holding Shares or being able to exercise voting rights in the Authorised Person or a Holding Company of that Authorised Person or having a current exercisable right to acquire such Shares or voting rights.
        (2) A reference in this Chapter to the term:
        (a) "Share" means:
        (i) in the case of an Authorised Person, or a Holding Company of an Authorised Person, which has a share capital, its allotted shares;
        (ii) in the case of an Authorised Person, or a Holding Company of an Authorised Person, with capital but no share capital, rights to a share in its capital; and
        (iii) in the case of an Authorised Person, or a Holding Company of an Authorised Person, without capital, any interest conferring a right to share in its profits or losses or any obligation to contribute to a share of its debt or expenses in the event of its Winding-Up; and
        (b) "Holding" means, in respect of a Person, Shares, voting rights or a right to acquire Shares or voting rights in an Authorised Person or a Holding Company of that Authorised Person held by that Person either alone or with any Associate.
        (3) The Regulator may make additional rules which:
        (a) provide for exemptions from the obligations to notify imposed by Rules 8.8.5, 8.8.9 and Part 10 of the FSMR; or
        (b) amend the cases in this Chapter where a person is deemed to be:
        (i) acquiring control over an Authorised Person or Recognised Body;
        (ii) increasing control over an Authorised Person or Recognised Body;
        (iii) reducing or ceasing to have control over an Authorised Person or Recognised Body;
        (iv) a Controller of an Authorised Person.

        • Guidance

          1. For the purposes of these Rules, the relevant definition of a Holding Company is found in the Companies Regulations. That definition describes when one Body Corporate is considered to be a Holding Company or a Subsidiary of another Body Corporate and extends that concept to the ultimate Holding Company of the Body Corporate.
          2. Pursuant to Rule 8.8.2(1)(c), a Person becomes a Controller if that Person can exert significant management influence over an Authorised Person. The ability to exert significant management influence can arise even where a Person, alone or with his Associates, controls less than 10% of the Shares or voting rights of the Authorised Person or a Holding Company of that Authorised Person. Similarly, a Person may be able to exert significant management influence where such Person does not Hold Shares or voting rights but has current exercisable rights to acquire Shares or voting rights, such as under Options.

    • Disregarded holdings

      • GEN 8.8.3

        For the purposes of determining whether a Person is a Controller, any Shares, voting rights or rights to acquire Shares or voting rights that a Person Holds, either alone or with any Associate with whom they are acting in concert, in an Authorised Person or a Holding Company of that Authorised Person are disregarded if:

        (a) they are Shares held for the sole purpose of clearing and settling within a short settlement cycle;
        (b) they are Shares held in a custodial or nominee capacity and the voting rights attached to the Shares are exercised only in accordance with written instructions given to that Person by another Person;
        (c) they are Shares representing no more than 5% of the total voting power and are Held by an Authorised Person with a Financial Services Permission to deal as principal, who:
        (i) Holds the Shares in the capacity of a market maker; and
        (ii) neither intervenes in the management of the Authorised in which it Holds the Shares, nor exerts any influence on that Authorised Person to buy the Shares or back the Share price; or
        (d) the Person is an Authorised Person and it:
        (i) acquires the Shares as a result of an Underwriting of a Share issue or a placement of Shares on a firm commitment basis;
        (ii) does not exercise the voting rights attaching to the Shares or otherwise intervene in the management of the Issuer; and
        (iii) retains the Shares for a period less than one year.

    • Requirement for prior approval of Controllers of Domestic Firms

      • GEN 8.8.4 GEN 8.8.4

        (1) In the case of an Authorised Person which is a Domestic Firm, a Person must not:
        (a) become a Controller; or
        (b) increase the level of control which that Person has in the Domestic Firm beyond a threshold specified in (2),
        unless that Person has obtained the prior written approval of the Regulator to do so.
        (2) For the purposes of (1)(b), the thresholds at which the prior written approval of the Regulator is required are when the relevant Holding is increased:
        (a) from below 20% to 20% or more;
        (b) from below 30% to 30% or more; or
        (c) from below 50% to 50% or more.

        • Guidance

          1. See Rules 8.8.2 and 8.8.3 for the circumstances in which a Person becomes a Controller of an Authorised Person.
          2. The Regulator recognises that Authorised Persons acting as Investment Managers may have difficulties in complying with any prior notification requirements in these Rules as a result of acquiring or disposing of listed Shares in the course of that Fund management activity. To ameliorate these difficulties, the Regulator may accept pre-notification of proposed changes in control and may grant approval of such changes for a period lasting up to a year.

    • Approval process

      • GEN 8.8.5 GEN 8.8.5

        (1) A Person who is required to obtain the prior written approval of the Regulator pursuant to Rule 8.8.4(1) must provide written notice to the Regulator in such form as the Regulator shall prescribe.
        (2) The written notice provided under (1) must be in such form, include such information and be accompanied by such Documents as the Regulator may require.
        (3) Where the Regulator receives an application under (1), it may:
        (a) approve the proposed acquisition or increase in the level of control;
        (b) approve the proposed acquisition or increase in the level of control subject to such conditions as it considers appropriate; or
        (c) object to the proposed acquisition or increase in the level of control.
        (4) The Regulator may request such further information from the notice-giver as it deems necessary for the purposes of making its decision under (3).
        (5) Any approval of an application under (3)(a) or (b) will be effective for such period as the Regulator may specify, and subsequently vary, in writing.

        • Guidance

          1. A Person intending to acquire or increase control in an Authorised Person should submit an application for approval in such form as the Regulator shall prescribe sufficiently in advance of the proposed acquisition to be able to obtain the Regulator approval in time for the proposed acquisition. The GPM sets out the matters which the Regulator will take into consideration when exercising its powers under Rule 8.8.5 to approve, object to or impose conditions of approval relating to a proposed Controller or a proposed increase in the level of control of an existing Controller.
          2. The Regulator will exercise its powers relating to Controllers in a manner proportionate to the nature, scale and complexity of an Authorised Person's business, and the impact a proposed change in control would have on that Authorised Person and its Clients. For example, the Regulator would generally be less likely to impose conditions requiring a proposed acquirer of control of an Authorised Person whose financial failure would have a limited systemic impact or impact on its Clients to provide prudential support to the Authorised Person by contributing more capital. Most advisory and arranging Authorised Persons will fall into this class.

      • GEN 8.8.6 GEN 8.8.6

        (1) Where the Regulator proposes to approve a proposed acquisition or an increase in the level of control in an Authorised Person pursuant to Rule 8.8.5(3)(a), it must:
        (a) do so as soon as practicable and in any event within 90 days of the receipt of a duly completed application, unless a different period is considered appropriate by the Regulator and notified to the applicant in writing; and
        (b) issue to the applicant, and where appropriate to the Authorised Person, an approval notice as soon as practicable after making that decision.
        (2) An approval pursuant to Rule 8.8.5(3)(a), including a conditional approval granted by the Regulator pursuant to Rule 8.8.5(3)(b), is valid for a period of one year from the date of the approval, unless an extension is granted by the Regulator in writing.

        • Guidance

          1. If the application for approval lodged with the Regulator does not contain all the required information, then the 90 day period runs from the date on which all the relevant information has been provided to the Regulator.
          2. If a Person who has obtained prior Regulator approval for an acquisition or an increase in the control of an Authorised Person is unable to effect the acquisition before the end of the period referred to in Rule 8.8.6(2), it will need to obtain fresh approval from the Regulator.

    • Objection or conditional approval process

      • GEN 8.8.7

        (1) Where the Regulator proposes to exercise its conditional approval or objection power pursuant to Rule 8.8.5(3)(b) or (c) respectively, in respect of a proposed acquisition of, or an increase in the level of control in, an Authorised Person, it must, as soon as practicable and in any event within 90 days of the receipt of the duly completed application form, provide to the applicant:
        (a) a written notice stating:
        (i) the Regulator's reasons for objecting to that Person as a Controller or to the Person's proposed increase in control; and
        (ii) any proposed conditions subject to which that Person may be approved by the Regulator; and
        (b) an opportunity for the Person to make representations within 14 days of the receipt of such notice in (a) or such other longer period as agreed to by the Regulator.
        (2) The Regulator must, as soon as practicable after receiving representations or, if no representations are received, after the expiry of the period for making representations referred to in (1)(b), issue a final notice stating that:
        (a) the proposed objections and any conditions are withdrawn and the Person is an approved Controller;
        (b) the Person is approved as a Controller subject to conditions specified in the notice; or
        (c) the Person is not approved and therefore is an unacceptable Controller with respect to that Person becoming a Controller of, or increasing the level of control in, the Authorised Person.
        (3) If the Regulator decides to exercise its power under this Rule not to approve a Person as a Controller or to impose conditions on an approval, the Person may refer the matter to the Regulatory Committee for review.

      • GEN 8.8.8 GEN 8.8.8

        (1) A Person who has been approved by the Regulator as a Controller of an Authorised Person subject to any conditions must comply with the relevant conditions of approval.
        (2) A Person who has been notified by the Regulator pursuant to Rule 8.8.7(2)(c) as an unacceptable Controller must not proceed with the proposed acquisition of control of the Authorised Person.

        • Guidance

          1. A Person who acquires control of or increases the level of control in an Authorised Person without the prior Regulator approval or breaches a condition of approval is in breach of the Rules. See Rules 8.8.13 and 8.8.14 for the actions that the Regulator may take in such circumstances.
          2. In assessing a proposed acquisition or increase in control, the Regulator may generally consider the suitability of the notice-giver, the financial soundness of the acquisition in order to ensure the sound and prudent management of the Authorised Person, and the likely influence that the notice-giver will have on the Authorised Person.
          3. In determining whether to object to a proposed acquisition, the Regulator may consider:
          a. the reputation of the notice-giver or of any person who will direct the business of the Authorised Person as a result of the acquisition;
          b. the financial soundness of the notice-giver;
          c. whether the Authorised Person will be able to comply with its prudential requirements;
          d. where the Authorised Person is to become part of a Group as a result of the acquisition, whether the structure of such a Group will allow for effective supervision and the exchange of information with the Regulator where required;
          e. whether there are reasonable grounds to suspect that money laundering or terrorist financing has been, or may be, committed in connection with the proposed acquisition; and
          f. whether the proposed acquisition is contrary to one or more of the Regulator's objectives.

    • Notification for decrease in the level of control of Domestic Firms

      • GEN 8.8.9

        (1) A Controller of an Authorised Person which is a Domestic Firm must submit, in such form as the Regulator shall prescribe, a written notification to the Regulator where that Person:
        (a) proposes to cease being a Controller;
        (b) proposes to decrease that Person's Holding from:
        (i) more than 50% to 50% or less;
        (ii) more than 30% to 30% or less; or
        (iii) more than 20% to 20% or less.
        (2) A written notice provided under (1) must be in such form, include such information and be accompanied by such Documents as the Regulator may reasonably require.

    • Requirement for notification of changes relating to control of Branches

      • GEN 8.8.10

        (1) In the case of an Authorised Person which is a Branch, a written notification to the Regulator must be submitted by a Controller or a Person proposing to become a Controller of that Authorised Person in accordance with (3) in respect of any one of the events specified in (2).
        (2) For the purposes of (1), a notification to the Regulator is required when:
        (a) a Person becomes a Controller;
        (b) an existing Controller proposes to cease being a Controller; or
        (c) an existing Controller's Holding is:
        (i) increased from below 30% to 30% or more;
        (ii) increased from below 50% to 50% or more; or
        (iii) decreased from more than 50% to 50% or less.
        (3) The notification required under (1) must be made by a Controller or Person proposing to become a Controller of a Branch in such form as the Regulator shall prescribe as soon as possible, and in any event, before making the relevant acquisition or disposal.

    • Obligations of Authorised Persons relating to its Controllers

      • GEN 8.8.11 GEN 8.8.11

        (1) An Authorised Person must have adequate systems and controls to monitor:
        (a) any change or proposed change of its Controllers; and
        (b) any significant changes in the conduct or circumstances of existing Controllers which might reasonably be considered to impact on the fitness and propriety of the Authorised Person, or on its ability to conduct business soundly and prudently.
        (2) An Authorised Person must, subject to (3), notify the Regulator in writing of any event specified in (1) as soon as possible after becoming aware of that event.
        (3) An Authorised Person need not comply with the requirement in (2) if it is satisfied on reasonable grounds that a proposed or existing Controller has either already obtained the prior approval of the Regulator or notified the event to the Regulator as applicable.

        • Guidance

          Steps which an Authorised Person may take in order to monitor changes relating to Controllers include the monitoring of any relevant regulatory disclosures, press reports, public announcements, share registers and entitlements to vote or the control of voting rights at general meetings.

      • GEN 8.8.12 GEN 8.8.12

        (1) An Authorised Person must submit to the Regulator an annual report on its Controllers within four months of its financial year end.
        (2) The Authorised Person's annual report on its Controllers must include:
        (a) the name of each Controller; and
        (b) the current holding of each Controller, expressed as a percentage.

        • Guidance

          1. An Authorised Person may satisfy the requirements of Rule 8.8.12 by submitting a corporate structure diagram containing the relevant information.
          2. An Authorised Person must take account of the Holdings which the Controller, either alone or with any Associate, has in the Authorised Person or any Holding Company of the Authorised Person (see the definition of a Controller in Rule 8.8.2(1)).

    • Other Powers relating to Controllers

      • GEN 8.8.13 GEN 8.8.13

        (1) Without limiting the generality of its other powers, the Regulator may, subject only to (2), object to a Person as a Controller of an Authorised Person where such a Person:
        (a) has acquired or increased the level of control that Person has in an Authorised Person without the prior written approval of the Regulator as required under Rule 8.8.4;
        (b) has breached the requirement in Rule 8.8.8(1) to comply with the conditions of approval applicable to that Person; or
        (c) is no longer acceptable to the Regulator as a Controller.
        (2) Where the Regulator proposes to object to a Person as a Controller of an Authorised Person under (1), the Regulator must provide such a Person with:
        (a) a written notice stating:
        (i) the Regulator's reasons for objecting to that Person as a Controller; and
        (ii) any proposed conditions subject to which that Person may be approved by the Regulator; and
        (b) an opportunity for the Person to make representations within 14 days of the receipt of such objections notice in (a) or such other longer period as agreed to by the Regulator.
        (3) The Regulator must, as soon as practicable after receiving representations, or if no representations are made, after the expiry of the period for making representations referred to in (2)(b), issue a final notice stating that:
        (a) the proposed objections and any conditions are withdrawn and the Person is an approved Controller;
        (b) the Person is approved as a Controller subject to conditions specified in the notice; or
        (c) the Person is an unacceptable Controller and accordingly, must dispose of that Person's Holdings.
        (4) Where the Regulator has issued a final notice imposing any conditions subject to which a Person is approved as a Controller, that Person must comply with those conditions.
        (5) Where the Regulator has issued a final notice declaring a Person to be an unacceptable Controller, that Person must dispose of the relevant Holdings within such period as specified in the final notice.
        (6) The Regulator may apply to the Court for the order of the sale or disposition of shares held in Contravention to a final notice, in accordance with (5).
        (7) The Regulator must also notify the Authorised Person of any decision it has made pursuant to (3).
        (8) The Regulator may give a restriction notice directing that, Shares or voting power Held by a Controller in respect of which a final notice has been given, are subject to one or more of the following restrictions:
        (a) any agreement to transfer or a transfer of any such Shares or voting power is void;
        (b) no voting power is to be exercisable;
        (c) no further Shares are to be issued in pursuance of any right of the Holder of any such Shares or voting power or in pursuance of any offer made to their Holder; and
        (d) save for in instances of liquidation, no payment is to be made of any sums due in respect of any such Shares.
        (9) If the Regulator decides to exercise its power under this Rule to object to a Person as a Controller, to impose conditions or restrictions on an approval or to require a Person to dispose of their Holdings, the Person may refer the matter to the Regulatory Committee for review.

        • Guidance

          The GPM sets out the matters which the Regulator takes into consideration when exercising its powers under Rule 8.8.13.

    • Contraventions of the Rules under this Chapter

      • GEN 8.8.14

        (1) A Person commits a Contravention of the Rules under this Chapter where it:
        (a) fails to comply with any obligation of notification under Rules 8.8.5 and 8.8.9;
        (b) makes the proposed acquisition to which the notice it has provided to the Regulator relates, prior to the receipt of any approval, whether conditional or unconditional, from the Regulator;
        (c) Contravenes any conditions imposed by the Regulator upon its giving of a conditional approval to the proposed acquisition under Rule 8.8.7;
        (d) makes the proposed acquisition after the period for which the Regulator has deemed the approval to be effective under Rule 8.8.5(5);
        (e) breaches a direction in a restriction notice given under Rule 8.8.13(8); or
        (f) provides false information to the Regulator.
        (2) Any Contravention in (1) will entitle the Regulator to exercise its powers in Part 19 of the FSMR.