FCA Change in Control: The Section 178 Process for Small Regulated Firms
Buying a stake in an FCA-regulated firm, or increasing an existing holding above certain thresholds, requires prior approval from the FCA. The legal basis is Section 178 of the Financial Services and Markets Act 2000 (FSMA). Getting this wrong is serious: proceeding with an acquisition without notifying the FCA is a criminal offence under Section 191F of FSMA.
For small regulated firms — IFAs, mortgage brokers, insurance brokers, and similar — change in control situations arise more often than founders expect: a shareholder selling a stake, a new investor coming in, or a management buyout can all trigger the obligation. This guide explains who must notify, when, and how the process works.
What counts as "change in control" under FSMA?
A change in control occurs when a person acquires or increases control over an FCA-authorised firm. Section 178 of FSMA requires anyone who "decides to acquire or increase control over a UK authorised person" to give the FCA written notice before making the acquisition.
"Control" is defined by reference to shareholding and voting power thresholds. The main triggers are:
| Threshold | What it means |
|---|---|
| 10% of shares or voting power | First notification threshold — acquiring a 10%+ stake in a regulated firm |
| 20% of shares or voting power | Increased control notification |
| 30% of shares or voting power | Further increased control notification |
| 50% of shares or voting power | Majority control notification |
| Parent undertaking status | Where the acquirer becomes a parent of the regulated firm |
Note on threshold bands: The 10% / 20% / 30% / 50% bands apply to Directive firms — the category covering most IFAs, mortgage intermediaries, and insurance intermediaries (firms authorised under MiFID, the Insurance Distribution Directive, or the Mortgage Credit Directive). Non-Directive firms have a single notification threshold of 20% or more. Limited-permission consumer-credit firms have a single notification threshold of 33% or more (not the banded structure). If you are unsure which category applies to your firm, confirm with specialist regulatory counsel — the correct threshold matters for when you must notify.
Each time a person's holding crosses one of these thresholds — upwards — a new Section 178 notification is required. FSMA also provides that holdings "by persons acting in concert" are aggregated: you cannot sidestep the thresholds by coordinating with others to keep individual holdings below the trigger levels.
The "decision" test
An important nuance is that the obligation arises when a person "decides" to acquire or increase control — not only when the transaction completes. The FCA considers whether the proposed controller was aware of the acquisition and had the ability to influence, object to, or prevent the transaction. In practice, the notification obligation arises when a binding agreement is entered into or, in some cases, when preliminary arrangements are sufficiently firm that the outcome is substantially within the person's control.
Who must make the notification?
The proposed controller — the person acquiring the stake — makes the Section 178 notification. If the acquirer is a corporate entity, the corporate makes the notification. The regulated firm itself does not make the notification on behalf of its incoming controller, though it should ensure that its shareholders and prospective investors are aware of the requirement.
Exemptions
The FCA's guidance lists certain firm types where the change in control regime does not apply, or applies differently:
- Appointed Representatives — APs are not authorised firms; the change in control regime applies to the principal firm, not to the AR
- Sole traders — there are no shares or voting power to transfer; succession planning for a sole trader's regulated business uses a different route
- UCITS qualifiers, UK Insurance Special Purpose Vehicles — specific exemptions apply
The 60-working-day assessment window
Once the FCA receives a complete Section 178 notification, it has 60 working days to assess the case and make a decision. The FCA can interrupt the 60-day clock by requesting further information — during any such interruption period, the clock pauses. Once the FCA has received the additional information, the clock restarts.
The FCA's assessment considers:
- The reputation, integrity, and competence of the proposed controller
- The financial soundness of the proposed controller
- Whether the regulated firm will be able to continue to comply with its regulatory obligations following the change
- Governance arrangements that would result from the change
- Whether the proposed controller has conflicts of interest
The FCA quotes its assessment framework in its published change in control guidance: "We have up to 60 working days from when a notification is considered complete (excluding any interruption period, during which we may ask for more information) to assess a change in control case."
Conditional approvals
FSMA grants the FCA powers to approve a change in control subject to conditions or for a limited period only. This might arise where the FCA has concerns about governance arrangements or wants to impose specific requirements on the incoming controller.
What happens if you do not notify?
Failing to submit a Section 178 notification before proceeding is a criminal offence under Section 191F of FSMA. The FCA can also use its supervisory powers to require a person to reduce or dispose of a stake acquired without approval. At small firms, where ownership structures are often more straightforward and transactions less well-lawyered than at larger firms, the risk of inadvertently omitting the notification is a real one.
SMCR implications of a change in control
A change in control at a small regulated firm typically has SMCR consequences beyond the Section 178 notification itself:
Senior Manager changes. If the incoming controller will take on an executive role at the firm (which is common in small-firm acquisitions where the buyer is also the new operator), they will need FCA approval for the relevant Senior Management Function before they take up the role. A change in control and an SMF approval application often need to run in parallel.
Statement of Responsibilities. When Senior Managers change, Statements of Responsibilities need to be updated and resubmitted. See our Statement of Responsibilities guide for how this works.
Fit and proper assessment. The incoming controller, if they will hold an SMF or Certification Function, needs to go through the firm's fit and proper assessment process, including obtaining regulatory references from previous regulated-sector employers.
Prescribed Responsibilities. The allocation of Prescribed Responsibilities among Senior Managers may need to be reviewed if the leadership structure changes. See our Prescribed Responsibilities guide for the rules.
Practical timeline for a small-firm transaction
For a typical acquisition of a small solo-regulated firm:
- Pre-heads-of-terms: Identify whether the transaction will cross a 10%+ threshold. If yes, plan for the Section 178 notification process.
- Before binding agreement: Prepare and submit the Section 178 notification. The FCA requires submission before the acquisition, not just before completion.
- FCA acknowledgement: The FCA acknowledges the notification and the 60-working-day clock starts. Allow for information requests that pause the clock.
- Parallel SMCR applications: If the incoming controller will hold an SMF, submit the SMF approval application. SMF applications are separate from the Section 178 notification.
- FCA decision: The FCA approves, approves with conditions, or objects. Only after approval can the acquisition proceed.
- Post-completion SMCR update: Update Statements of Responsibilities, Directory Persons data, and any other SMCR documentation affected by the new ownership and management structure.
For the full picture of SMCR at small firms, see our SMCR plain-English guide.
This guide covers the FCA change in control process under FSMA 2000 for acquisitions of solo-regulated firms. It is intended as a practical overview, not legal advice. Change in control transactions should involve specialist regulatory counsel.
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