CP25/23 – Supervisory statement – Prudential assessment of acquisitions and increases in control

The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have launched a joint consultation on the replacement of the EU Guidelines for the prudential assessment of acquisitions and increase of holdings in the financial sector (3L3 Guidelines). The guidelines set out the procedures to be followed and the criteria to be considered in evaluating acquisitions and large position increases, including
– the reputation of the acquiring firm, including its integrity and competence;
– the reputation and professional experience of those that will direct the business;
– the financial standing of the acquirer;
– compliance with prudential requirements of the acquirer; and
– the potential for money laundering (ML) and terrorist financing (TF)
for purposes of determining whether or not such acquisitions or increases in holdings should be permitted. The guidelines also set out corresponding notification requirements and provisions for cooperation between regulatory authorities and affected firms.
The replacement would lead to the issuance of a new supervisory statement on part of the PRA, the removal of references to the EU guidelines in the PRA’s Statement of Policy (SoP) on the „Interpretation of EU Guidelines and Recommendations: Bank of England and PRA approach after the UK’s withdrawal from the EU“, the deletion of supervisory statement SS33/15 on the „Aggregation of holdings for the purpose of prudential assessment of controllers“, and the removal of the equivalent sections from the FCA Handbook and the FCA website. The proposed changes may be found in the enclosed appendices.
##### According to the PRA and the FCA, the EU guidelines – in large – will be adopted as is with some key changes, including the following:
(1) Conditional approvals section (new addition): The PRA and FCA propose a new section in either of the supervisory statement or the FCA guidance allowing conditional approvals of acquisitions and increase in holdings, as this power was recently conferred to them with the implementation of the FSMA 2023.
(2) Significant influence criteria: The new guidelines provide different examples to determine significant influence over a target firm. The PRA and FCA believe these examples to be more suitable for UK purposes.
(3) Aggregation of holdings: There’s a difference in the approach to aggregating indirect holdings. The PRA and FCA diverge from the 3L3 Guidelines because they believe the 3L3 approach is inconsistent with the FSMA 2000. The majority of the new text is from SS33/15 (which is to be deleted), but includes clarifications regarding the identification of a parent of an undertaking and its control under the FSMA 2000.
(4) Notification submission process: The section on submitting notifications is revised. It now explains how applicants can make notifications specifically to the PRA and FCA, directing them to the Bank of England’s website for the new requirements. In this context, it may also be noted that the regulators propose to include provisions that the PRA and FCA might request supplementary information beyond what’s requested in the standard application form, particularly in more difficult acquisition or position cases. This addition aims to address situations where the complexity of the application might warrant further details or clarifications beyond the usual requirements.