As of 11 August 2022, the UK Financial Conduct Authority (FCA) has expanded its change in control regime to include FCA-registered cryptoasset businesses. An acquisition of more than 25% of a cryptoasset business now requires prior FCA approval.
From 11 August 2022, a person wishing to acquire 'control' of a FCA-registered cryptoasset business, directly or indirectly, must receive prior FCA approval. A failure to obtain FCA approval if required to do so is now a criminal offence. This obligation arises by virtue of the new Regulation 60B and Schedule 6B to the UK's Money Laundering Regulations (MLRs), which apply Part 12 of the Financial Services and Markets Act 2000 (FSMA) to cryptoasset businesses, albeit with some modifications. The changes give the FCA the opportunity to undertake a 'fit and proper' assessment of the proposed controller, as well as the power to object to the transaction and to make its reasons for objecting public.
A body corporate or partnership will be a "controller" if it falls within the definition of "beneficial owner" under the MLRs. This means a person who owns more than 25% of the shares or voting rights in the cryptoasset business, or otherwise has significant influence or control over the cryptoasset business or its management. A different test applies to proposed acquirers that are trusts or similar legal arrangements.
The FCA has also published new forms for proposed controllers of cryptoasset businesses, which are very closely aligned to the existing notices that proposed controllers of FCA-authorised firms must submit under section 178 of FSMA. The process will therefore involve significant information disclosure for proposed controllers as well as the preparation of a business plan where a 50%+ investment is concerned.
The MLRs already provide the FCA with the powers to refuse to register a cryptoasset firm and/or take steps to suspend or cancel the registration of a cryptoasset business if it is not satisfied that the firm/its beneficial owner is ‘fit and proper’. As it can take up to 90 days from the date of acquisition to cancel a firm’s registration, the FCA’s main concern was that unsuitable controllers could bypass the registration process under the MLRs by acquiring cryptoasset firms that were already registered. This would have potentially enabled controllers to undertake illicit activities before the FCA could take any action. Bringing cryptoasset businesses within the scope of the FCA’s change in control regime is expected to close this gap in the MLRs by:
(i) requiring proposed acquirers of cryptoasset firms to notify the FCA ahead of such acquisitions;
(ii) allowing the FCA to undertake a ‘fit and proper’ assessment of the acquirer; and
(iii) providing the FCA with powers to object to any acquisition before it takes place and cancel registration of the firm being acquired.
As a result of this development, transactions involving cryptoasset businesses will now be subject to regulatory change in control conditions precedent, which will inevitably extend the deal timetable. The FCA has issued a public statement noting that its Change in Control team is also experiencing unprecedented delays, with an estimated delay of approximately one and a half months between submission of a complete notification and allocation to a case officer for assessment.
Anita Edwards (Professional Support Lawyer - Financial Services Regulatory, White & Case, London) co-authored this publication
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