Conventus Law

Conventus Law

by

On 1 November 2024, the UK Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) published a joint policy statement (PS 18/24) on the prudential assessment of acquisitions and increases in control. The joint policy statement includes a new PRA supervisory statement (SS 10/24) (Supervisory Statement) and new FCA non-Handbook guidance (FG 24/5) (Guidance), replacing the previous EU guidelines (known as the 3L3 Guidelines). The Supervisory Statement and Guidance apply where a person seeks to acquire or increase control (either directly or indirectly) over a PRA- or FCA-authorised firm. 

What’s New? 

The Supervisory Statement and Guidance, which are largely the same in substance, do not introduce any significant changes to the UK change-in-control regime, as compared to the consultation paper. Instead, the PRA and FCA have clarified certain areas in response to the comments received at the consultation stage (CP 25/23) and made changes to the language to enhance the clarity and readability. The key points to note are: 

  • Limited partnership structures: The PRA and FCA have included additional guidance to help with the identification of controllers within limited partnership (Fund) structures with one or more general partners (GPs) that are typically used by private equity firms, venture capital funds and hedge funds. Limited partners (LPs) in Funds may not be aware in advance of investments made nor have the ability to influence, object to or prevent the proposed acquisition or increase in control. In those scenarios, the notice-giver will need to proactively provide information about LPs when notification is submitted. 
     
    GPs typically have the power to exercise the voting rights associated with the Fund’s interest in an undertaking or exercise dominant influence over the Fund. There may also be circumstances in which the Fund has arrangements with an investment manager to manage its portfolio. In these situations, it should be considered, dependent upon the specific arrangements, whether an investment manager would be a controller. 
     
    Where there are different Funds which individually have a holding below the 10% threshold, but share a common GP, consideration should be given to whether the aggregation of voting rights of the Funds are attributable to the GP so that the GP is an indirect controller. 
     
    The Fund may also have LP investors who have no role in its management but, in certain circumstances, may be considered a controller depending on their proportional interest. 
     
    Given that fund structures vary in size, nature and complexity, the PRA and FCA will assess who the controllers are on a case-by-case basis. 
     
  • Private equity and hedge fund ownership: The PRA and FCA have decided to maintain the list of examples where additional information might be required due to the complexity and/or high-risk nature of transactions. In such instances, prior engagement with the regulators is encouraged so that they may explain to notice-givers any specific information requirements they have before the notification is submitted. Notably, one example where the PRA and FCA may require additional information is where a private equity or hedge fund is seeking to acquire, or increase ownership to, 20% or more of an authorised firm. The additional information likely to be requested in these cases are:  
  • A detailed description of the performance of previous acquisitions by the proposed controller (or any person in their ownership structure that would be deemed to be a controller). 
  • Details of the proposed controller’s investment policy and any restrictions on investment. 
  • The proposed controller’s decision-making framework for investment decisions, including the name and position of the individuals responsible for making such decisions. 
  • Where the private equity or hedge fund is not authorised by the FCA, a detailed description of the proposed controller’s anti-money laundering procedures and of the anti-money laundering legal framework applicable to it. 
  • Significant influence: The PRA and FCA have clarified what constitutes “significant influence”. In addition to board appointments at an authorised firm or its parent, the ability to direct or influence decisions by the authorised firm’s board is crucial when considering whether there is significant influence. That direction or influence could be through a shareholder board appointment (to the UK-authorised person or its parent) or other arrangement. Such arrangements include, for example:  
  • Making recommendations to the board of the UK-authorised person which are almost always followed. 
  • The ability to appoint or remove a member of the board of the UK-authorised person. 
  • Material and regular transactions between a person and the UK-authorised person (e.g., the proposed controller’s ownership of intellectual property or a material outsourcing vehicle utilised by the UK-authorised person which may influence how its business is run). 
  • Additional rights in the UK-authorised person by virtue of a contract or a provision in UK-authorised person’s articles of association, other constitutional documents or shareholder agreements. 
  • The existence of veto rights over material matters in relation to the running of the UK-authorised person, such as changes to the business plan or strategy. 
  • Communication with authorities: As part of the assessment of controllers, the PRA and FCA may contact relevant UK authorities and non-UK regulators to understand the timelines of their review process, and request any information relevant to the assessment against the criteria in the Financial Services and Markets Act 2000. This includes information about reputation, knowledge, skills, experience and the financial soundness of the proposed controllers. 

Next Steps 

The Supervisory Statement and Guidance took effect on 1 November 2024. Investors seeking to acquire or increase control over PRA- and FCA-authorised firms should consider the implications of the new guidelines, particularly in complex or high-risk transactions. 

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws. 

WRITTEN BY

For further information, please contact:

Robert A. Chaplin – Skadden,
robert.chaplin@skadden.com

Robert Chaplin focuses primarily on transactional and advisory work in the insurance sector.

Bio

Mr. Chaplin advises on international and domestic mergers, acquisitions, disposals, joint ventures and strategic reinsurances. He has extensive experience in transactions involving financial sponsors and their in-house (re)insurers, portfolio companies and other private capital-owned vehicles. His clients include a diverse range of multinational, U.K., European and Bermudian insurers, reinsurers, brokers and intermediaries, including well-known participants in both the Lloyd’s and London Market. Mr. Chaplin also counsels on emerging and long-standing regulatory issues and developments in the sector (with a particular emphasis on prudential matters, including Solvency II), schemes, restructurings and reorganizations, capital-raisings, life and non-life portfolio transfers, longevity transactions, and distribution and other material commercial agreements. In addition to his extensive transactional and advisory insurance practice, Mr. Chaplin works closely with Skadden’s international litigation and arbitration practitioners in London and around the world in advising insurers, reinsurers and other market players on complex, high-stakes reinsurance disputes.

He has been repeatedly ranked in Chambers UK, in which clients note that he is “incredibly pragmatic in his approach to complex issues,” as well as “innovative, hard-working and very knowledgeable.” He also has been named a Key Lawyer in The Legal 500 UK. Before joining Skadden, he worked at a Magic Circle firm in London for 25 years, including for over 16 years as a partner.

His experience since joining Skadden includes advising:

  • Corebridge Financial, Inc. on the £460 million sale of its U.K. life insurance business to Aviva plc
  • the founders of Markerstudy Group on the £1.27 billion merger of Markerstudy with Ardonagh’s personal lines broking business, Atlanta
  • Intact Financial Corporation and its subsidiary Royal & Sun Alliance Insurance Limited in their US$648 million acquisition of the brokered commercial lines operations of Direct Line Insurance Group plc
  • BlackRock on its acquisition of Kreos Capital Management, a London-based venture and growth debt provider
  • The Special Committee of the Board of Directors of SiriusPoint Ltd. (Bermuda) on its successful defense of an unsolicited take-private approach by Daniel Loeb, the chief executive officer of Third Point LLC
  • Pinnacle Pet Group Limited on its acquisition of Animal Friends Insurance Services Limited from Correlation Risk Partners, as well as in relation to Pinnacle Group’s joint venture with Correlation Risk Partners to acquire Waggel Limited, Vet-AI, Biscuit Pet Care, Kozoo and other pet insurance companies. The combined transactions have an enterprise value of £900 million
  • Intact Financial Corporation and its subsidiary Royal & Sun Alliance Insurance Limited on the sale of its retail motor insurance business to Atlanta Group Limited, a member of The Ardonagh Group
  • U.K.-, Gibraltar- and Bermuda-based insurers on a series of regulatory capital issuances (Tier 1, Tier 2, Tier 3 and Tier 2 Ancillary Own Funds)
  • a financial sponsor on the purchase of an insurance group with business in Bermuda, the U.K. and the U.S.
  • a U.K.-based insurance business on the purchase of a Gibraltar-based insurance business and renegotiation of related commercial matters
  • Bermuda-based reinsurers on U.K. onshoring/authorization issues
  • U.K.-, Europe- and Bermuda-based reinsurers in relation to large-scale reinsurance disputes

Prior to joining Skadden, Mr. Chaplin advised a broad range of insurers, reinsurers, financial sponsors, government bodies and multilateral international organizations on a variety of transactional and regulatory matters. He represented clients such as Ageas, Athora, Barbican Insurance, Blackstone, Correlation Risk Partners, Global Risk Partners, HM Government, Legal & General, Markerstudy, Medical & Commercial International, Pollen Street Capital, RiverStone International and Rothesay Life.

Mr. Chaplin writes and speaks extensively on insurance matters. He is responsible for the firm’s “The Standard Formula” insurance newsletter and podcasts, which focus on Solvency II and related matters.

Credentials

Education

  • M.A., Cambridge University, 1999
  • L.P.C., College of Law, Guildford, 1997
  • B.A., University of Cambridge, 1996

Admissions

  • England & Wales

Register for your monthly Asia legal updates from Conventus Law

Error: Contact form not found.

RELATED ARTICLES