In this instalment of our blog series, we’ll investigate the commonly asked question “How FCA turnaround times are impacting deals” a question taken from our recent YouTube video “What factors impact IFA Acquisitions?” which is part of a wider collaborative series with prestigious UK law firm Herrington Carmichael.
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FCA turnaround times have always seen long delays for IFA Acquisitions for buyers, sellers and other third parties. The Financial Conduct Authority admitted in its annual public meeting in September 2021 that its response times are not good enough when it comes to change in control application processes. The average wait time for an acknowledgment and case officer assigned is about two to three months. Where notices have omissions, the FCA said it must request further information, which will often create further delays. The regulator said it had seen a continued increase in chance in control notices. “In the past 12-18 months we have seen heightened activity in the UK M&A market and a resulting continued increase in change in control notices, some of which are more complex in nature. Consequently, our response times have increased”.
Acknowledging the last couple of years relating to legislation and external factors have made the process even more drawn out, Alex Canham from Herrington Carmichael said “We’ve been seeing in the sector, one thing that has caused a lot of angst and sleepless nights among lawyers, buyers, sellers, brokers, and advisers is the FCA’s turnaround times on changing control applications which as we both know, impact share transactions”
Alex gave a look forward into the future and compounded our previous point “There’s obviously no end in sight to the delays and from what we’re seeing there, the time periods are much greater than normal.”
Is this impacting deals?
In response to this, touching on how this impacts deals, Gary Venner from IFA Acquisitions added “There’s literally nothing we can do to help speed up that process, so, managing expectations during deals is the important thing, and I think that needs to be done right at the very beginning by telling everyone involved ‘this is what’s going to happen’. The FCA quote 60 working days which is basically 90 days with weekends and public holidays considered, and we don’t often see the section 178, change of control application, allocated a caseworker and looked at until nearly that three-month period is up.”
Although this seems like a long gap that could be detrimental to the progression of the deal, there are still a number of ongoing tasks that can and should be worked on to help the deal progress and keep the buyer-seller dialogue open. An example, the sales and purchase agreement can be worked on to iron out more of the finer details. Contrary to popular belief, there are a few tasks that can be worked on whilst waiting for the FCA to approve the change in application.
“Exchange and completion really help here with these contracts because the terms are agreed on exchange, and it is just waiting purely for that change of control to be signed off for completion to take place. There are some other things that are happening now to help bridge the waiting gap such as creating AR contracts pending change of control”.
Whilst change of control applications are taking a long time it can take even longer if someone is registering for new directly authorised permissions. These have a six month deadline and if it’s an incomplete application which many are – it can take up to 12 months. So, we know that those processes are long and it’s important to manage expectations for all involved.
From a legal perspective, this is also what Alex Canham and the team over at Herrington Carmichael experience, with Alex adding “I think that’s right, when people start that journey knowing that as quick as everything else might be, it’s not going to happen tomorrow but, we’re now seeing an increased uptick of using exchange prior to completions. From, a legal document perspective, if we went back only probably 12 / 18 months we were seeing the vast majority, probably 75% to 80% plus of transactions were being done on a straight signing and completion basis but now because of those backlogs and the desire to get everybody committed, we’re seeing a number of exchanging completions. So I think that’s the best way to try and combat that.”
Gary echoed this point “Yes, I definitely agree, and I certainly encourage the exchange and completion. Everybody knows where they stand then. There’s a commitment on both sides and you know, unless there’s something glaringly obvious, these will get signed off by the FCA. So, you just have to wait a period of time”
FCA turnaround times are frustrating for everyone involved in a deal, however, it’s important to remember that due to the volumes of applications there is nothing anyone can do to speed up the process of getting the FCA to open the case. Instead of trying to think about how to speed up the process, time and energy is better invested working on other aspects of the deal such as exchange and completion, keeping the dialogue open and planning your retirement if you are the seller or conversely as a buyer how you can prepare and resource your business to handle a smooth transition and use this acquisition to grow your business! Waiting for the FCA does not stop you from making further preparations for the sale or purchase of a business. Remember not to panic or give too much thought to blaming the different parties in this process, the FCA are unlikely to decline a change of control application unless there are serious concerns with either business or fit and properness issues with those involved. The overwhelming majority of these applications will be a straightforward process where the business is ‘clean’ and passes fit and properness checks.
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Herrington Carmichael disclaimer
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
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