UK: FCA introduces criminal record checks for controllers and beneficial owners

Why should I read this?

In FCA Handbook Notice #125 the FCA announced that its Executive Regulation and Policy Committee had approved a form change to introduce criminal background checks on owners and controllers at the Authorisation’s gateway, effective from 17 January 2025. This implements a policy consulted on in FCA Quarterly Consultation CP24/11.

The new requirement will apply to:

• firms making an application for authorisation or registration with the FCA or PRA (other than for registration as an appointed representative or payment services or electronic money agent); and
• those giving a notice of an intended acquisition or increase in control over a regulated firm (including those giving notice in accordance with the Money Laundering Regulations, Payment Services Regulations or Electronic Money Regulations),

and in each case the requirement will be to confirm that a criminal record check has been undertaken on all relevant controllers in the six months preceding the application being submitted.

For persons resident in the UK, the Channel Islands or the Isle of Mann, the background check should be obtained from the UK Disclosure and Barring Service (“DBS”). This should be a standard or basic DBS check. For persons resident overseas, a local equivalent check should be conducted.

The aim of the requirement is to prevent criminals and their associates from owning or controlling financial institutions.

Scenarios in which the requirement may arise

The requirement will apply in a broad range of scenarios where there is a proposed change of control in a firm (or its parent) or a firm is applying for regulatory authorisation, although the FCA has confirmed that it will not apply where an authorised firm is applying to vary its permissions. It will apply in respect of, and in relation to, both PRA and FCA authorised firms.

It is not unusual for one or more individuals to have or wish to obtain ‘control’ over a regulated firm, given that the threshold can be triggered by holding 10% of the shares or voting rights in the ultimate holding company within a structure. We expect the requirement to be relevant across industries and to be particularly relevant for privately-held firms/acquirers where beneficial ownership is concentrated in a small number of individuals, such as family or founder-owned businesses.

Implications and considerations

Requesting a standard or basic DBS check in the UK is a relatively straightforward and cheap process (see below), but it will still generally take 14 days for the results to be returned.

The same will not necessarily be true of ‘equivalent’ processes outside the UK, which may be considerably more complicated, expensive and/or time-consuming. In order to ensure that the new requirement to obtain criminal record checks does not lengthen the relevant authorisation or approval process, it will be important to identify individual controllers as early as possible in that process, with appropriate criminal record checks being initiated promptly thereafter. The fact that relevant checks need to have been made in the six months preceding the relevant application being submitted should generally give comfort that they will not need to be repeated if that approach is taken.

How do I obtain a criminal background check?

For persons resident in the UK, the Channel Islands or the Isle of Mann

A basic or standard DBS check should be made with the DBS:

• An individual can apply for a basic DBS check through the DBS online portal
• An employer can apply for a basic DBS check with the consent of the employee by application to a Responsible Organisation
• A standard DBS check can be obtained from a Registered Body

The cost of a standard or basic DBS check is £21.50.

For persons resident overseas

The local equivalent of a DBS check should be obtained.  The GOV.UK website sets out details of equivalents and how to obtain them, alphabetically by country, on the webpage “Criminal records checks for overseas applicants”.

How Eversheds Sutherland can help

We regularly advise on applications to the FCA and PRA for regulatory authorisation and approval of acquisitions and increases in control over authorised firms, many of which involve control being held and/or acquired by individuals. In addition, we regularly assist authorised firms with applications for approval of individuals under the Senior Managers and Certification Regime, which applications already require the relevant individual to have undergone a DBS check. The international nature of our work means we also understand how difficult it can be to obtain criminal record checks in some jurisdictions.

This expertise and experience means that we are well placed to advise on the issue of obtaining appropriate criminal record checks and, more generally, means we understand potential sticking points in the relevant regulatory processes and can resolve them efficiently and effectively, achieving the best possible outcome for our clients.