Material changes to a regulated firm or its business

31/08/2023 Christian Caetano

Summary of the recently published GFSC Guidance Note in respect of material changes to a regulated firm or its business

The Financial Services Act 2019 (Amendment No. 4) Regulations 2023 were published on Thursday 24th August 2023 and came into operation on the day of publication. The principal effect of these Regulations was to amend Section 83A of the Financial Services Act 2019 (the “FSA”).

Pursuant to Section 83A, firms regulated by the Gibraltar Financial Services Commission (“GFSC”) are obliged to obtain the GFSC’s consent to any material change that they propose to make to either their business plan, financial resources or corporate governance arrangements, insofar as such changes may affect their continuing satisfaction of the FSA’s Threshold Conditions.

Core Principles
The obligations under Section 83A complement the 12th Core Principle of the Financial Services (Core Principles) Regulations 2022 (the “12th Core Principle”), which itself requires firms to deal with the GFSC in an open, co-operative and timely way, as well as disclose to the GFSC any matter of which the regulator would reasonably expect notice.

Section 83A Consent Applications to the GFSC

In accordance with Section 83A, firms are required to assess and determine whether a proposed change to its business plan, financial resources or corporate governance meets the relevant criteria in Section 83A. Where a firm considers that the criteria has been satisfied, then an application for consent must be submitted to the GFSC.
Such applications must be submitted to the GFSC by way of the new GFSC Consent Application Form, together with all supporting documents. Following receipt of a duly completed application, the GFSC would then undertake an initial assessment of whether the proposed change falls within scope of Section 83A. The GFSC will assess each consent application on a case-by-case basis and will have regard in its assessment to all matters that it considers relevant.

GFSC Assessment Process

As part of its initial assessment, the GFSC will also consider any further assessments which it may be obliged to undertake depending on the extent of the proposed change(s), including whether a variation of a firm’s Part 7 Permission may be required. Procedurally, the provisions of Part 7 of the FSA (as respect to timing and related matters) will apply to such applications.

Applicable fees will also be payable to the GFSC for any Section 83A consent applications. A ‘non-complex application’ fee of £3,500 will apply unless the GFSC considers the application to be complex or moderately complex, in which case the balance of the higher applicable fee will be payable by the firm prior to the application being deemed ‘complete’.

GFSC Guidance Notes

In order to assist firms in its assessment of whether a proposed change may fall within scope of Section 83A, the GFSC has published a set of Guidance Notes titled ‘GFSC Consent to Material Changes to a Regulated Firm or its Business’ mainly providing guidance on the types of material changes which may fall within scope (the “Guidance Notes”).

Partner, Christian Caetano, commented on the GFSC’s guidance note as follows:

The Guidance Notes provide clarity on a range of issues, including by providing a non-exhaustive list of matters in respect of which firms must now submit consent applications to the GFSC under Section 83A. Broadly, the matters listed by the GFSC by way of illustration relate to the following areas (with more granular matters listed within the Guidance Notes):

• Proposed restructurings, reorganisations or business expansions which could have a significant impact on a firm’s activities, risk profile or resources.

• Any significant growth in volume in one or more existing lines of business.

• Any action which a firm proposes to take which would result in a material deterioration in its capital adequacy or solvency requirements.

• In the case of insurance companies specifically, matters concerning the entering into of, or significant changes to, arrangements concerning portfolio transfers, loss portfolio transfers or adverse development cover; as well as changes to reinsurance programmes resulting in significant changes to the amount of risk retained.

Lastly, it should be noted that consent applications for changes within scope of Section 83A of the FSA must be submitted to (and approved by) the GFSC before any relevant changes are actioned, meaning that firms should put in place appropriate processes and procedures to ensure compliance with their obligations in this respect


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