Summary
- A "Controller" is anyone who, alone or with Associates, holds 10% or more of the shares or voting rights in a Licensed Firm or its holding company, or can exercise significant influence over it (GEN 8.8.2(1)).
- For a Domestic Firm, becoming a Controller or crossing 20% or 50% requires GFSO's prior written approval (GEN 8.8.4); acquiring without it is a contravention (GEN 8.8.14).
- GFSO must decide within 90 days of a complete application; approval lasts one year (GEN 8.8.6). Objections carry 14 days for representations and an Appeals Panel route (GEN 8.8.7).
- Decreases below 50%, 30% or 20% must be notified (GEN 8.8.9); Branches notify rather than seek approval (GEN 8.8.10).
- GFSO can object to an existing Controller, require disposal, freeze voting rights and dividends and seek a Court sale order (Financial Services Act 2025, s. 105; GEN 8.8.13).
- Deal planning also engages close links (GEN 4.6), scope changes (GEN 8.3), withdrawal (GEN 8.4), Approved Person changes (GEN 8.7) and the company-law register of controllers.
Why a share purchase agreement is not enough
A Financial Services Licence in GMC is granted to a person, not to a business. Buying the shares of a Licensed Firm changes who controls the licensee, and the regulator has a statutory say in that. Part 10 of the Financial Services Act 2025 (the Act) empowers the Gelephu Financial Services Office (GFSO) to make Rules on when a person becomes a Controller, when prior approval or notification is required, and when GFSO may object (s. 105(1)). Those Rules are in Chapter 8.8 of the General Rulebook (GEN). This article walks through them as written.
Terms used: a "Licensed Firm" is a firm holding a Financial Services Licence from GFSO; a "Domestic Firm" is a Licensed Firm established in GMC; a "Branch" is a Licensed Firm that is a non-GMC established company (GEN 8.8.1, guidance). "$" in GMC law means United States dollars.
Who is a Controller?
GEN 8.8.2(1) defines a Controller as a Person who, "either alone or with any Associate":
- holds 10% or more of the Shares in the Licensed Firm or a Holding Company of it;
- is entitled to exercise, or controls the exercise of, 10% or more of the voting rights in the Licensed Firm or a Holding Company; or
- "is able to exercise significant influence over the management of the Licensed Firm" through shares, voting rights, or "a current exercisable right to acquire such Shares or voting rights".
Three features widen the net: the test looks through to any Holding Company; Associates are aggregated; and significant influence can exist below 10%, including through unexercised options (GEN 8.8.2, guidance para. 2). For a firm without share capital, "Share" means a right to share in capital, profits or losses (GEN 8.8.2(3)(a)). Two other thresholds coexist: the Act presumes a "Participating Interest" at 20% for Group purposes (ss. 260–261), and the Companies Act 2025 register of controllers uses a more-than-25% test (Part 11A, Sixteenth Schedule). All three must be tracked.
Disregarded holdings
Holdings ignored in the Controller test (GEN 8.8.3) are: shares held solely for clearing and settlement; shares held as custodian or nominee voted only on written instructions; up to 5% held by a Licensed Firm as market maker; and shares acquired by a Licensed Firm through underwriting, not voted and held for less than a year.
Prior approval for Domestic Firms
For a Licensed Firm which is a Domestic Firm, a Person "must not" become a Controller, or increase its level of control beyond a specified threshold, "unless that Person has obtained the prior written approval of the Regulator" (GEN 8.8.4(1)). The approval thresholds are increases:
| Event | Approval required? | Rule |
|---|---|---|
| Becoming a Controller (reaching 10% or significant influence) | Yes, prior written approval | GEN 8.8.4(1)(a) |
| Increasing from below 20% to 20% or more | Yes | GEN 8.8.4(2)(a) |
| Increasing from below 50% to 50% or more | Yes | GEN 8.8.4(2)(b) |
| Decreasing from above 50% to 50% or less | Notification | GEN 8.8.9(1)(b)(i) |
| Decreasing from above 30% to 30% or less | Notification | GEN 8.8.9(1)(b)(ii) |
| Decreasing from above 20% to 20% or less | Notification | GEN 8.8.9(1)(b)(iii) |
| Ceasing to be a Controller | Notification | GEN 8.8.9(1)(a) |
Note the asymmetry: 30% is a notification threshold on the way down but not an approval threshold on the way up. GEN also allows GFSO to accept pre-notification from fund managers acquiring listed shares in the course of fund management and to grant approval "for a period lasting up to a year" (GEN 8.8.4, guidance para. 2).
The approval process
Application
The prospective Controller gives written notice in the prescribed form, with the information and documents GFSO requires (GEN 8.8.5(1)–(2)). GFSO may approve, approve subject to conditions, or object (GEN 8.8.5(3)), and may request further information. Guidance advises applying "sufficiently in advance of the proposed acquisition" (GEN 8.8.5, guidance para. 1).
Timing and validity
Where GFSO proposes to approve, it must do so "as soon as practicable and in any event within 90 days of the receipt of a duly completed application", unless it notifies a different period in writing (GEN 8.8.6(1)(a)). The 90 days runs from the date all required information has been provided (GEN 8.8.6, guidance para. 1). An approval, including a conditional one, "is valid for a period of one year from the date of the approval" unless extended (GEN 8.8.6(2)); if the acquisition is not completed within that year, fresh approval is needed (guidance para. 2). Completing after the approval period is itself a contravention (GEN 8.8.14(1)(d)).
Objection or conditions
If GFSO proposes to object or to impose conditions, it must within the same 90 days give a written notice stating its reasons and any proposed conditions, and allow the person 14 days (or longer by agreement) to make representations (GEN 8.8.7(1)). It then issues a final notice either withdrawing the objection, approving subject to conditions, or declaring the person "an unacceptable Controller" (GEN 8.8.7(2)). A refusal or conditional approval may be referred to the Appeals Panel (GEN 8.8.7(3)). An unacceptable Controller "must not proceed with the proposed acquisition" (GEN 8.8.8(2)), and an approved Controller must comply with any conditions (GEN 8.8.8(1)).
What GFSO looks at
The guidance to GEN 8.8.8 describes the assessment: the suitability of the acquirer, the financial soundness of the acquisition and the acquirer's likely influence (para. 2). GFSO may consider the reputation of the acquirer or of anyone who will direct the business; its financial soundness; whether the firm will still meet prudential requirements; whether the resulting Group allows effective supervision; whether there are reasonable grounds to suspect money laundering or terrorist financing in connection with the acquisition; and whether the acquisition is contrary to GFSO's objectives (para. 3). GFSO says it will act proportionately and is less likely to demand capital support from the acquirer of an advisory or arranging firm (GEN 8.8.5, guidance para. 2).
On completion, the Act separately allows GFSO to impose or vary requirements on the Licensed Firm where "the likely effect of the acquisition of Control" on the firm is uncertain (s. 37(2)).
Branches: notification only
For a Licensed Firm which is a Branch, the regime is notification rather than approval. A Controller or prospective Controller must notify GFSO when a person becomes a Controller, an existing Controller proposes to cease, or a holding is increased from below 30% to 30% or more, from below 50% to 50% or more, or decreased from above 50% to 50% or less (GEN 8.8.10(2)). Notification must be made "as soon as possible, and in any event, before making the relevant acquisition or disposal" (GEN 8.8.10(3)). Credit Rating Agencies are treated as Branches for this purpose, whether or not GMC-incorporated (GEN 8.8.1(3) and guidance). Representative Offices are outside GEN 8.8 altogether (GEN 8.8.1(2)).
The Licensed Firm's own duties
The target is not a bystander. A Licensed Firm must have systems and controls to monitor any change or proposed change of its Controllers and any significant change in their conduct or circumstances that could affect the firm's fitness and propriety (GEN 8.8.11(1)), and must notify GFSO as soon as it becomes aware, unless satisfied the Controller has already done so (GEN 8.8.11(2)–(3)). Every Licensed Firm must file an annual report on its Controllers, with each Controller's name and percentage holding, within four months of its financial year end (GEN 8.8.12); a structure chart suffices (guidance para. 1).
More broadly, a Licensed Firm must advise GFSO "prior to any proposed restructuring, merger, acquisition, reorganisation, divestiture or business expansion which could have a significant impact" on its risk profile or resources (GEN 8.10.6(6)), and give reasonable advance notice of a change in its legal structure or name (GEN 8.10.2).
GFSO's powers against existing Controllers
Section 105(2)–(4) of the Act allows GFSO to object to an existing Controller "where it has reasonable grounds to believe that such a person is no longer an acceptable Controller" and to require the Controller or the firm to take specified action. GEN 8.8.13 supplies the procedure: objection where control was acquired without approval, conditions were breached, or the person is no longer acceptable (GEN 8.8.13(1)); written notice and 14 days for representations (GEN 8.8.13(2)); and a final notice which, if it declares the person unacceptable, requires disposal within a specified period (GEN 8.8.13(3)(c), (5)). GFSO may apply to the Court for an order for sale and may issue a restriction notice under which transfers are void, voting rights are suspended, no further shares are issued and, outside liquidation, no dividends are paid (GEN 8.8.13(8)). The decision may be referred to the Appeals Panel (GEN 8.8.13(9)).
A contravention of GEN 8.8, failing to notify, completing before approval, breaching conditions, completing after the approval lapses, breaching a restriction notice or giving false information, entitles GFSO to use its disciplinary powers under Part 19 of the Act (GEN 8.8.14), which include public censure, financial penalties, suspension and prohibition orders (ss. 231–234).
Related deal issues
Close links (GEN 4.6). GFSO must be satisfied that a Licensed Firm's Close Links with any other person are "not likely to prevent the effective supervision" of the firm, considering the nature of the relationship and whether foreign laws applying to the linked person would obstruct supervision (GEN 4.6.1). A firm that cannot satisfy GFSO on close links "will, on this point alone, not be considered fit and proper" (GEN 4.6, guidance para. 2). A new parent in an opaque jurisdiction is therefore a licensing problem as well as a change-of-control problem. GFSO can call for a Close Links report at any time (GEN 4.6.1(3)).
Changing the scope of the permission (GEN 8.3). An acquirer who plans to add or remove Regulated Activities, or lift a condition, must apply with written details of the proposed changes (GEN 8.3.3); the fitness, resources, compliance and supervision tests in GEN 5.2 apply to the application (GEN 8.3.2). Under the Act, GFSO may add, remove or vary activities at the firm's request (s. 32(1)) and may refuse where refusal furthers its objectives (s. 32(3)).
Withdrawal (GEN 8.4). A seller winding up a GMC operation, or a buyer consolidating licences, must request withdrawal in writing stating the reasons, the cessation date, and that all customer obligations have been or will be discharged (GEN 8.4.1). When no Regulated Activities remain, GFSO must withdraw the firm's status (s. 34).
Approved Persons (GEN 8.7). If the deal changes management, the firm must request withdrawal of an Approved Person's status within seven days of the person ceasing to perform the Controlled Function (GEN 8.7.1), reassign responsibilities on an interim basis (GEN 8.7.3) and appoint a replacement within three months (GEN 8.7.4).
Company law. The target's register of controllers under Part 11A of the Companies Act 2025 must be updated when a person crosses the more-than-25% test (ss. 386AF, 386AH). The exclusion in Schedule 1, para. 78 (sale of a Body Corporate) may take a deal adviser's arranging out of the licensing perimeter.
Practical checklist
- Map the post-deal ownership chain up to the ultimate parent and identify every person who will hold 10% or more, alone or with Associates, or have significant influence (GEN 8.8.2).
- Classify the target as a Domestic Firm (approval) or Branch (notification) (GEN 8.8.4, 8.8.10).
- Identify each threshold crossed: 10%, 20%, 50% up; 50%, 30%, 20% down (GEN 8.8.4, 8.8.9).
- Make GFSO approval a condition precedent and build a 90-day-plus window into the timetable (GEN 8.8.6); do not complete early (GEN 8.8.14(1)(b)).
- Prepare the acquirer's file on reputation, financial soundness, group structure, supervisability and source of funds (GEN 8.8.8 guidance).
- Address close links for any new group member (GEN 4.6).
- Notify GFSO of the proposed acquisition as a restructuring event (GEN 8.10.6(6)).
- Plan Approved Person changes (GEN 8.7) and any scope change (GEN 8.3) alongside the approval.
- Complete within one year of approval (GEN 8.8.6(2)), then update the register of controllers and the annual Controllers report (Companies Act 2025, s. 386AF; GEN 8.8.12).
Frequently asked questions
Does a minority investment in a GMC licensed firm need regulatory approval?
Yes, if the investor will hold 10% or more of the shares or voting rights in the firm or its holding company, alone or with Associates, or will be able to exercise significant influence (GEN 8.8.2). For a Domestic Firm, prior written GFSO approval is required (GEN 8.8.4).
How long does GFSO take to approve a change of control?
GFSO must decide within 90 days of receiving a duly completed application unless it notifies a different period (GEN 8.8.6(1)). The clock starts only when all required information has been supplied. An approval is valid for one year.
What happens if we complete before approval?
Completing before approval is a contravention (GEN 8.8.14(1)(b)). GFSO may object to the acquirer as a Controller, require disposal of the shares, freeze voting rights and dividends by restriction notice (GEN 8.8.13) and impose disciplinary measures under Part 19 of the Act.
Key takeaways
- The Controller threshold is 10%, aggregated with Associates and looking through to holding companies.
- Domestic Firms need prior approval at 10%, 20% and 50%; Branches notify at 30% and 50%.
- GFSO has 90 days; approvals last one year; objections carry 14-day representations and an Appeals Panel route.
- GFSO can force disposal, void transfers and suspend voting and dividends.
- Close links, scope changes, withdrawal and Approved Person changes must be planned with the approval.
This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.
You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.
References
- Financial Services Act 2025, ss. 29, 32, 34, 37, 105, 231–234, 260, 261; Schedule 1, para. 78
- GEN Rulebook 2026, Rules 4.6, 5.2, 8.3, 8.4, 8.7, 8.8.1–8.8.14, 8.10.2, 8.10.6
- Companies Act 2025, ss. 386AF, 386AH, Sixteenth Schedule
