Control Person

A control person is an individual or entity whose ownership interest in, or authority over, a licensed financial business is significant enough that the regulator requires it to be disclosed and vetted. Control usually arises in one of two ways: by holding a stake at or above a threshold percentage of the licensee's voting shares, directly or indirectly, or by holding a position such as executive officer or director that gives the power to direct management and policies.

The term is used most often in US state licensing of money transmitters, consumer lenders, mortgage companies and similar firms, particularly in filings through NMLS. Equivalent concepts exist elsewhere under names such as controller, qualifying shareholder or person with a qualifying holding.

Definitions vary by statute and by state, but control persons typically include:

• Shareholders or members owning or holding the power to vote a specified percentage of the licensee, commonly 10% or 25%, including through intermediate holding companies.
• Executive officers such as the chief executive, chief financial officer and chief operating officer, and often the chief compliance officer.
• Directors, general partners, managing members and trustees.
• Anyone else with the power to exercise a controlling influence over management or policies, for example through contractual rights.

The Money Transmission Modernization Act (MTMA), the model law supported by the Conference of State Bank Supervisors (CSBS), defines control as the power to vote 25% or more of a licensee's voting securities, the power to elect or appoint a majority of key individuals or executive officers, or the power to exercise a controlling influence. It creates a rebuttable presumption of control for anyone holding 10% or more. States that have not adopted the MTMA use their own definitions.

When a firm applies for a license, or when a new control person arrives, the regulator usually requires:

• Identification and biographical information, including employment history and other business interests, filed in NMLS through the individual and company forms described under NMLS MU filings.
• Fingerprints for a criminal history background check, often run through the FBI.
• Credit reports and disclosure of bankruptcies, judgments, regulatory actions and litigation.
• Financial information, such as personal financial statements and evidence of source of wealth for significant owners.

Regulators assess character, fitness and experience, and may also review adverse media and whether an individual is a politically exposed person. An undisclosed control person, or one with a disqualifying history, can block a license application. Disclosure obligations continue after licensing, so new officers, directors and owners must be reported, and some changes require prior approval as a change of control.

Control person rules overlap with, but are distinct from, the identification of an ultimate beneficial owner for anti-money laundering purposes and from corporate beneficial ownership information reporting. Beneficial ownership rules generally look through to natural persons above a threshold, such as 25%, plus one person with significant management control. Licensing rules often cast a wider net, capturing entities in the ownership chain, lower thresholds and a broader set of officers and directors. A firm preparing a due diligence pack for banks or regulators typically maps both.

In US securities law, "control person" has a different, liability-focused sense: Section 15 of the Securities Act of 1933 and Section 20(a) of the Securities Exchange Act of 1934 can make persons who control a violator jointly liable. In the United Kingdom, the Financial Services and Markets Act 2000 uses the term controller, generally starting at a 10% holding, and requires approval from the FCA or PRA before a person becomes one. State regulators such as the NYDFS apply their own definitions to banks, trust companies and virtual currency licensees.