On 20 December 2016, EIOPA, EBA and ESMA published their final report regarding joint guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (the Guidelines). These Guidelines basically reflect how the competent authorities shall assess applications for declarations of no objection (DNO) under the implementing provisions of Directive 2007/44/EC. The Guidelines will apply from 1 October 2017. The deadline for competent authorities to report whether they comply with the Guidelines will be two months after the publication of the translations on the competent authorities’ website.
Prospective shareholders need to obtain a DNO before acquiring a qualifying holding in a target undertaking in the financial sector, including banks, insurers and investment firms. A qualifying holding includes a direct or indirect holding in an undertaking which:
- represents 10% or more of the capital or the voting rights; or
- makes it possible to exercise a significant influence over the management of the undertaking.
In 2008, the former Level-3 committees developed guidelines for the assessment of such DNO applications (the 2008 Guidelines). These 2008 Guidelines will now be replaced by the new Guidelines.
Important changes The new Guidelines provide further clarification in respect of some general concepts:
1. Acting in concert:
If certain persons act in concert, the competent authority should aggregate their holdings to determine whether any relevant threshold is reached or crossed. The Guidelines prescribe that the competent authority should consider as ‘acting in concert’ any legal or natural persons who decide to acquire or increase a qualifying holding in accordance with an explicit or implicit agreement between them (such as shareholder agreements and agreements on matters of corporate governance), taking into account any other relevant factors, such as other evidence of collaboration (e.g. the existence of family relationships, the use by different persons of the same source of finance and consistent patterns of voting). If ‘acting in concert’ has been established, this means that all members of this group should apply for a DNO that covers the aggregate holding of this group.
2. Significant influence:
A proposed acquisition of or increase in a holding which does not amount to 10% of the capital or voting rights of the target undertaking is nevertheless subject to prior notification and prudential assessment if such holding would enable the proposed acquirer to exercise a significant influence over the management of the undertaking, regardless whether such influence is exercised or not. The Guidelines specify a non-exhaustive list of factors to assess whether the proposed acquirer could exercise such significant influence. This list includes: (i) whether the proposed acquirer enjoys additional rights in the target undertaking, by virtue of contract or the articles of association; (ii) any rights to appoint a representative in the management body or supervisory body of the target undertaking, and (iii) any relations and any shareholders agreement that would enable the proposed acquirer to exercise significant influence.
3. Indirect acquisitions of a qualifying holding:
The Guidelines specify the relevant test to determine whether a qualifying holding is acquired indirectly, when (i) a natural or legal person acquires or increases a direct or indirect participation in an existing holder of a qualifying holding or (ii) a natural or legal person has a direct or indirect holding in a person who acquires or increases a direct participation in a target undertaking. The Guidelines also clarify how the size of such holding should be determined in these cases.
Basically, the first step is the application of the so called control criterion. If this cannot be applied, the multiplication criterion should subsequently be applied. If a proposed acquirer acquires control (e.g. if a majority stake is acquired) over an existing holder of a qualifying holding, the holding so acquired is deemed to be equal to the qualifying holding of the existing holder that is being acquired. The multiplication criterion basically entails the multiplication of the percentages of holdings across the corporate chain.
4. Decision to acquire:
The Guidelines give a clarification on whether the notion of a ‘decision to acquire’ is present in situations where the acquirer has crossed a threshold without taking a conscious decision to do so. For example in the event that a participation in a target undertaking increases because of a repurchase of shares and subsequent cancellation of such shares by the target undertaking.
The Guidelines specify a non-exhaustive list of elements which target supervisors should take into account in order to assess whether a decision to acquire has been made: (i) whether the proposed acquirer was aware or, considering information it could have had access to, should have been aware of the acquisition/increase of a qualifying holding and the transaction given rise to it and (ii) whether the proposed acquirer had the ability to influence, to object to or to prevent the proposed acquisition or increase of a qualifying holding. In view thereof, supervisors needs to adopt a narrow interpretation of the exceptional circumstances when it would be deemed that there is no decision to acquire.
5. The proportionality principle:
The Guidelines enhance a more coherent application of the proportionality principle, as it seems that the proportionality principle is not sufficiently applied by the national supervisory authorities (in terms of both the information required and the assessment procedure), in particular in the assessment of intra-group transactions. For intra-group transactions, the target supervisor should apply the proportionality principle as follows: (a) a notification should be submitted by the proposed acquirer, identifying the upcoming changes in a group (for instance, the revised group structure chart), and providing the required information, concerning the new persons and/or entities in the group, (b) the full assessment procedure is only necessary for the new persons and/or entities in the group(structure) and (c) if there is a change in the nature of a qualifying holding, the target supervisor should consider limiting its assessment to the changes having occurred since the date of the last assessment.
In addition, the Guidelines provide further clarification regarding the assessment period and the information that needs to be provided when applying for a DNO:
- with respect to time limits, the competent authorities should provide an acknowledgment of receipt of the notification regarding the acquisition of a qualifying holding in a financial institution promptly and in any event within two working days from receipt of the notification (if the notification is complete). After this acknowledgement, the 60 working days period for the prudential assessment starts, in which the supervisor is entitled to request further information;
- to avoid undue delays in the notification and assessment process of significant or complex transactions, acquirers are encouraged to engage in pre-notification contacts with the target supervisor; and
- the notification is complete when it includes all the required information as contained in Annex I to the new Guidelines.
Finally, compared to the 2008 Guidelines, the new Guidelines provide further clarity on the assessment criteria to be applied by the national competent authorities. The new Guidelines clarify certain matters relevant to the assessment of an acquisition with respect to (i) the financial soundness of the proposed acquirer (i.e. that the solvency of the proposed acquirer should be assessed under this criterion, as well as to provide some consistency in the interpretation of the use of own funds versus borrowed funds and on the documents required by the national supervisory authorities for the assessment of this criterion – the third criterion) and (ii) suspicion of money laundering or terrorist financing (to clarify what constitutes this criterion when assessing “whether there are reasonable grounds to suspect that, in connection with the proposed acquisition, money laundering or terrorist financing within the meaning of Article 1 of Directive 2005/60/EC is being or has been committed or attempted, or that the proposed could increase the risk thereof “ - the fifth criterion).