An outline of the procedures for the assessment and evaluation of acquiring transactions in Ireland.
Of key importance to those making acquisitions of certain entities in the financial services sector is that a failure to engage with the Central Bank prior to completing a transaction will result in the transaction being void.
It is just over five years since the Acquisitions Directive 2007/44/EC (Acquisitions Directive) came into effect in Ireland. Sometimes also referred to as the Qualifying Holdings Directive or the Change of Control Directive, the Acquisitions Directive was implemented in Irish law through the European Communities (Assessment of Acquisitions in the Financial Sector) Regulations 2009 (Regulations). The Regulations were intended to create greater transparency in the financial services sector, and to assist the Central Bank of Ireland (Central Bank) in fulfilling its supervisory role, and to aid relevant firms by providing detailed information on the notification and assessment procedures to be followed with regard to acquiring and disposing transactions in the financial services sector.
The recent implementation of EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD) into Irish law provides an opportunity to review the acquiring transactions regime and to remind those active in the sector that acquisition or disposal activity in jurisdictions far removed from Ireland can sometimes trigger a requirement for a regulatory notification in Ireland.
The entity proposing to make the acquisition or disposal must, using a detailed form, known as the Acquiring Transaction Notification Form (ATNF), provide the Central Bank with prior notification of a proposed acquisition or disposal. The Central Bank uses the information provided in the ATNF to examine whether there are prudential grounds upon which it should object to the transaction and if it ought to impose any conditions on an approval of the acquisition.
In this article a Relevant Firm refers to an entity that is the target of an acquisition or a disposal that is subject to the Regulations.
The Regulations apply to:
- credit institutions;
- insurance or assurance undertakings;
- reinsurance undertakings;
- investment firms or a market operators of regulated markets (MIFID firms); and
- UCITS management companies.
When do these rules apply?
They apply on:
- the acquisition, directly or indirectly, of a “qualifying holding” in a Relevant Firm; and
- the direct or indirect increase in a “qualifying holding”, whereby the resulting holding would reach, or exceed, 20%, 33% or 50% of the capital of, or voting rights in, a Relevant Firm, or a Relevant Firm would become the proposed acquirer’s subsidiary.
For these purposes, “qualifying holding” means 10% or more of the capital of, or voting rights in, a Relevant Firm or a holding that makes it possible to exercise a “significant influence” over the management of a Relevant Firm.
The rules also apply on the disposal of a qualifying holding or a holding which results in the disposer’s interest in the Relevant Firm falling below the thresholds above or results in the Relevant Firm ceasing to be a subsidiary of the disposer.
Who must file an ATNF with the Central Bank?
The proposed acquirer and disposer must file an ATNF with the Central Bank. In addition, the Relevant Firm itself must also file an ANTF with the Central Bank if and/or when it becomes aware of such an acquisition or disposal.
Some Practical Scenarios
Internal group restructuring
Groups reorganise for a variety of reasons (strategic, managerial, fiscal etc.). Changes in holding company structure may result in changes to the direct or indirect shareholders of a Relevant Firm without there being any change to the ultimate owners of the Relevant Firm. Proposed reorganisations should be checked before they happen to ensure that no thresholds are crossed and that an ATNF is filed, if necessary.
Groups with Relevant Firms in more than one EU Member State
Frequently, an Irish Relevant Firm is the wholly owned subsidiary of a Relevant Firm in another EU Member State. Where this happens the owner of the Irish AFNF Firm will be going through its own acquiring transaction process with its home regulator, while at the same time the Irish Relevant Firm is submitting its ATNF for assessment by the Central Bank. This duplication in the review process is unavoidable, but the Central Bank does take into account the fact that the transaction is being reviewed by another EU regulator.
Groups with shares listed on stock exchanges
Many Irish Relevant Firms are owned by entities whose shares are listed on stock exchanges. It is possible to trade these entities almost instantaneously. Anyone holding shares or thinking about buying a large holding in equity in the Financial Services Sector should do some due diligence before clicking on 'buy'.
What happens if I don’t file an ATNF or engage with the Central Bank?
The purported acquisition is of no effect to pass title to any share or any other interest and any exercise of powers based on the acquisition of the holding concerned is void. In other words, this process set out in the Regulations cannot be avoided or side-stepped.
AIFMS: the elephant in the ATNF room.
The list of Relevant Firms does not include alternative investment fund managers (AIFMs) with a full authorisation under EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD), which is surprising.
Instead, AIFMs are subject to the Central Bank’s AIF Rulebook, which provides that the approval of the Central Bank is required in respect of any proposed change in direct or indirect ownership or in qualifying holdings. For these purposes, “qualifying holding” can be summarised as meaning 10% or more, of the capital of, or voting rights in, an AIFM, or a holding that makes it possible to exercise a significant influence over the management of an AIFM.
Arguably, this requirement is only imposed upon the AIFM itself, which means that the consequences of inadvertently failing to seek approval, for whatever reason, are much less significant. It will result in a regulatory breach for the AIFM but, unlike for Relevant Firms, the transaction is not void.
Where there is no change in day to day management of a Relevant Firm, the ATNF process is straightforward. On the other hand, acquisitions or disposals sometimes result in changes to the management or structure of Relevant Firms, which trigger requirements to update business plans under the legislation under which Relevant Firms are authorised.
As can be seen above, failure to go through and complete the ATNF process has serious consequences for an organisation. It can take some time to complete an engagement with the Central Bank on an ATNF, early consideration of the regulatory approval requirements will ensure that completion of a transaction is not delayed.