EUROPEAN UNION: ESA to Introduce New Rules When Increasing Holdings in Financial Sector Targets

From 01 October 2017, the guidelines issued jointly by The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) (collectively known as “ESA”) will apply with regard to acquisitions and increases of “qualifying holdings” in the banking, insurance and securities sectors.

Whilst the guidelines are limited to investments in the financial sector, there may be wider implications.

The guidelines provide:

• Greater granularity with regard to acting in concert, specifying that shareholder engagement (i.e. discussions in relation to points raised with a company’s management) should not be considered as acting in concert.
• Clarity with regard to significant influence – which is important as a proposed acquisition or increase in a holding which does not amount to 10% of the capital or voting rights of the target will still be 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 target, whether such influence is actually exercised or not.
• Important changes with regard to indirect holdings. Currently a number of national laws (including in France) only treat a holding as an indirect holding if an investor has corporate control over the target.

For example, if Holding Company A owns 60% of Intermediary B, which in turn owns 45% of Target C; Holding Company A indirectly owns 45% of Target C (because it controls Intermediary B).

To the extent that a holding company does not have an indirect holding via corporate control of an intermediary, the guidelines will now require national competent authorities to consider if a holding company has indirect ownership using the “multiplication criterion”. In effect, adapting the above example: if Holding Company A owned just 33% of Intermediary B, which in turn owns 45% of Target C; Holding Company A would not indirectly own 45% of Target C (as it has no corporate control of Intermediary B). However, the guidelines would require Holding Company A to consider that it has 33% of Intermediary B’s 45% holding (ie just under 15%) and so Holding Company A would be subject to prior notification and prudential assessment.

• Non-exhaustive guidance on the decision to acquire exemption. Whilst the guidelines do state that a “narrow interpretation” should be taken, they do provide a degree of comfort in relation to passive increases in a holding.
• Additional precisions with respect to the proportionality principle and the notification/authorisation process itself (including the assessment criteria for potential acquirers).

Please follow the link at the top of the page for the Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector.