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EBF Summary of Response to the 3L3 Consultation Paper on Mergers and Acquisitions Prudential Assessment Guidelines

Core Content

The European Banking Federation (EBF) has responded to the 3L3 Consultation Paper on prudential assessment guidelines for acquisitions and increases in holdings in the financial sector. The response outlines both general and detailed comments aimed at improving the clarity, efficiency, and proportionality of the proposed guidelines, while ensuring a level playing field across the European Economic Area (EEA) and harmonizing with existing European regulations.

Main Points and Key Information

General Comments

1. Support for Guidelines: The EBF overall supports the proposed guidelines, especially the emphasis on the proportionality principle as outlined in the Directive.
2. Public Offers and Information Gaps: In cases of acquisitions via public offers, the EBF highlights that it is not always possible to gather all required information in advance due to dependency on the outcome of the offering process and rival bids.
3. Cross-Border Mergers: The EBF recommends that the guidelines apply equally to cross-border mergers, provided they result in a change of ownership.
4. Terminology Consistency: Terms like "directors," "senior management," and "manager" are not defined at the European level and should be replaced with the term "persons who effectively direct the business."
5. Member State Clarifications: The EBF suggests that Member States should publish lists of categories of persons considered to "effectively direct the business" to avoid confusion and facilitate assessments.
6. Global Alignment: The EBF encourages third-country competent authorities to align their prudential assessment rules with those in Europe to ensure equal access to investment.
7. Appendix II Concerns: The EBF criticizes the vagueness of the information lists in Appendix II and calls for greater clarity and relevance in the required information.

Detailed Comments

Assessment Procedures

• Timing of Information Requests: Supervisors should request additional information early and only in exceptional cases.
• Rejection Justification: When rejecting an acquisition, supervisors must provide clear justification based on the lack of information or non-compliance with criteria.
• Exemption for Indirect Supervisors: The acquirer should be exempt from providing information if it can be obtained from another supervisory authority.
• Scope of Additional Information: Additional information requests should be limited to the required list and prudential criteria, not any arbitrary data.
• Notification of Subsidiaries: Indirect target supervisors should not have the power to block transactions, and the Guidelines should clarify this.

1st Assessment Criterion (Integrity)

• Look-Back Period: The look-back period for integrity checks should not significantly exceed two years.
• Standard Document: A standard document should be developed for the acquirer to state that none of the listed integrity issues apply.
• Threshold for Updates: A threshold for substantial increases in existing holdings should be defined.
• Demonstration of Competence: The acquirer should demonstrate due skill, care, diligence, and compliance with relevant standards.

2nd Assessment Criterion (Management and Technical Competence)

• Definition of Directors: "Directors or managers" should be replaced with "persons who effectively manage the business."
• Fit and Proper Rule: The target supervisor should not be able to block an acquisition solely based on the fitness of a person to direct the business. The acquirer should be given an opportunity to make changes.
• Harmonization of Fit and Proper Requirements: The Level 3 Committees should not only map but also harmonize these requirements across Member States.

3rd Assessment Criterion (Business Plan and Group Structure)

• Strategy Focus: The target supervisor should not be concerned with the acquirer’s strategy, only with changes in the target company’s strategy.
• Business Plan Scope: The assessment of the acquirer’s ability to implement its business plan should focus only on the target company’s relevant aspects.
• Group Structure Information: For EEA-supervised acquirers, only relevant parts of the group structure should be required.

4th Assessment Criterion (Compliance with Prudential Requirements)

• FATF Designations: The EBF notes that the FATF no longer designates non-cooperative countries, and the EU has its own "equivalency list."
• Avoid Overlap: The assessment should not impose additional requirements if they are already covered by existing prudential rules.
• Use of Commitments: Commitments should be a possibility, not an obligation, and should be based on existing ones.

Guidance for Coordination

• Role Clarification: The roles of the acquirer and target supervisors should be clearly defined through MoUs or Level 3 guidelines.
• Equivalent Supervision: The determination of equivalent supervision should be objective and not subject to protectionism.
• Secure Communication: Communication channels between supervisory authorities should be enshrined in guidelines or MoUs, not just encouraged.
• Timeliness: Information exchange should occur "within two working days," not "as soon as possible."

Appendix I and II Comments

• Acting in Concert: The definition should be clarified to avoid retroactive application and should align with other EU directives.
• Significant Influence: The definition should be more specific, possibly referencing the 10% threshold from the CRD.
• Appendix II Clarity: The list of information in Appendix II is too vague and detailed. The EBF recommends limiting the scope, avoiding "e.g." and "etc," and ensuring relevance and practicality.
• Beneficial Owners: Identification should be done through the acquirer’s supervisory authority where applicable.
• Investment Scope: References to all group companies should be limited to those relevant to the transaction.
• Organisational Charts: Detailed global organisational charts are impractical. Relevant parts should be specified.
• Confidential Information: Confidential shareholder agreements should not be required unless relevant.
• Footnote Clarifications: Footnotes, such as n°25 in Part II, should be clarified to avoid ambiguity.

Conclusion

The EBF encourages the Level 3 Committees to refine the guidelines to ensure clarity, efficiency, and consistency with existing European regulations, while emphasizing the importance of the proportionality principle and the need for harmonization across Member States and third countries.