What is a qualifying holding?
18 March 2016
A participation in a bank can be described as a “qualifying holding” when it represents 10% or more of the shares and/or voting rights in the bank or crosses the other relevant thresholds (20%, 30% or 50%). In addition, obtaining rights to appoint the (majority of) the management board or other means of providing significant influence over the management of the bank also falls within the scope of a “qualifying holding”.
As the European banking supervisor, the ECB is responsible for approving the proposed acquisitions of qualifying holdings for all banks in the participating countries.
Why do acquisitions of qualifying holdings require prior approval?
The approval process aims to ensure that only suitable shareholders enter the banking system in order to prevent any disruptions to the smooth functioning of the banking system.
In particular, the assessment is intended to ensure that the proposed acquirer is of good reputation and has the necessary financial soundness, that the targeted bank will continue to meet its prudential requirements and that the transaction is not financed with money derived from criminal activities.
Who can acquire a qualifying holding?
Generally speaking, anyone who satisfies the assessment criteria can acquire a qualifying holding in a bank. This includes both natural persons and legal persons.
Which criteria are assessed?
The criteria are harmonised at European level. CRD sets out the five criteria against which the proposed acquisition is assessed:
|Reputation of the proposed acquirer
|Has the proposed acquirer the necessary integrity and trustworthiness, e.g. no criminal records or court proceedings? Another aspect is the acquirer’s professional competence, i.e. their track record in managing and/or investing in the financial industry.
|Reputation and experience of the proposed new managers
|Does the acquirer intend to implement changes to the bank’s managing bodies? If so, a fit and proper assessment of the new board members must be carried out.
|Financial soundness of the acquirer
|Is the proposed acquirer able to finance the proposed acquisition and maintain a sound financial structure for the foreseeable future? This includes identifying who will be responsible for contributing to capital add-ons for the target bank.
|Impact on the bank
|Will the bank still be able to comply with prudential requirements? For example, a bank should not be put under stress because part of the acquisition was financed by debt. Also, the structure of the acquirer should not be so complex as to prevent the supervisor from effectively supervising the bank.
|Risk of links to money laundering or terrorist financing
|Can it be verified that the funds involved are not the proceeds of criminal activity or linked to terrorism? The assessment also looks at whether the acquisition could potentially increase the risk of money laundering or terrorist financing.
How are decisions taken?
The proposed acquirer notifies its intention to acquire a qualifying holding to the national banking supervisor of the target bank. The national supervisor performs the initial assessment and prepares a draft proposal for the ECB. In cooperation with the national supervisor, the ECB performs its own assessment and then notifies the proposed acquirer and the national supervisor(s) involved about the outcome of the assessment.
The assessment should not take longer than 60 working days. If additional information is needed, this period can be extended by another 20 working days or 30 working days in certain cases.
What if two (or more) acquirers want to acquire the same bank at the same time?
If the ECB receives multiple notifications at the same time, it has to treat them equally. It is not up to the ECB to express a preference as to which proposed acquirer should be allowed to acquire the bank. The ECB’s task is to ensure that any proposed acquirer complies with the five criteria mentioned above. If multiple proposed acquirers meet the assessment criteria, the final decision on who will acquire the bank rests with the owners of the bank.
Can the ECB impose conditions when deciding on an application?
Yes, either at the proposal of the national supervisor or of its own accord. However, any conditions imposed on proposed acquirers must relate to the five assessment criteria. If the conditions could adversely affect the proposed acquirer’s rights, a hearing will be conducted to give the proposed acquirer the chance to react.
What if the applicant receives an unfavourable outcome?
If the proposed acquisition is rejected or if the proposed acquirer considers the decision unfavourable in any way, the proposed acquirer can challenge the decision before the ECB’s Administrative Board of Review. If the outcome of that procedure is not satisfactory, the proposed acquirer can also appeal to the Court of Justice of the EU.
What if two companies merge? Would that also trigger a qualifying holding assessment?
Yes, if the merger results in one bank receiving 10% or more of the shares and/or voting rights in another bank, or crossing the other relevant thresholds set out in CRD (20%, 30% or 50%).
However, if the merger does not imply an acquisition of a qualifying holding, then the applicable regime depends on the national law. Some Member States require a pre-approval of mergers but others do not.