Explanatory Memorandum to COM(2006)507 - Amendment of Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC , 2005/68/EC and 2006/48/EC as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of shareholdings in the financial sector - Main contents
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| dossier | COM(2006)507 - Amendment of Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC , 2005/68/EC and 2006/48/EC as regards ... |
|---|---|
| source | COM(2006)507  |
| date | 12-09-2006 |
This proposal aims to considerably improve the legal certainty, clarity and transparency of the supervisory approval process with regard to acquisitions and increase of shareholdings in the banking, insurance and securities sectors.
The EU single financial market goes hand in hand with prudential soundness and financial stability. Steady EU-led convergence in regulatory requirements, underpinned by common ground-rules and pragmatic means of implementing and applying the Community Directives for a single market for financial services has already contributed greatly to achieving this goal. Cross-border consolidation is the result of business decisions made by market participants. Although consolidation is not an end in itself, it remains a means to achieve greater efficiency. Market driven consolidation allows institutions to reach their potential and compete internationally. An important aspect of the single market is the removal of any unjustifiable obstacles to the smooth functioning of the internal market. Undue interference by regulators, national or supra-national authorities in the implementation of a business decision that would have resulted in consolidation could effectively prevent the proper functioning of the market. In the extreme, an abusive use of powers could frustrate and render impractical an otherwise economically justifiable initiative.
The current system of prudential supervision in the European Union is based on the principle of responsibility for the competent authorities of home Member States. There is also an underlying requirement for the competent authorities of home and host Member States to collaborate closely in order to supervise the activities of institutions operating in Member States other than that in which their head offices are located.
The existing legal framework i regulates the situation when an acquirer wishes to acquire a holding or increase a holding in a financial institution or investment firm in the domestic as well as in the cross-border context. The competent national authorities are able to oppose an acquisition if, in view of the need to ensure sound and prudent management of the institution, they are not satisfied as to the suitability of the acquirer. The current legal framework does not provide specific criteria for assessing the suitability of the acquirer and has thus afforded considerable latitude to the relevant authorities in accepting, discouraging or rejecting a proposed acquisition. Furthermore, the current Directives do not set out in detail the procedure by which acquisitions are assessed.
This amending proposal modifies the existing framework considerably with regard to the procedure as well as the criteria to be examined by the competent authorities when assessing the suitability of a proposed acquirer.
The amended Directives set out the entire procedure to be applied by the competent authorities when assessing acquisitions on prudential grounds. A clear and transparent notification and decision-making process for competent authorities and firms has been introduced. The deadlines have been reduced and any stopping of the clock by competent authorities has been limited to one occasion and subject to clear conditions.
The prudential criteria for the supervisory assessment have also been clearly laid out and will be known up front to market participants. This will ensure more certainty and predictability with regard to the criteria to be applied by the competent authorities when assessing the suitability of an acquisition.
The amended Directives provide for a closed list of criteria to assess the suitability of the acquirer. This implies full harmonisation for the purposes of a suitability assessment throughout the European Union. These criteria will be the reputation of the proposed acquirer, the reputation and experience of any person that may run the resulting institution or firm, the financial soundness of the proposed acquirer, the on-going compliance with the relevant sectoral Directives and the risk of money laundering and terrorism financing.
Contents
- Consultations
- LEGAL ELEMENTS OF THE PROPOSAL
- Budgetary implication
- Grounds for and objectives of the proposal
- General context
- Existing provisions in Community legislation
- The proposal
- Results of Consultations with interested parties
- Collection and use of expertise
- Impact assessment
- PROVISIONS FOR REGULATED MARKETS
- The EBC Working Group on Cross Border Consolidation met on 21 March and 5 October 2005. This working group was subsequently extended to include the insurance and the securities sector;
- A meeting of the Joint EBC-EIOPC-ESC Working Group on Cross Border Consolidation was held on 3 February 2006;
- A public consultation was conducted during March and April 2006 regarding the existing supervisory arrangements in the banking, insurance and securities sectors.
Improvements to the current provisions in terms of procedure and assessment criteria have been developed taking account of the discussions in the various working groups and the responses to the public consultation.
The Committee of European Banking Supervisors (CEBS) was mandated by the Commission at the end of January 2005 to provide technical advice on the review of Article 16 of Directive 2000/12/EC.
The advice received from CEBS while establishing some precision and constructive suggestions on procedure emphasised that Article 16 must leave a good deal of flexibility and discretion to the competent authorities if it is to work properly. CEBS also indicates that the mandate of the Commission did not request CEBS to obtain evidence on whether Article 16 has been abused by Member States competent authorities or was a direct cause of the (perceived) slower pace of M&A activities in the financial sector.'
The CEBS advice was used in conjunction with the consultations referred to above in the development of this proposal. As a consequence the Commission has taken an approach that significantly curtails the discretion for competent authorities in making a prudential assessment. This was deemed crucial in order to achieve legal certainty, clarity and predictability for market participants.
As a part of the on-going Solvency II project in the insurance sector, the Commission in December 2004 asked the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) to provide technical advice with regard to the fit and proper requirements of the Insurance Directives, including the supervisory approval process in Article 15 of Directive 92/49/EEC and 2002/83/EC.
The options examined in the Impact Assessment i include a do nothing-option as well as legally binding and non-binding regulatory options. After a careful examination of the different alternatives, the Impact Assessment concludes that a legally binding regulatory solution is necessary in order to achieve the objectives of legal certainty, clarity and transparency for competent authorities as well as market participants. To meet these objectives and to ensure consistency within sectors as well as between sectors, it is concluded in the Impact Assessment that it is appropriate to aim for a high level of harmonisation with regard to the procedure as well as the criteria for the prudential assessment. A lower level of harmonisation - leaving considerable flexibility to Member States and their competent authorities - would not fulfil the explicit aims of increased legal certainty, predictability and consistency in relation to the supervisory assessments of acquisitions and increased shareholdings in financial institutions and investment firms.
The proposal would not seem to lead to any additional administrative costs.
One of the principles underlying the MiFID is that there should be, as far as possible, parallel provisions for investment firms and regulated markets. This parallelism exists between Article 10 (which applies to investment firms) and Article 38 (the corresponding provision relating to regulated markets). In view of this parallelism, and in view also of the potential for further consolidation in the area of stock exchanges, the Commission will consider urgently whether it is necessary and possible to extend the procedures and criteria established in this proposal to regulated markets. The aim of such a move would be to increase legal certainty for all interested parties when they are subjected to the scrutiny by competent authorities and to facilitate the smooth functioning of the Internal Market (by preventing protectionist reactions on the part of Member States). In determining whether or not to go ahead, the Commission will take into account the special nature of the business conducted by regulated markets as well as the views of stakeholders and regulators. The Commission will decide on the appropriateness of such an intervention as soon as possible.
The legal basis of the proposal, which is an amending Directive, remains the legal basis for the directives being amended i.e. Articles 47 i and 55 EC.
In accordance with the principles of subsidiarity and proportionality as set out in Article 5 EC, the objectives of the proposed action, namely the establishment of harmonised procedural rules and assessment criteria throughout the Community, cannot be sufficiently achieved by the Member States and can therefore be better achieved by the Community. This Directive stipulates the requirements in order to achieve those objectives and does not go beyond what is necessary for that purpose.
In view of the requirement of consistent rules right across the Community, an amending Directive laying out the procedure and the criteria was considered the most appropriate instrument.
There are no budgetary implications of the initiative nor are additional human and administrative resources required.