A “qualifying shareholder” is any person intending to acquire or increase his or her bank shares in order to achieve or exceed a qualifying holding. The qualifying shareholder must be authorized by the European banking supervisor, the European Central Bank. Such authorization is first needed upon the acquisition of ten percent or more of the shares and/or voting rights in a bank. Subsequent authorizations are required when acquisitions of twenty, thirty, and/or fifty percent of the shares and/or voting rights in the bank are made. Importantly, the authorization procedure is activated not only upon the crossing of the relevant thresholds but also when the acquirer obtains the right to appoint the majority of the management board or any other means of exerting a significant influence on the bank’s management.
Since the establishment of the European Economic Community, the participating Member States have wanted to connect and integrate their internal financial markets into a single large European financial market. Such a market had to entail the same rules for everyone so as to prevent any disturbance to the banking system and environment. In order to achieve the desired stability and predictability, there had to be a suitable framework specifying which shareholders could become qualifying shareholders in a bank. An essential element to this was, as mentioned above, a unified system of rules for everyone involved, which led to a harmonization of the rules among all participating states. As a result, the Capital Requirements Directive (CRD IV) was adopted, establishing the criteria that must be met by the acquirer of a qualifying holding in a bank.
The acquiring procedure must be initiated before the appropriate national regulator (Banka Slovenije in Slovenia), which then makes the initial assessment and prepares a draft proposal for the ECB. After receiving the draft assessment from the national regulator, the ECB makes its own assessment. It is very important that this second assessment is made hand in hand with the national regulator, which, because it was included in the procedure much earlier, has therefore already obtained the information vital for the ECB’s assessment. The assessment must be adopted within sixty working days, although this period can be extended for another twenty or in special cases thirty working days if additional information is needed.
As the European banking supervisor, the ECB assesses: (i) whether the proposed acquirer is of good reputation; (ii) whether the new bank managers suggested by the acquirer are fit and proper; (iii) the necessary financial soundness of the acquirer; (iv) the expected impact of the acquisition of the qualifying holding on the bank; and (v) whether there is a risk of money laundering or terrorist financing.
Deriving from these criteria set out under Article 23 of the CRD IV, the acquirer must have the necessary integrity and trustworthiness, which means that the acquirer must prove to the ECB that it has no criminal background and that no criminal procedure is underway against him. Also, the acquirer must prove that it has experience in investing in the financial sector and that it has enough management skills to manage a bank. Furthermore, it is very important that its financial soundness is impeccable and that the impact of the acquisition will not impair the bank’s ability to comply with the prudential requirements. In this respect, the financing of the acquisition is very important and must not have any impact on the bank (i.e., financing by debt can put the bank under stress). Last but not least, it is crucial that the ECB can verify the origin of the acquirer’s funds for anti-money laundering (AML) purposes. The ECB will look thoroughly into the financing scheme of the acquisition with the aim of verifying whether the involved funds are the proceeds of a criminal activity or are linked to terrorism. The AML verification is relevant not only for the acquiring process but also for the ECB’s assessment of whether the acquirer’s further involvement in the bank’s structure could in any way be linked to money laundering or terrorist financing and would as such compromise the bank.
After the ECB performs its own assessment, it notifies the acquirer and the national supervisor about the outcome of the assessment. If the assessment produces a negative result, the acquirer can first challenge the decision before the ECB’s Administrative Board of Review and may subsequently also refer the matter to the Court of Justice of the EU.
By Uros Cop, Managing Partner, Law Firm Miro Senica and Attorneys, Ltd.
This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
