Opinion of the European Economic and Social Committee on the Proposal for a Directive of the European Parliament and of the Council amending Council Directive 92/49/EC and Directives, 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC of the European Parliament and of the Council as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increases of shareholdings in the financial sector COM(2006) 507 final — 2006/0166 (COD)
Date: 2007-01-18
Institutions: European Economic and Social Committee
Subjects: credit institution, financial instrument, financial market, freedom to provide services, insurance, reinsurance, securities

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EN

Official Journal of the European Union

27.4.2007

Opinion of the European Economic and Social Committee on the Proposal for a Directive of the
European Parliament and of the Council amending Council Directive 92/49/EC and Directives,
2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC of the European Parliament and of the
Council as regards procedural rules and evaluation criteria for the prudential assessment of acquisi-
tions and increases of shareholdings in the financial sector

COM(2006) 507 final — 2006/0166 (COD)

(2007/C 93/05)

On 19 October 2006 the Council decided to consult the European Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 10 January 2007. The rapporteur was
Mr Retureau.

At its 432nd plenary session held on 17 and 18 January 2007 (meeting of 18 January), the European
Economic and Social Committee adopted the following opinion by 124 votes to none, with three absten-
tions.

1. Summary of the EESC's conclusions

1.1
The principle of having a restrictive list of criteria and
making the necessary information transparent deserves to be
supported. A harmonised, or even uniform set of rules would
be created in all the Member States, but only for cross-border
operations concerning the acquisition or increase of sharehold-
ings in the financial sector (banking, insurance and securities).

The proposed rules provide businesses and investors with
1.2
speed,
treatment and legal certainty;
transparency,
Member States should align their domestic rules on cross-border
transactions accordingly, in order to have a unified set of rules
for all operations of the same kind.

identical

1.3
Information considered to be incomplete may be a
reason for rejecting a bid; additional requests for information
should not therefore exceed the list drawn up beforehand or
impose additional conditions, and so should not be able to be
used as a pretext for an unjustified rejection if all the elements
on the list have been made known in a satisfactory manner.

1.4
The investors concerned should be able to ask for extra
time to provide certain additions (things can be complex in
companies with many subsidiaries and holdings). In accordance
with the general monitoring principles laid down by the direc-
tives, the principle of monitoring by the home Member State
should also be applied when assessing the reputation of a
would-be buyer. For this reason buyers who have already been
assessed in one Member State and whose reputation has already
been judged as sound, as in the case of enterprises that have
their registered office inside the EU, should be exempted from
undergoing a new examination, unless new facts have emerged.

The method chosen by the Commission could indeed
1.5
turn out to be lacking flexibility in practice, where realities are
more or less complex and each case has its peculiarities.

The risk of a rapid examination is that it could prove to
1.6
be superficial; monitoring by the Commission should not be

limited to cases of rejection, but instead should take the form of
surveys from time to time to assess whether or not the directive
is being applied properly in the Member States.

2. The Commission's proposals

These consist of a directive amending the Markets in
2.1
Financial
Instruments Directive (MiFID) and several sectoral
directives concerning prudential authorisations to acquire or
increase holdings in the capital of financial entities (insurance
and re-insurance, UCITS management companies and other
regulated markets.

The proposed amendment

to the financial directives
2.2
(Directive 92/49/EC of the Council and Directives 2002/83/EC,
2004/39/EC (MiFID), 2005/68 EC and 2006/48/EC of the EP
and of the Council) as regards procedural rules and evaluation
criteria for
the prudential assessment of acquisitions and
increases of shareholdings in the financial sector puts forward
new rules designed to simplify and clarify the prudential author-
isation of mergers and acquisitions in the financial services
sector. The proposal encourages and simplifies cross-border
consolidation, and is thus opposed to the perceived attitude of
the supervisory authorities in certain countries, which are
suspected of having blocked cross-border mergers on alleged
national interest grounds.

The new rules aim to establish in the European Union a
2.3
rapid and transparent prudential authorisation
harmonised,
process for mergers and acquisitions of
regulated financial
companies. The three-month examination period currently in
force would be reduced to thirty working days as from receipt
of the request, but this deadline could be extended by ten days
if the competent authority considered the submission to be
incomplete. The rule will also be applicable to potential purcha-
sers subject to non-EU legislation seeking to acquire or increase
their shareholding in an entity within the EU.

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The proposal wants to prevent any risk of prudential
2.4
authorisations being used to obstruct cross-border consolida-
tion. Current legislation applies to domestic or cross-border
operations by financial
firms. As
things stand, the competent authorities have three months to
assess a takeover bid and can block it if ‘bearing in mind the
need to guarantee sound and careful management of the enter-
prise concerned, they are not satisfied with the quality of [the
purchaser]’.

institutions or investment

— if the insurance undertaking will continue to fulfil the obli-
gations imposed by the prudential and solvency rules laid
down by the European Union;

— whether there are reasonable grounds to suspect that,

in
connection with the proposed acquisition, money laundering
or terrorist financing is being or has been committed or
attempted, or that the proposed acquisition could increase
such a risk;

to a certain extent,

2.5 Member States and their competent authorities were
therefore free,
this single
criterion very broadly and to accept, discourage or reject a
planned acquisition as they thought fit, in the absence of suffi-
ciently defined criteria.

to interpret

2.6
The list of evaluation criteria given is restrictive. The
main rule is that any natural or legal person, whether acting
alone or in concert with others, is obliged to notify the compe-
tent authorities of the target company if he intends:

— to acquire a holding of 10 % or more of the capital or of
the voting rights of an insurance company (or a lower
percentage that would make it possible to exert a significant
influence on the management of the insurer); or

— to increase such a holding so as to reach or exceed the
thresholds of 20 %, 30 % (previously 33 %) or 50 %, or
more;

— or to acquire the whole of the insurance company. The
proposal sets out a number of criteria which the competent
authorities should use to consider whether the character of
the prospective buyer is suitable and the planned acquisition
is financially viable.

2.7
These criteria will be communicated to all market partici-
pants and will be applied uniformly in all the Member States.
The competent authority then must only take account of:

— the reputation of the potential buyer: the preamble to the
draft directive states that this means checking if there are
any doubts about
the buyer's integrity and professional
competence (e.g. as a result of past business conduct) and if
these are founded;

— the assessment of integrity is considered particularly relevant
if the buyer is not another regulated financial institution or
an investment undertaking;

— the

competent

receiving notification must
acknowledge receipt of it in writing within two working
days;

authority

— the competent authority will then have a maximum of thirty
working days (the ‘assessment period’) from the date of the
acknowledgement of receipt to assess the proposed acquisi-
increased to a
tion. The assessment period may be
maximum of fifty working days if the prospective buyer is
regulated outside the Community and is situated in a non-
EU country where there are legal
impediments to the
transfer of the necessary information;

— the competent authority may,

if necessary, request further
information from the buyer. While the information required
is being provided, the assessment period is suspended for a
maximum of ten working days.

Any further requests for information by the authority

2.8
may not result in an interruption of the assessment period.

2.9
Assessment is limited to prudential matters and aspects
relating to the fight against money laundering. The competent
authorities will have no discretionary power to impose precon-
ditions as to the size of the holding to be reached, or to study
the acquisition in terms of the economic needs of the market.
Competing takeover bids for the same target will have to be
treated in a non-discriminatory manner.

2.10
Under the proposals, the Commission will have the
right to ask to be informed of the reasons why any authorisa-
tion has been granted or opposed, and to request copies of the
documents on which the competent authorities based their
assessment.

2.11
The Commission will also be able to use its executive
powers to propose and decide on any adaptation of the evalua-
tion criteria that may be necessary in order to take account of
market trends and of the need for uniform application within
the European Union.

— the reputation and experience of any person who may actu-
ally direct the business of the insurance undertaking as a
result of the proposed acquisition;

3. Comments of the Committee

— the financial soundness of the proposed acquirer, in particu-
lar in relation to the business pursued and envisaged in the
insurance undertaking in which the acquisition is sought;

As regards form:

3.1
for directives to be
amended by means of one or more directives; and for the
amending directive, in this case, to have the same legal basis as
the directives that it amends.

is logical

it

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3.2 As regards content:

3.2.1
The principle of having a restrictive list of criteria and
making the necessary information transparent deserves to be
supported. A harmonised, or even uniform set of rules would
be created in all the Member States, to facilitate cross-border
operations.

3.2.2
The proposed rules provide businesses and investors
with speed, transparency, identical treatment and legal certainty;
they can only be interrupted once, in strictly defined circum-
stances, and in the worse cases cut the decision-making process
for operations within the Community to six weeks instead of
twelve or thirteen.

Having said this, the Committee would also point out
3.2.3
that, according to the specialists, slightly more than half of all
mergers/acquisitions result in failure, that the synergies antici-
pated are in most cases over-estimated and that in the banking
sector, 5 to 10 % of customers leave their bank after the opera-
tion.

4. Specific comments

The rules on suspending the assessment period and their
4.1
information should be
link with the provision of additional
more precise; information considered to be incomplete may be
a reason for rejecting a bid; such requests should not be able to
be used as a pretext for an unjustified rejection: additional infor-
mation should not therefore exceed the list drawn up before-
hand or impose additional conditions. The investors concerned
here should be able to ask for extra time to provide certain addi-
tions (things can be complex in companies with many subsidi-
aries and holdings).

The risk of a rapid examination is that it could prove to
4.2
be superficial; monitoring by the Commission should not be
limited to cases of rejection, but instead should take the form of
surveys from time to time. In addition, reservations on the draft
amendments have been expressed by the committees that regu-
late financial services in Europe (the Committee of European
Banking Supervisors, the Committee of European Insurance and
Occupational Pensions Supervisors, and the Committee of Euro-
pean Securities Regulators). They are concerned about the reduc-
tion of the assessment period, the restrictive character of the list

Brussels, 18 January 2007.

of evaluation criteria, cooperation between supervisory authori-
ties in the home Member State and the host Member State, and
the power of the Commission to review a decision (a priori
negative).

The method chosen by the Commission,

including a
4.3
number of proposed detailed administrative procedures (e.g. (1)
the requirement for the competent authority of the Member
State to issue written acknowledgement of the receipt of an
application within two working days rather than, as is current
practice in the Member States, on delivery; (2) the starting date
of the period of time within which the competent authority
must examine an application to be the date of issue of the
written acknowledgement of receipt of the application rather
than the actual date of receipt), could turn out to be lacking
flexibility in practice, where realities are more or less complex
and each case has its peculiarities. This could make it difficult to
achieve the basic aim of the directive, which is to ‘improve the
legal certainty, clarity and transparency of
the supervisory
approval process’.

4.4
In accordance with the general monitoring principles laid
down by the directives, the principle of monitoring by the
home Member State should also be applied when assessing the
reputation of a would-be buyer. For this reason buyers who
have already been assessed in one Member State and whose
reputation has already been judged as sound, as in the case of
enterprises that have their registered office inside the EU, should
be exempted from undergoing a new examination, unless new
facts have emerged. Consequently, the authority responsible for
supervising the target enterprise should not oppose the planned
acquisition on the grounds of the supposed lack of reliability of
the would-be buyer or his management if such a buyer is an
enterprise that has already been checked out by the competent
authority of another Member State, which should be consulted
by the first authority. A situation where the same enterprise
receives divergent assessments from different national authori-
ties should be avoided as far as possible.

The Committee, which approves the proposed changes,
4.5
takes the view that the Commission's executive and supervisory
powers should,
in the light of experience, serve to promote
genuine harmonisation in the use of criteria, adjust certain
criteria if necessary, and review certain decisions if necessary.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS