Circular 5/2010 of the Bank of Spain on Information to be Provided by Potential Acquirers in Notifications under Article 57.1 of Law 26/1988

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Circular 5/2010, of September 28, from the Bank of Spain, to credit institutions, regarding the information that the potential acquirer must submit in the notification referred to in Article 57.1 of Law 26/1988, of July 29, on the discipline and intervention of credit institutions. (BOE of October 11, 2010)

Article 18 bis of Royal Decree 1245/1995, of July 14, on the creation of banks, cross-border activity, and other matters relating to the legal regime of credit institutions, in accordance with the wording given by Royal Decree 1817/2009, of November 27, which amends Royal Decree 1245/1995 and Royal Decree 692/1996, of April 26, on the legal regime of credit financial establishments, entrusts the Bank of Spain with the preparation, by means of a circular, of a list of the information that the potential acquirer must provide in the notification referred to in Article 57.1 of Law 26/1988, of July 29, on the discipline and intervention of credit institutions, for the prudential assessment of significant acquisitions and increases in shareholdings in credit institutions.

The aforementioned article obliges any natural or legal person who, alone or acting in concert with others, has decided to acquire, directly or indirectly, a significant participation in a Spanish credit institution, or to increase, directly or indirectly, their participation in such a way that the percentage of voting rights or capital held becomes equal to or greater than 20%, 30%, or 50%, or that, by virtue of the acquisition, they could come to control the credit institution, to notify the Bank of Spain in advance, indicating the amount of the intended participation, and to include in said notification all information determined by regulation.

Article 58.1 of Law 26/1988 delimits the scope of the assessment to be carried out by the Bank of Spain. Thus, in order to guarantee the sound and prudent management of the credit institution in which the acquisition is proposed, and taking into account the possible influence of the potential acquirer on it, the Bank of Spain must assess the suitability of this party and the financial solidity of the proposed acquisition.

Likewise, paragraph 2 of Article 18 bis of the Royal Decree determines the basic aspects that the information provided by the potential acquirer must cover, and in particular, the additional information to be supplied depending on the level of participation intended to be acquired.

Furthermore, it is established that the Bank of Spain must publish the content of the aforementioned list on its website.

On December 18, 2008, the European Committee of Banking Supervisors (ECBS), the European Committee of Insurance and Occupational Pensions Supervisors (CEIOPS), and the European Committee of Securities Regulators (CESR) published the Guidelines for the prudential assessment of acquisitions and increases in shareholdings in the financial sector, as required by Directive 2007/44/EC of the European Parliament and of the Council of September 5, 2007, amending 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 applicable in the prudential assessment that supervisory authorities must carry out of potential acquisitions and increases in shareholdings of entities in the financial sector, Community norms from which the aforementioned Spanish norms derive.

In Annex II, the Guide published by the ECBS collects the list of information that the supervisor must request for the assessment of an acquisition. Thus, general information regarding the potential acquirer and, where applicable, any person who effectively directs or controls their activities, and regarding the proposed acquisition, must be provided; and specific information, with greater or lesser scope, depending on whether the acquisition results in a change in the control of the entity.

Based on the fundamental aspects listed in the aforementioned Royal Decree to evaluate the acquisition of a significant participation, and taking into account the aforementioned Guidelines, this Circular establishes the list of information that must be supplied to the Bank of Spain by the potential acquirer in compliance with the obligation referred to in Article 57.1 of the aforementioned Law 26/1988, for the prudential assessment of acquisitions of significant shareholdings and increases in shareholdings in credit institutions.

Likewise, and in accordance with the principle of proportionality, the information to be supplied when the potential acquirer is a credit institution or a financial entity supervised by the National Securities Market Commission (CNMV), the General Directorate of Insurance and Occupational Pensions, or another supervisory authority for financial entities in the European Union is determined. The information to be supplied in the event that the origin of the notification obligation arises from an unforeseen acquisition is also specified. In all cases, the potential acquirer, based on the aforementioned principle of proportionality, must supply the Bank of Spain with the information collected in the list with a detail and scope adequate to the complexity and nature of the operation, in order for the Bank to have all relevant information on the acquisition for its prudential assessment.

Given the approach adopted in the European Union, which has regulated identically the obligations of potential acquirers in banking entities, investment service companies, or insurance companies, and considering that this same identity exists in Spanish regulation, where the legal and regulatory norms applicable to credit institutions are analogous to those adopted in the other two areas of regulated companies, this Circular has been prepared in full coordination with the National Securities Market Commission and the General Directorate of Insurance and Occupational Pensions, so that its norms are practically identical to those emanating from said supervisory bodies.

Consequently, in exercise of the powers granted, the Governing Council of the Bank of Spain, upon proposal of the Executive Commission, has approved this Circular, which contains the following norms:

Single Provision.

Information to be supplied by the potential acquirer in compliance with the obligation referred to in Article 57.1 of Law 26/1988, for the prudential assessment of acquisitions of significant shareholdings and increases in shareholdings in credit institutions.

1. Natural or legal persons who, alone or acting in concert with other persons, intend to acquire, directly or indirectly, a significant participation in a Spanish credit institution, or to increase, directly or indirectly, their participation in such a way that the percentage of voting rights or capital held becomes equal to or greater than 20%, 30%, or 50%, or that, by virtue of the acquisition, they could come to control the credit institution, shall notify the Bank of Spain in writing in advance, indicating the amount of the intended participation and shall include in said communication the information collected in the list attached as an annex to this Circular (hereinafter, the list).

If any of the circumstances regarding which information is requested in said list do not apply, the person completing it must expressly confirm that such circumstances do not exist.

The information supplied must be complete, truthful, and up-to-date.

When a significant participation is to be acquired or increased, wholly or partially, indirectly, the information collected in points 1 and 2 of Part I of the list must be provided by both those who will acquire said participation directly and by the person or persons who, located at the end of the chain of participations, are the ultimate owner thereof. However, the Bank of Spain may request the direct acquirer to provide said information regarding some or all of the persons or entities through which the participation is acquired, if deemed necessary to carry out the prudential assessment of the proposed acquisition.

2. In the event that the potential acquirer, direct or indirect, is a credit institution supervised by the Bank of Spain, it shall only be required to provide the information regarding the acquisition and the level of participation intended to be acquired, as collected in points 3 and 4 of Part I and in Part II of the list, as well as regarding the links and relationships, financial or otherwise, collected in points 2.b).2) a) and b) of Part I of the aforementioned list. Likewise, any update of the rest of the information collected in the list that is not already in the possession of the Bank of Spain must be provided.

When the potential acquirer is a financial entity supervised by the National Securities Market Commission, by the General Directorate of Insurance and Occupational Pensions, or by another authority responsible for the supervision of credit institutions, investment service companies, and insurance entities in another Member State of the European Union, it shall not be necessary to submit the information necessary to assess honorability found in Part I of the list.

If, for the purposes of an acquisition regulated in this Circular, the Bank of Spain had assessed the potential acquirer in the two previous years, in subsequent acquisition notifications, the acquirer shall only be required to provide, regarding the information collected in points 1 and 2 of Part I of the list, that which constitutes an update on what was previously submitted. In this case, the written document referred to in paragraph 3 of this provision must include a declaration stating that there has been no change in the non-updated list information compared to what was provided at that date.

3. The corresponding written document, to which the information contained in the list will be attached, must be signed by the potential acquirer. In the case of a legal person, it must be signed by a person or persons with sufficient authority, which must be accredited to the Bank of Spain. All attached information submitted to comply with the information requirements must be countersigned on all pages by the potential acquirer or the person or persons representing them.

When the significant participation exceeds, wholly or partially, indirectly, any of the thresholds provided, the written document must be signed by all those who will acquire the participation directly as well as by the person or persons who, located at the end of the chain of participations, are the ultimate owner thereof.

Personal information relating to a natural or legal person (such as that necessary to assess their honorability or the curriculum vitae) that, according to the list, must be attached, must be signed by the person to whom it refers.

4. When any of the scenarios provided for in paragraph 1 of this provision has occurred unforeseenly, not deriving directly from an acquisition operation by the shareholder, that is, having occurred involuntarily, as a result, among others, of the repurchase by the entity of its own shares from other shareholders or of a capital increase in which other shareholders do not participate, the communication provided for in said paragraph must be made by the shareholder as soon as they become aware of the crossing of any of the thresholds, even if they intend to reduce their level of participation so that it falls back below the crossed threshold, in order for the Bank of Spain to be able to assess their suitability.

In the event that, within a period of less than three months, the shareholder intends to reduce their level of participation so that it falls back below the crossed threshold, the written document referred to in paragraph 3 of this provision must include the commitment of said shareholder to reduce their level of participation, detailing the manner in which the reduction is intended to be carried out, as well as not to exercise the voting rights corresponding to the shares in excess. In this case, it shall not be necessary to attach to the written document the information collected in the list.

5. Without prejudice to what is stated in the preceding paragraphs, the Bank of Spain may request any additional or clarifying information it deems necessary, taking into account the particular circumstances of each acquisition, in order to be able to carry out an adequate prudential assessment thereof.

Entry into force.

This Circular shall enter into force twenty days after its publication in the "Boletín Oficial del Estado".

ANNEX

List of information that the potential acquirer must supply in compliance with the obligation referred to in Article 57.1 of Law 26/1988, of July 29, on the discipline and intervention of credit institutions, for the prudential assessment of acquisitions of significant shareholdings and increases in shareholdings in credit institutions

Part I. General Information

1. Identity of the potential acquirer.

a) Natural persons:

1. Name and surname, date and place of birth, nationality, and passport number or national identity document, residence card, and address for notification purposes, as well as telephone, fax, and email address, and, where applicable, Internet page.

2. Curriculum vitae, detailing academic training, experience, and professional career.

b) Legal persons:

1. Corporate name and trade name, corporate purpose, registered address, tax identification number, and mention of their registration in the Commercial Register or other public register where their legal personality is recorded. In the case of foreign legal persons, additionally, details regarding their nationality, corporate form or legal personality, and public accreditation thereof; in particular, information shall be provided regarding whether shares are registered or bearer; whether social capital is fixed or variable; whether there are legal, statutory, or shareholders' agreement provisions providing that the exercise of voting rights is not exercised by shareholders in proportion to the number of shares held, as well as any other relevant information concerning the corporate or statutory regime of the foreign company whose exercise differs notably from that usual in Spanish commercial companies assimilable by their nature.

Likewise, the address for notification purposes (if different from the registered address) and telephone, fax, and email address, and, where applicable, Internet page, shall be provided.

2. Detailed description of the activities carried out by the company and whether it is subject to the supervision of any financial entity supervisory authority.

3. List of persons comprising the board of directors or equivalent body, as well as their senior management, attaching their curriculum vitae. The curriculum vitae shall detail their training and professional career, with special attention to professional activities currently performed, their academic training, and any other data that is an indicator of their experience. It shall not be necessary to submit the aforementioned curriculum vitae when it concerns persons who are members of the board of directors or equivalent body or senior management of a financial entity subject to the supervision of another Spanish or European Union financial entity supervisory authority. In the case of members who could represent minority shareholders, this circumstance must be indicated.

4. Identity of all persons who are the ultimate owner of the legal person, and indication of the manner in which such ownership is exercised.

In the event that the ultimate owner is a natural person, the information mentioned in point a) must be provided, and if it is a legal person, the information indicated in the previous points, as well as the corresponding additional information, in accordance with what is provided in point 2 below.

In the event that the potential acquisition is based on a contractual agreement structured through an investment vehicle for the management of shareholdings that already exist or would result from the acquisition, the following shall be provided:

The identity (with the detail indicated above) of all natural or legal persons participating in the contractual agreement (whether express or tacit, verbal or written) and the percentage of participation of each in the distribution of results.

The identity of all persons who are the ultimate owner of the investments in the vehicle.

2. Additional information on the potential acquirer.

a) In the event that the potential acquirer is a natural person:

1. In order to assess their honorability, information shall be provided on:

i) Criminal records for intentional crimes, in Spain or abroad, or for gross negligence.

ii) Judicial sanctions in insolvency matters, either due to disqualification in accordance with Law 22/2003, of July 9, Insolvency, while the disqualification period established in the qualification judgment of the insolvency has not concluded, or due to the status of bankrupt or insolvent person not rehabilitated, in the case of insolvency proceedings prior to the entry into force of the aforementioned Law, or due to similar situations under the legislation of other countries.

iii) Serious and/or very serious administrative sanctions imposed, in Spain or abroad, relating to any of the following matters: banking and financial regulation, tax, social security, labor, commercial, unfair competition or market abuse, capital movements, economic transactions with foreign countries, money laundering and terrorist financing, and consumer and user protection; and including, in any case, disqualification from holding public office or administration or direction of financial entities.

iv) Any type of judicial, insolvency, or administrative sanctioning procedure in which they may be involved, in Spain or abroad, in the matters indicated in point iii) or in relation to points i) and ii) above.

v) Other corrective or disciplinary measures pending or imposed by a financial entity supervisory authority or in matters of money laundering and terrorist financing.

vi) The denial, withdrawal, or revocation of any authorization or license to practice a profession or activity of a financial nature, or expulsion decreed by an administrative or regulatory body in that same field or of a professional nature.

vii) Dismissal, termination, or request for resignation as an employee, agent, or manager of a financial entity or investment vehicle.

viii) If they are a shareholder, member of the board of directors or equivalent body, or general director or similar, of a financial entity. Furthermore, and if another financial sector supervisory authority has assessed their commercial and professional honorability, they must identify the corresponding supervisory authority and provide documents demonstrating the result of said assessment.

ix) If they have been assessed, in their capacity as a potential acquirer of a non-financial entity, by any authority of another non-financial sector or if any authority of that nature has assessed their commercial and professional honorability. If affirmative, the potential acquirer must identify the corresponding authority and provide documents demonstrating the result of said assessment.

x) In the event that their nationality is that of a State not a member of the European Union, if they have been assessed by any authority responsible in their country for money laundering and terrorist financing prevention legislation or by an international body responsible for the application of said legislation. If affirmative, the potential acquirer must identify the corresponding authority and provide documents demonstrating the result of said assessment. Additionally, they shall provide information regarding their career, and that of companies domiciled outside the European Union that they control, in this matter.

2. They shall inform about their financial situation, solvency, and financial strength, and about the financial means available to meet the commitments they intend to assume by virtue of the acquisition; in particular, information regarding their sources of income, assets, liabilities, and financial situation.

3. They shall describe in detail their professional activities, and the companies they direct or control.

4. They shall provide financial information regarding their professional or business activity, consolidated if applicable, and audited if so, including credit ratings and public reports of companies controlled or directed by the potential acquirer, and, if available, credit ratings and public reports regarding the potential acquirer themselves. Where applicable, information shall also be provided regarding the volume of assets under management.

5. They shall describe their links or relationships, financial (loans, guarantees, pledges, etc.) or non-financial (among others, family relationships), with:

i) Any other significant shareholder of the entity subject to the acquisition.

ii) Any person who may exercise voting rights in the entity subject to the acquisition in any of the scenarios provided for in Article 18 of Royal Decree 1817/2009, of November 27, which amends Royal Decree 1245/1995, of July 14, on the creation of banks, cross-border activity, and other matters relating to the legal regime of credit institutions, and Royal Decree 692/1996, of April 26, on the legal regime of credit financial establishments.

iii) Any member of the board of directors or equivalent body, general director, or senior management of the entity subject to the acquisition.

iv) The entity subject to the acquisition itself and any of the companies in the group to which it belongs.

6. They shall describe any other link, interest, relationship, or activity of the acquirer that could demonstrate a special interest in the acquisition or generate a conflict of interest with the entity subject to the acquisition or its group, and, in this case, the measures they intend to adopt to resolve said conflict of interest.

b) In the event that the potential acquirer is a legal person:

1. To assess the honorability of the potential acquirer and, where applicable, of any person who effectively controls or directs their activities, the information collected in point 2.a).1) above shall be provided.

2. Information shall also be included regarding the legal person or persons that will act as potential acquirers, on the following points:

a. Description of the links and relationships, financial (for example, loans, guarantees, pledges) or non-financial (for example, family relationships), of the potential acquirer