Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector

1/40 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector Status of these Joint Guidelines This document contains Joint Guidelines issued pursuant to Article 16 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EU and repealing Commission Decision 2009/78/EZ, Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EU and repealing Commission Decision 2009/79/EZ, and Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EU and repealing Commission Decision 2009/77/EZ (hereinafter “the European Supervisory Authorities Regulations”). In accordance with Article 16(3) of the European Supervisory Authorities Regulations, competent authorities and financial institutions must make every effort to comply with the Guidelines. The Joint Guidelines set out the views of the European Supervisory Authorities regarding appropriate supervisory practices within the European System of Financial Supervision or in relation to how Union law should be applied in a particular area. Competent authorities to which the Joint Guidelines apply shall comply with their provisions by incorporating them into their supervisory practices in an appropriate manner (e.g., by amending their legal framework or supervisory procedures), including cases where the Joint Guidelines are primarily directed at financial institutions. Reporting Requirements In accordance with Article 16(3) of the European Supervisory Authorities Regulations, competent authorities must notify the relevant European Supervisory Authority whether they comply with these Joint Guidelines or not, stating reasons for non-compliance within two months after the publication of the translation. In the absence of such notification within that period, the relevant European Supervisory Authority shall consider that the competent authorities do not comply. Notifications should be sent to compliance@eba.europa.eu, JointQHGuidelines.compliance@eiopa.europa.eu and compliance.jointcommittee@esma.europa.eu with the subject line “JC/GL/2016/01”. The notification form is available on the websites of the European Supervisory Authorities.

2/40 Notifications are sent by persons responsible for compliance reporting on behalf of their competent authorities. Notifications will be published on the websites of the European Supervisory Authorities in accordance with Article 16(3). Chapter I – Subject matter, scope and definitions

1. Subject matter The aim of these Guidelines is to clarify the procedural rules and assessment criteria applied by competent authorities for the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector.
2. Scope and degree of application These Guidelines apply to competent authorities when conducting the prudential assessment of acquisitions or increases of qualifying holdings in target entities.
3. Definitions 3.1 For the purposes of these Guidelines, the following definitions apply: (i) “competent authority” means any of the following: (a) competent authorities designated in Article 4(2)(i) of Regulation (EU) No 1093/2010[1] establishing the European Supervisory Authority (European Banking Authority) (hereinafter “EBA”), (b) competent authorities designated in Article 4(2)(i) of Regulation (EU) No 1094/2010[2] establishing the European Supervisory Authority (European Insurance and Occupational Pensions Authority), namely supervisory authorities defined in Directive 2009/138/EZ[3] on the taking up and pursuit of the business of Insurance and Reinsurance (Solvency II), (c) competent authorities designated in Article 4(3)(i) of Regulation (EU) No 1095/2010[4] establishing the European Supervisory Authority (European Securities and Markets Authority) (“ESMA”), as defined in Article 4(1)(22) of Directive 2004/39/EZ[5] on markets in financial instruments and, from 3 January 2017, in Article 4(1)(26) of Directive 2014/65/EU[6] on financial markets and in Article 22 of Regulation (EU) No 648/2012[7] on OTC derivatives, central counterparties and trade repositories, (ii) “control” means the relationship between a parent undertaking and a subsidiary, as defined in and determined in accordance with the criteria set out in Article 22 of Directive 2013/34/EU[8] on annual financial statements, consolidated financial statements and related reports for certain types of undertakings – which criteria target supervisors must apply outside the scope of Directive 2013/34/EU for the purposes of these Guidelines – or a similar relationship between any natural or legal person and an undertaking, (iii) “management body” has the meaning given to this term in Article 3(1)(7) of Directive 2013/36/EU[9] on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, (iv) “management body” has the meaning given to this term in Article 3(1)(8) of Directive 2013/36/EU, (v) “proposed acquirer” means a natural or legal person who intends to acquire or increase, directly or indirectly, a qualifying holding in the target entity, either individually or acting jointly with another person or persons, (vi) “qualifying holding” has the meaning given to this term in Article 4(1)(36) of Regulation (EU) No 575/2013[10] and in Article 13(21) of Directive 2009/138/EZ, namely “a direct or indirect holding in an undertaking which represents 10 % or more of the capital or voting rights, or which makes it possible to exercise significant influence over the management of that undertaking”, (vii) “sectoral Directives and Regulations” means collectively: (a) Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EZ and repealing Directives 2006/48/EZ and 2006/49/EZ, (b) Directive 2009/138/EZ of the European Parliament and of the Council of 25 November 2009 on the taking up and pursuit of the business of Insurance and Reinsurance (Solvency II), (c) Regulation (EU) 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, (d) Directive 2004/39/EZ of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, (e) Regulation (EU) 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms, (f) Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on financial markets, (viii) “shareholder” or “member” means a person who is the owner of shares in the target entity or, depending on the legal form of the institution, other owners or members of the target entity, (ix) “target supervisor” means the competent authority as defined in point (i) above, responsible for supervising the target entity, (x) “target entity” or “financial institution” means any of the following: credit institution (as defined in Article 4(1)(1) of Regulation (EU) No 575/2013), investment firm (as defined in Article 4(1)(1) of Directive 2014/65/EU), insurance company (as defined in Article 13(1) of Directive 2009/138/EZ), reinsurance company (as defined in Article 13(4) of Directive 2009/138/EZ) and central counterparty (as defined in Article 2(1) of Regulation (EU) No 648/2012), and (xi) “third countries considered equivalent” means, for the purposes of applying the assessment criteria set out in points 10, 11, 12 and 13 of these Guidelines, those non-EU countries in which regulated financial institutions are subject to a supervisory regime found to be equivalent on the basis of the conditions set out in the sectoral Directives and Regulations.

Chapter II – Proposed acquisition of qualifying holdings and cooperation of competent authorities Chapter 1. – General concepts 4. Joint action 4.1 For the purposes of sectoral Directives and Regulations, target supervisors shall consider that all legal or natural persons who decide to acquire or increase a qualifying holding in accordance with an express or implied agreement reached between them, taking into account these Guidelines and especially points 4.2 to 4.12 of this document, act jointly. Target supervisors shall not be prevented from concluding that certain persons act jointly solely because one or more of such persons are passive, as inactivity may contribute to creating the conditions for acquiring or increasing a qualifying holding or exercising influence over the target entity. 4.2 The target supervisor shall take into account all relevant elements to determine, on a case-by-case basis, whether certain parties act jointly, which would lead to the condition for notifying the target supervisor and conducting a prudential assessment of any intended acquisition. 4.3 When certain persons act jointly, target supervisors shall aggregate their holdings to determine whether such persons may acquire a qualifying holding or cross any relevant threshold mentioned in the sectoral Directives and Regulations. 4.4 Each relevant person or persons on whose behalf the rest of a group of persons act jointly shall notify the target supervisor of relevant acquisitions or increases in qualifying holdings. 4.5 If no notification is submitted to the target supervisor documenting that certain persons act jointly, the target supervisor shall not be prevented from examining whether such persons actually do so. For this purpose, the target supervisor shall consider as indicators that these persons may act jointly the factors listed in point 4.6, which does not constitute an exhaustive list. The fact that a particular factor is present does not necessarily lead, by itself, to the conclusion that relevant persons act jointly. 4.6 To assess whether certain persons act jointly, the target supervisor shall particularly consider all of the following factors: (a) shareholders’ agreements and corporate governance agreements (however, excluding pure share purchase agreements, tag-along or drag-along agreements regarding the right or obligation of minority members to sell shares on terms set by majority members, and pure statutory pre-emption rights), and (b) other evidence of cooperation, for example: (1) existence of family relationships, (2) whether the proposed acquirer holds a senior management position or is a member of the management body or supervisory function of the target entity, or can appoint such person, (3) relationship between undertakings in the same group (however, excluding situations meeting the independence criteria set out in point 4 or, as applicable, Article 12(5) of Directive 2004/109/EZ on the harmonisation of transparency requirements), (4) use of the same source of funding for acquiring or increasing holdings in the target entity by different persons, and (5) consistent voting patterns by relevant shareholders. 4.7 The target supervisor shall not apply the regime relating to notifications and prudential assessment of acquisitions or increases in qualifying holdings in such a way as to hinder cooperation between shareholders aimed at good corporate governance. 4.8 In determining whether cooperating shareholders act jointly, the target supervisor shall conduct a case-by-case analysis and evaluate each case based on its own characteristics. If in a particular instance there are facts, along with the engagement of shareholders in each activity listed in point 4.9, indicating that such shareholders should be considered persons acting jointly, the target supervisor shall take those facts into account when making its assessment. There may be, for example, facts regarding the relationship between shareholders, their objectives, their activities or the results of their activities indicating that their cooperation regarding the activity described in point 4.9 is not merely an expression of a joint approach to a specific issue, but rather an element of a broader agreement or understanding among shareholders. 4.9 When shareholders, in accordance with national law and, where relevant, EU law, cooperate or engage in any activity listed in the non-exhaustive list below, the target supervisor shall not consider that such cooperation by itself leads to the conclusion that they act jointly: (a) initiation of mutual discussions on possible issues to be submitted to the company’s management body, (b) making statements to the company’s management body on policies, practices or specific activities that the company might consider implementing, (c) except in relation to the appointment of management body members, use of statutory shareholders’ rights to: (1) add items to the agenda of the general meeting, (2) submit proposals for decisions on items included or to be included in the agenda of the general meeting, or (3) convene a general meeting other than the annual general meeting, (d) except in relation to the decision on the appointment of management body members and, to the extent such decision is prescribed by national company law, reaching agreements on voting in the same way on a specific decision during the general meeting so as to, for example: (1) approve or reject: i. proposal relating to directors’ remuneration, ii. acquisition or disposal of assets, iii. reduction and/or repurchase of shares, iv. increase in capital, v. distribution of dividends, vi. appointment, dismissal or remuneration of auditors, vii. appointment of a special investigator, viii. financial statements of the company or ix. company’s policy regarding the environment or any other issue relating to corporate social responsibility or compliance with recognised standards or codes of conduct, or (2) reject a transaction with a related party. 4.10 If shareholders cooperate by engaging in an activity not included in point 4.9, the target supervisor shall not consider that this fact by itself means that such persons should be considered persons acting jointly. 4.11 When considering cases of cooperation among shareholders regarding the appointment of management body members, target supervisors shall, in addition to examining the facts described in point 4.8 (including the relationship between relevant shareholders and their activities), also consider other facts such as: (a) nature of the relationship between shareholders and the proposed member(s) of the management body, (b) number of proposed management body members voted on based on voting agreements, (c) whether shareholders have cooperated regarding the appointment of management body members on more than one occasion, (d) whether shareholders have not only voted together but also jointly proposed the appointment of specific management body members, and (e) whether the appointment of the proposed member(s) will lead to a change in the balance of power within such management body. 4.12 To avoid doubt, the interpretation of joint action set out in these Guidelines shall apply exclusively to the prudential assessment of acquisitions or increases of qualifying holdings in the financial sector to be carried out in accordance with sectoral Directives and Regulations, and shall not affect the interpretation of any similar concept described in other EU legislative acts, such as Directive 2004/25/EU on takeover bids.

5. Significant influence 5.1 Pursuant to sectoral Directives and Regulations, a proposed acquisition or increase in holdings that does not reach 10 % of the capital or voting rights of the target entity shall be subject to prior notification and prudential assessment as to whether such holding enables the proposed acquirer to exercise influence over the management of the target entity, regardless of whether such influence is actually being exercised. To assess whether significant influence may be exercised, the target supervisor shall take into account several factors, including the ownership structure of the target entity and the actual level of involvement of the proposed acquirer in the management of the target entity. 5.2 The target supervisor shall consider the following non-exhaustive list of factors for assessing whether a proposed acquisition of holdings enables the proposed acquirer to exercise significant influence over the management of the target entity: (a) existence of significant and regular transactions between the proposed acquirer and the target entity, (b) relationship of each member or shareholder with the target entity, (c) whether the proposed acquirer enjoys additional rights in the target entity based on a concluded agreement or provision contained in the articles of association or other foundational documents, (d) whether the proposed acquirer is a member or has a representative in or can appoint a representative to the management body, supervisory function, or any other similar body of the target entity, (e) overall ownership structure of the parent entity of the target entity, particularly taking into account whether holdings or participating interests and voting rights are distributed among a large number of shareholders or members, (f) existence of relationships between the proposed acquirer and existing shareholders and any shareholders’ agreement that would enable the proposed acquirer to exercise significant influence, (g) position of the proposed acquirer within the target entity’s group structure, and (h) ability of the proposed acquirer to participate in the business and financial strategic decision-making of the target entity. 5.3 In order to determine whether significant influence may be exercised, the target supervisor shall also take into account all relevant facts and circumstances.
6. Indirect acquisitions of qualifying holdings 6.1 In accordance with sectoral Directives and Regulations, a qualifying holding is a direct or indirect holding in an undertaking that (i) represents 10 % or more of the capital or voting rights, or (ii) enables significant influence over the management of that undertaking. The criteria for assessing whether a holding enables the proposed acquirer to exercise significant influence are set out in the preceding Section 5. 6.2 This section sets out relevant tests for assessing whether a qualifying holding is acquired indirectly and the size of such holding when: (a) a natural or legal person acquires or increases directly or indirectly participation in an existing holder of a qualifying holding, or (b) a natural or legal person has a direct or indirect holding in a person who acquires or increases directly participation in the target entity. For each of the persons previously mentioned under (a) or (b), the control criterion set out in point 6.3 shall first be applied. If application of such criterion establishes that the relevant person does not exercise or acquire, directly or indirectly, control over the existing holder or acquirer of a qualifying holding in the target entity, the multiplicative criterion shall subsequently be applied, as shown in point 6.6, with respect to that person. The multiplicative criterion control shall be applied, as described in this section, along each branch of the corporate chain. 6.3 The first step provides for the application of the concept of control and, as applicable, for all natural or legal persons (a) who acquire, directly or indirectly, control over an existing holder of a qualifying holding in the target entity regardless of whether such existing holding is direct or indirect, or (b) who, directly or indirectly, control the proposed direct acquirer of a qualifying holding in the target entity shall be considered indirect acquirers of qualifying holdings. In both case (a) and case (b), indirect acquirers include the ultimate natural person(s) at the top of the corporate chain of control. 6.4 In the case described in point 6.3(a) above relating to direct or indirect acquisition of control over an existing holder of a qualifying holding, each person who directly or indirectly acquires control over the existing holder of a qualifying holding shall be considered an indirect acquirer.

[Translated Footnotes] 1 Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EU and repealing Commission Decision 2009/78/EZ, (OJ L 331, 15.12.2010, p. 12). 2 Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EU and repealing Commission Decision 2009/78/EZ (OJ L 331, 15.12.2010, p. 48). 3 Directive 2009/138/EZ of the European Parliament and of the Council of 25 November 2009 on the taking up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1). 4 Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EU and repealing Commission Decision 2009/78/EZ (OJ L 331, 15.12.2010, p. 84). 5 Directive 2004/39/EZ of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (OJ L 145, 30.4.2004, p. 1). 6 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on financial markets (OJ L 173, 12.6.2014, p. 349). 7 Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1). 8 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on annual financial statements, consolidated financial statements and related reports (OJ L 182, 29.6.2013, p. 19). 9 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (OJ L 176, 27.6.2013, p. 338). 10 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (OJ L 176, 27.6.2013, p. 1).