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Implementation of Acquisitions Directive: better prospects for financial services deals? - International Law Office

International Law Office

Corporate Finance/M&A - France

Implementation of Acquisitions Directive: better prospects for financial services deals?

November 10 2010

When does the directive apply?
On what basis are acquisitions assessed by the regulators?
Are there any set exemptions?
What is the process and how long does it take?

What if the rules are overlooked?


The EU Acquisitions Directive(1) on procedural rules and evaluation criteria for the prudential assessment of acquisitions and increases of holdings in the financial sector has introduced consistent procedures and criteria throughout the European Economic Area (EEA) for the assessment by regulators of acquisitions and increases of holdings in the financial sector.

The directive was adopted in response to the fact that the extent of cross-border acquisitions of financial institutions in the European Union was relatively low, compared to activities in the non-financial sectors or those purely within national boundaries. Following a series of studies, the European Commission concluded that while there may be business reasons for this, the lack of a clear pan-European harmonised regulatory framework for the approval of acquisitions may also be a barrier to cross-border acquisitions. There were also concerns that regulators in some member states, which were allowed considerable freedom to interpret the regulatory requirements in their own way, have been using regulatory hurdles to frustrate bids for protectionist reasons, rather than for reasons which have any direct bearing on prudential regulation.

The directive thus aims to improve the regulatory approval process conducted in connection with the acquisition of European financial institutions by increasing legal certainty, clarity and transparency, and ensuring consistent treatment between the different financial sectors (ie, the banking, securities and insurance sectors). Notably, the directive imposes 'maximum harmonisation',(2) thus in theory preventing member states from imposing rules over and above what is laid out in the text of the directive itself.

This update summarises the key topics dealt with under the directive and looks at whether the implementation of the directive in France has changed the process and conditions formerly applicable to acquisitions of French financial institutions.

The directive, which was to be implemented by member states by March 21 2009, was implemented in France through several legislative acts: Ordinance 2009-897 of July 24 2009,(3) Decree 2009-1223, of October 12 2009(4) and ministerial orders dated October 23 2009,(5) November 2 2009(6) and November 6 2009.(7)

When does the directive apply?

Any proposed acquirer of a financial institution whose principal place of business or registered office is situated in the EEA should be aware of the directive and ensure compliance with its principles as implemented in the member state of the target.

Under the directive, any natural or legal person or such person acting in concert must apply for authorisation to the relevant regulator in the target's member state if and when:

  • the target is a credit institution, insurance, assurance or reinsurance undertaking, investment firm or portfolio management company;(8)
  • a direct or indirect holding is being acquired (ie, 10% or more of the capital or voting rights, or where the holding in question makes it possible to exercise a significant influence over the management of the target); or
  • an increase in such a qualifying holding would cause the proportion of the capital or voting rights to reach or exceed 20%, 30% (member states are permitted to retain 33%, as was the case under the existing regime, if they prefer) or 50%, or so that the target would become a subsidiary of the proposed acquirer.

The thresholds introduced by the directive are consistent with the former regime in France, since French law already imposed a prior authorisation obligation in case an acquisition resulted in a holding in the target in excess of 10%, 20%, 33% or 50% (except for portfolio management companies, where prior authorisation from the Autorité des Marchés Financiers was required only for a change of control in the company – now all thresholds apply). As permitted by the directive, France has not reduced the 33% threshold to 30% - as is the case for the other thresholds (10%, 20% and 50%), the 33% threshold will continue to apply.

For the purpose of calculating the thresholds, the shareholdings of persons acting in concert are to be added together. The directive does not provide for a definition of the concept of 'acting in concert', the meaning of which is governed by EU law and may develop by way of European Court of Justice case law. However, guidance on the meaning of 'acting in concert' has been proposed in the guidelines(9) on the directive produced by the three Lamfalussy Level 3 committees(10) as follows:

"Persons are 'acting in concert' when each of them decides to exercise his rights linked to the shares he intends to acquire in accordance with an explicit or implicit agreement made among them. It makes no difference whether this agreement is made in writing or verbally, or whether it becomes apparent only 'de facto' or whether the persons acting in concert are otherwise linked with each other."

The reference to persons acting in concert introduced by the directive will have no significant effect on the regime in France, where persons acting in concert have been taken into account by reference to the existing French law concept of 'personnes agissant de concert' provided for under Article L233-10 of the Commercial Code, which is similar to the proposed Level 3 committees' definition.

On what basis are acquisitions assessed by the regulators?

One of the European Commission's stated reasons for introducing the directive was to improve transparency in the regulatory approvals process for acquisitions. The directive therefore requires regulators across Europe to assess the suitability of a proposed acquirer and the financial soundness of a proposed acquisition against a fixed set of criteria(11) (whose application and extent have been commented on in the guidelines) as follows:

  • the reputation of the proposed acquirer;
  • the reputation and experience of any person who will direct the business of the financial institution as a result of the proposed acquisition;
  • the financial soundness of the proposed acquirer, in particular in relation to the type of business pursued and envisaged in the financial institution in which the acquisition is proposed;
  • the ability of the financial institution to comply, on an ongoing basis, with the applicable prudential requirements, and whether the group of which it will become a part has a structure that makes it possible to exercise effective supervision; and
  • 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 the risk of such activities occurring.

Under the former French regime, there were no legal provisions setting out criteria against which a proposed acquisition was to be assessed. In practice, however, the French regulator applied at least the first three criteria in a discretionary manner. Indeed the French regulator relied on various documents and information which were required to be made available as part of the application for authorisation and which de facto permitted assessing whether the first three criteria were satisfied. The fourth and fifth criteria are therefore new to the French system and the whole set of criteria is now clearly expressed in the French legal provisions.

Confining the assessment criteria to this legally defined basis should, in principle, significantly reduce the risk of the exercise of unreasonable discretionary power by the regulator in the assessment of the proposed acquisition and has the great advantage of transparency, given that any objection to the acquisition must be justified in writing on the basis of the above criteria.

Are there any set exemptions?

The directive has introduced new exemptions to the approval process. These exemptions derive from a cross-reference to the EU Transparency Directive:(12)

  • voting rights or shares held by a firm acting in a custodial capacity or acquired for the sole purpose of clearing and settling, provided that custodians can only exercise voting rights under instructions given by their principals;(13) or
  • voting rights or shares held by an investment firm or credit institution as a result of the provision of underwriting services or the placing of securities, provided that the holding is for no longer than one year and the voting rights are not exercised.(14)

Other derogations from the approval process provided for under the existing directives as implemented in France include intra-group reorganisations. Operations carried out between companies placed, directly or indirectly, under the effective control of a single entity are subject only to immediate notification to the regulator, unless the effect of these transactions is to transfer effective control to one or more persons not subject to EU law.(15)

What is the process and how long does it take?

The directive has introduced a specific process and timelines with a view to:

  • shortening the period of time that the regulator can take to make the assessment from 90 calendar days (equivalent to 65 working days) to 60 working days;
  • allowing a possible interruption to the assessment period ('stop the clock') once, for no more than 20 days, in order to seek further information; further requests for information can be made, but without stopping the clock; and
  • providing the option to extend the maximum interruption period to 30 working days if the proposed acquirer is regulated outside the European Community or is a person not authorised under the Single Market Directives.

From a French perspective, the impact of the changes which have been made to the process is not significant, since the timelines set out in the directive are not dissimilar to those formerly applicable. There will, however, be less room for delay or extension in the approval procedure (formerly, the delay for approval was somewhat dependent on internal organisation constraints and the discretion of the relevant regulator).

The relevant competent French regulator, which must be notified of any proposed acquisition by the proposed acquirer, will vary depending on the regulatory status of the target, as follows:

Regulatory status of the target

Competent regulator(16)

Credit institutions Autorité de Contrôle Prudentiel – ACP (formerly Comité des Etablissements de Crédit et des Entreprises d'Investissement – CECEI)
Investment firms ACP (with consultation of the Autorité des Marchés Financiers – AMF)
Portfolio management companies AMF
Insurance and reinsurance companies ACP (formerly Comité des Entreprises d'Assurance – CEA)

The timelines for the assessment process provided for in the directive as implemented in France(17) can be illustrated and summarised as follows:

The relevant French regulator must promptly, and in any event within two working days following receipt of a notification, acknowledge receipt thereof to the proposed acquirer.

As from the date of the written acknowledgement of receipt, the relevant French regulator has a maximum of 60 working days to make a decision and may stop the clock only once, for a maximum of 20 working days (30 days for non-EU applicants or non-financial institutions), to request further information. The clock may be stopped no later than the 50th working day of the assessment period. Any further request for information for completion or clarification of the notification does not result in another interruption period. This requirement removes the theoretical opportunity for the relevant regulator to delay the process by submitting continual requests for information, which could act as a barrier to proposed acquisitions.

In total, therefore, the regulator has a maximum of 82 working days to consider a notification from an EU applicant (92 days for non-EU applicants).

If and when the relevant regulator, on completion of its assessment, decides to oppose the proposed acquisition, it must inform the proposed acquirer in writing (within two working days and without exceeding the assessment period) and provide reasonable grounds for doing so on the basis of one or more of the five assessment criteria or if the information provided by the proposed acquirer is incomplete. The target will also be informed by the relevant regulator of its decision. At the request of the proposed acquirer, an appropriate statement of the reasons for the decision to oppose the proposed acquisition may be made accessible to the public on its website.

If the relevant regulator does not oppose the proposed acquisition within the assessment period in writing, it shall be deemed to be approved. The relevant regulator may fix a maximum period for concluding the proposed acquisition and extend it where appropriate.

What if the rules are overlooked?

If a person acquires shares without proper regulatory approval, restrictions can be placed on the shares, which include an inability to exercise voting rights attached to the improperly acquired shares until the situation has been regularised.(18) These restrictions can be ordered by courts upon application by the public prosecutor, the relevant regulator (ie, the ACP, except in relation to shares acquired in portfolio management companies, which are within the competence of the AMF) or any shareholder of the target.


The implementation of the directive in France has not radically changed the position compared to what was required under the former regime. It has rather resulted in a more detailed regulation of acquisitions within the financial sector and will certainly lead to a material improvement in the consistency and transparency of the regulatory approval process. Only time will tell whether the stated objectives of the directive - that is, to facilitate consistent handling of cross-border acquisitions and accordingly increase the level of cross-border acquisitions in the financial sector - will be achieved in the long term.

For further information on this topic please contact Sébastien Gros or Bénédicte Denis at Hogan Lovells by telephone (+33 1 53 67 4747), fax (+33 1 53 67 4748) or email (sebastien.gros@hoganlovells.com or benedicte.denis@hoganlovells.com).


(1) Directive 2007/44/EC was formerly adopted by the European Parliament and the Council of the European Union on September 5 2007 and published in the Official Journal on September 21 2007 (OJ L 247, p 1). The directive amends the following directives (each of which provides for minimum standards in relation to the supervisory approval process): the Third Non-life Insurance Directive (92/49/EEC), the Third Life Directive (2002/83/EC), the Markets in Financial Instruments Directive (2004/39/EC), the Reinsurance Directive (2005/68/EC) and the Banking Consolidation Directive (2006/48/EC).

(2) This is in contrast to the articles of the relevant credit institutions, securities and insurance directives, which imposed minimum standards.

(3) Ordinance 2009-897, July 24 2009 relating to the prudential assessment of acquisitions and increase of holdings in entities of the financial sector (Official Journal 0170 of July 25 2009, p 12421).

(4) Decree 2009-1223, October 12 2009 relating to the prudential assessment of acquisitions and increase of holdings in entities of the financial sector (Official Journal 0238 of October 14 2009, p 16765).

(5) Order of October 23 2009 relating to the prudential assessment of acquisitions, extensions or disposal of holdings in insurance undertakings (Official Journal 0252 of October 30 2009, p 18553).

(6) Order of November 2 2009 amending Regulation 96-16 of the Banking and Financial Regulation Committee (CRBF) relating to changes in the situation of credit institutions and investment firms other than portfolio management companies (Official Journal 0258 of November 6 2009, p 19161).

(7) Order of November 6 2009 concerning the homologation of the amendments to the general regulations of the Financial Markets Authority (Official Journal 0260 dated November 8 2009, p 19392).

(8) Further to the implementation in France of the EU Payment Services Directive (2007/64/EC) (OJ L 319, 5.12.2007, p 1), the assessment process provided for in the directive has been extended to changes in the control of payment institutions though an order dated October 29 2009 on the prudential regulation of payment institutions (Official Journal 0253 of October 31 2009, p 18722). Changes in the control of other types of regulated firms, such as mortgage and insurance intermediaries, non-undertakings for collective investments in transferable securities scheme operators and investment advisers are not covered by the directive.

(9) Guidelines of July 11 2008 for the prudential assessment of acquisitions and increase of holdings in the financial sector required by Directive 2007/44/EC (CEBS/2008/40, CEIOPS-3L3-10-08, CESR/08-543) covering:

  • the five assessment criteria laid down by the directive;
  • arrangements for the exchange of information between supervisors; and
  • information that proposed acquirers should include in their notifications to regulators (for example, information on the identity of the proposed acquirer and, in certain circumstances, a business plan for the target).

The guidelines are not legally binding on EU member states – they are merely guidance. The directive does, however, require regulators to promote convergence in their supervisory practices, so it is expected that the guidelines will be an important benchmark for the approach to be taken by regulators.

(10) The three Level-3 Committees of European Financial Supervisors are the Committee of European Banking Supervisors, the Committee of European Insurance and Occupational Pensions Supervisors and the Committee of European Securities Regulators.

(11) This list of criteria is exhaustive - it cannot be added to by regulators. This is to improve the consistency and transparency of the process, and guard against potential abuse by member states.

(12) Directive 2004/109/EC of the European Parliament and of the Council of December 15 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (OJ L 390, 31.12.2004, p 38).

(13) Implemented in France through Article 4 of CRBF Regulation 96-16 introduced by Article 1 of the order dated November 2 2009, Article R322-11-1 of the Insurance Code introduced by Decree 2009-1223 dated October 12 2009, Article 312-12 of the General Regulations of the AMF introduced by the order dated November 6 2009.

(14) Implemented in France through Article 312-12 of the General Regulations of the AMF introduced by the order dated November 6 2009.

(15) Article 312-12 of the General Regulations of the AMF introduced by the order dated November 6 2009.

(16) Further to Ordinance 2010-76 of January 21 2010, the authorities of authorisation and supervision of banking and insurance have merged into a new supervisory authority called the Prudential Supervisory Authority, (ACP), chaired by the governor of the Bank of France. Providers of investment services remain subject to supervision by the AMF in respect of the rules of conduct especially. In order to ensure a consistent monitoring policy of the ACP and the AMF a "mutual operation standard between the ACP and the AMF" was established between the two authorities.

(17) Article 2.2 of CRBF Regulation 96-16 introduced by Article 1 of the order dated November 2 2009 (in relation to credit institutions and investment firms), Article R322-11-2 and Article 3221-1 of the Insurance Code (in relation to insurance and reinsurance undertakings), Article 312-12 of the General Regulations of the AMF introduced by the order dated November 6 2009 (in relation to portfolio management companies).

(18) Article L611-2 of the Monetary and Financial Code (in relation to credit institutions), Article L531-6 of the Monetary and Financial Code (in relation to investment firms), Article L322-4 of the Insurance Code (in relation to insurance and reinsurance undertakings), Article L532-19 the Monetary and Financial Code (in relation to portfolio management companies).

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