European Council Approves New Rules On Finance Sector Takeovers

by Ulrika Lomas, for LawAndTax-News.com, Brussels

30 March 2007

The European Council on Tuesday reached agreement, by qualified majority, on a draft directive on the assessment by member states' supervisory authorities of acquisitions and increased shareholdings in the banking, insurance and securities sectors.

It approved a global compromise as adopted by the European Parliament in its first reading. The Council will adopt the directive at a forthcoming meeting, after the text has been finalised.

The draft directive aims to improve the legal certainty, clarity and transparency of the supervisory approval process.

Under the current legal framework, the competent authorities of the host member state are responsible for the supervisory assessment of both domestic and cross-border transactions in the financial sector. They can oppose an acquisition if, in view of the need to ensure sound and prudent management of the institution being acquired, they are not satisfied as to the suitability of the acquirer.

However, the current legislation does not provide specific criteria or a detailed procedure for the assessment, and has thus afforded considerable latitude to national authorities.

The draft directive modifies the framework considerably, setting out a procedure to be applied as regards notification and decision-making. Deadlines are reduced, and any "stopping of the clock" by the competent authorities is limited to one occasion, and is subject to clear conditions.

The text sets out the following prudential criteria for supervisory assessments, to be applied in all member states:

• The reputation of the proposed acquirer;
• The reputation and experience of any person that may run the resulting institution or company;
• The financial soundness of the proposed acquirer;
• Ongoing compliance with relevant directives; and
• The level of risk of money laundering and terrorist financing.

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