What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
Banking & Finance (2nd edition)
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
Permit requirement for acquisition of shareholdings or control
The Banking Law imposes certain restrictions on holdings in banks (and bank holding corporations) beyond certain thresholds. Holding of any type of shares (or any other means of control such as the right to nominate directors) above 5% requires a permit from the Governor of the BoI (in advance). In addition, a person cannot coordinate its voting for the nomination of a director in a bank with another person without a permit.
The Banking Law also sets out that no person shall control a bank unless it obtains a permit from the Governor of the BoI.
Reporting Requirements on Holdings in a Banking Corporation
A shareholder holding more than 5% of the shares (or any type of the means of control) in a bank has to report its holdings to the bank. Such report shall include, among other things, the person for whom such holder acts as agent or trustee, and in case the holder is a corporation – it's controlling shareholders and anyone holding more than 5% in such corporation. The report shall be delivered annually (on April 1) and on any other dates determined by the BoI. In case of a bank without a controlling stake (i.e. no shareholder in the bank needs a permit for control from the BoI) the reporting threshold is 1% (instead of 5%) and the report is required each time this threshold is crossed.
In case the bank is also a public company (its shares were offered to the public), additional reporting obligations to the bank apply pursuant to the Israeli securities law and regulations.
Any party who has taken a decision to acquire or dispose of (directly or indirectly) a participation of 10%, or to increase or decrease qualified participation by reaching a 20%, 30% or 50% threshold of voting rights or capital in an Austrian credit institution (or in such a way that the credit institution becomes a subsidiary undertaking of that party), must inform the FMA in advance. The FMA shall have a maximum of 60 working days as from the receipt of the notification and all the documents required in sec 20b para 3 BWG to prohibit the proposed acquisition in writing following an assessment according to the assessment criteria set forth in sec 20b BWG, provided there are reasonable grounds therefore or the information submitted by the proposed acquirer is incomplete.
An acquisition of shares in the capital of an ACI established in the Republic of Cyprus by any natural or legal person individually or in concert with other persons, directly or indirectly, which results to the proportion of the voting rights or of the capital held to reach or exceed, a qualifying holding of 10% or to further increase such holding to 20%, 30% or 50% ,or so that the ACI would become its subsidiary shall give prior notice to the CBC, specifying the size of the proposed holding and the relevant information. The CBC will then examine the notification and information provided by taking into account a number of criteria specified under the provisions of the Law. The ACI also has an obligation to inform the CBC of any acquisitions or disposals of qualifying holdings in its capital that cause holdings to exceed or fall below one of the thresholds referred to above .
In addition to the above:
The ACI must disclose to the CBC in relation to any legal person who holds 5% or more of an ACI’s issued share capital the names of its ultimate beneficial owners to whom each legal person belongs to at least once a year or when such information is amended or changed. and
In accordance with the Law on Transparency Requirements (Law 190(1) 2007), the acquisition or disposal of listed shares (including those of ACIs), either listed in the Cypriot Stock Exchange (“CSE”) or in any organised market of any other EU member state, crossing directly or indirectly 5%, 10%, 15%, 20%, 25%, 30%, 50%, 75% thresholds of the total voting rights of the issuing company must be notified to the issuer, the Cypriot Securities and Exchange Commission and/or the CSE.
An acquisition of shares, participations or units, either directly or indirectly, in a credit institution resulting in a qualifying holding (i.e. at least 10% of its share or co-operative capital, investment share capital or basic fund, or which produces at least 10% of the voting rights carried by its shares or participations, or which holding otherwise entitles to exercise similar significant influence in the management of a credit institution) is subject to prior notification to the FFSA or the ECB as applicable under the SSM Regulation.
A similar notification obligation applies in cases where the holding in a credit institution is increased so that the proportion of the share capital, co-operative capital, investment share capital, basic fund or voting rights held reaches any of the thresholds of 20%, 30% or 50% of the same, or results in the credit institution becoming or ceasing to be a subsidiary of the acquirer. The same reporting requirement is triggered if the shareholding falls below any of the aforementioned thresholds. The contents of the notification are further regulated by government decree.
A credit institution or its financial holding company must notify the FFSA of the names of owners of holdings referred to above as well as of the sizes of such holdings at least once a year, and immediately communicate any changes in the ownership of such holdings that have come to its notice. If the shares of the credit institution are traded on a regulated market, the above information must also be disclosed to the European Securities and Markets Authority (ESMA).
The FFSA must render its decision or forward it to the ECB for approval within 60 days from having confirmed receipt of the notification. The FFSA or the ECB, as applicable, can object to the acquisition of the holding if the holding would endanger the business operations of the credit institution being carried out in accordance with prudent and sound business principles or if the acquirer fails to provide the regulators with any required information on the acquisition.
Changes of shareholding must be subject to prior authorisation of the ACPR in the following cases:
- Acquisition of the effective management control of the institution,
- Acquisition of one tenth, one fifth or one third of the capital and/or of the voting rights.
All modifications to the licence file shall be approved or declared to the ACPR.
Acquisition of a bank’s shares that result in the direct or indirect holding of the shares representing 10% or more of the respective bank’s capital is subject to the permission of the BRSB. Additionally, if the shares directly or indirectly held by a single shareholder exceed 10%, 20%, 33% or 50% of the capital as a result of an acquisition, or the shares directly or indirectly held by a single shareholder falls below the abovementioned percentages as a result of a share transfer, BRSB’s prior permission is required.
In addition, transfer of a bank’s preferential shares comprising the privilege of nominating member(s) to the board of directors is also subject to the BRSB's permission irrespective of the percentage of the share acquisition/transfer.
Note that as a condition to obtaining BRSB’s permission, the acquirer of the respective shares shall deposit a transfer fee equal to 1% of the nominal value of the shares to be acquired, with the SDIF.
With respect to the acquisition of shares (whether preferential or ordinary) of publicly held banks through the stock exchange, pursuant to the Permission Regulation, BRSB’s permission shall be obtained in order for the acquirer to use the shareholder rights (other than the right to dividend) vested in the acquired shares. Additionally, in the event that the parent of a publicly held entity, holding the shares representing 10% or more of the capital of a bank, changes due to a share acquisition through the stock exchange, such legal entity shall obtain the permission of the BRSB in order to use the shareholder rights (other than the right to dividend) vested in the shares of the relevant bank held by such entity.
Natural persons or legal entities that directly or indirectly participate in a Swiss bank with at least 10% of the bank's capital or voting rights (a Qualified Participation) or otherwise may influence the bank in a significant manner (Controlling Influence) are subject to prior notification requirements and a related proper business conduct review. Although the Banking Act calls the above notice requirements a notifi-cation duty, it is a de facto approval requirement. Further notification duties exist whenever participation is increased or decreased so that it reaches, exceeds or falls below the thresholds of 20%, 33% or 50% of the bank's capital or voting rights. In addition, a bank itself also must notify FINMA where it has knowledge that any person is a qualified participant or reaches, falls below or exceeds the thresholds of 10%, 20%, 33% or 50% of the capital or voting rights or otherwise exercises a controlling influence on the bank.
To acquire or increase a qualifying holding in a bank so that the share in the bank’s share capital or vot-ing rights reaches or exceeds 20%, 30% or 50%, or so that the bank becomes a subsidiary of a person that acquires such a holding in one or more transactions, whether directly or by acting in concert, is re-quired the prior approval of NBS. The prior approval of NBS shall be required also to consolidate, merge, or split a bank, including the consolidation or merger of another legal person with the bank or sell a bank, a foreign bank branch, or parts thereof.
Among other things, for issuing of prior approval must be documented, the transparent and credible origin, sufficient volume, and correct structure of financial resources. Prior approval for increase a quali-fying holding in a bank may only be issued if the acquisition or exceeding of a holding by the acquirer does not prove to affect adversely the bank’s ability to meet the obligations stipulated by Act on Banks. The splitting, consolidation, merger, or dissolution of a bank, including its merger with another legal per-son, or the sale of a bank, a foreign bank branch or part thereof, may not be to the detriment of the bank’s creditors.
Without prior approval from NBS, every legal act for which prior approval is required shall be null and void. A legal act performed on the basis of a prior approval granted on the basis of false data shall also be invalid. This shall not apply to the acquisition of, or increase in, a qualifying holding in a bank indirect-ly as a result of a foreign stabilization measure aimed at mitigating the impacts of the global financial crisis and the sale of a foreign bank branch or part thereof under paragraph through which the foreign stabilization measure alleviates the impacts of the global financial crisis.
Forming the intention to acquire or dispose of a qualifying holding (bedeutende Beteiligung), or to increase an already existing holding, in a credit institution triggers a notification duty. The respective thresholds are 10%, 20%, 30% and 50%.
There are restrictions at several distinct levels.
For Singapore incorporated banks, the prior approval of the Minister responsible for the BA must be obtained for a person to become a substantial shareholder of a bank incorporated in Singapore. A substantial shareholder is one who has an interest of not less than 5% of the votes attached to the voting shares in the bank. The prior approval of the Minister must also be obtained before a person can cross the thresholds of 12% and 20% respectively of shares or voting power in a bank incorporated in Singapore.
For foreign banks, while there are no formal requirements relating to changes to shareholdings occurring overseas, as a matter of practice, foreign banks in Singapore would notify MAS ahead of any significant change in ownership structure, as continued licensing in Singapore is always dependent on MAS being satisfied that a foreign bank’s shareholders are fit and proper persons.
A reporting requirement applies to the holding of more than 5% of the voting rights in a bank. The report must be submitted to the FSA within five days of acquiring those voting rights.
Furthermore, authorisation by the FSA is required to hold at least 20% (or 15%) of the voting rights in a bank. The 15% threshold only applies where the holder may have the capability to influence the bank (e.g., delegation of a representative director or other director, or any equivalent position; provision of significant financing or technology; or having significant sales and purchases or any other operational or business transactions).
Shareholdings in a bank by an individual, incorporated body and joint stock or holding company (to-gether with related parties) are restricted to 15 per cent., 25 per cent. and 35 per cent. of the capital of the bank respectively. No person owning 10 per cent. or more of the capital of one bank may own more than 15 per cent. of the capital of another bank. Any change of ownership of more than 10 per cent., any change of more than 25 per cent. ownership in a shareholder having more than 10 per cent. in a bank and merger or consolidation of a bank each requires the prior approval of the Board and the CMA.
Under Article 3.10 of the Law of Georgia on the Activities of Commercial Banks, the commercial bank shall agree in advance with National Bank of Georgia about any changes in the structure of the share-holding in accordance with the rule established by the National Bank.
Under Article 83 of Law of Georgia on the Activities of Commercial Banks, on the basis of available in-formation, a commercial bank shall provide the National Bank, together with annual reports, with infor-mation on the direct owner and the beneficial owner of more than 10% of bank shares and shall indicate whether it confirms the accuracy of the information provided. A beneficial owner, who directly or indirect-ly holds more than 10% of commercial bank shares, shall be obliged to submit to the National Bank in April of every year a declaration as of December of the previous year. If a direct owner and a beneficial owner of significant shares of a commercial bank fail to submit the required information to the National bank, they shall be held liable for the failure under the legislation of Georgia.
In addition, pursuant to Article 10.3 of Law of Georgia on the Activities of the Commercial Bank, a com-mercial bank shall be obliged to have complete information about the identity of each beneficial owner of the bank who directly or indirectly owns more than 10% of shares (indicating the number of shares); to provide the National Bank with that information, as well as with information of any significant changes regarding a beneficial owner, and to publish this information in the bank's annual reports. The National Bank shall define the method of providing and publishing this information on the basis of International Financial Reporting Standards and best international practices. According to Article 10.4 of Law of Georgia on the Activities of the Commercial Bank, the obligation under the third paragraph of this article shall not apply to beneficial owners of a commercial bank who cannot be identified by the bank because the nominal ownership in their favor is held by a clearing organizations located and exercising their au-thority in developed countries, or by international depositaries. Article 10.5 of Law of Georgia on the Activities of the Commercial Bank defines that for the purposes of this Law, the requirements that apply to the partners (shareholders) of a commercial bank shall also apply to beneficial owners who directly or indirectly hold shares in the commercial bank.
The BA stipulates specific approval requirements. The Liechtenstein FMA applies them in line with the Joint Guidelines on the prudential assessment of the acquisition and increase of qualifying holdings in the financial sector (JC/GL/2016/01) of 20 December 2016, issued jointly by EBA, EIOPA and ESMA.
Persons interested in the direct or indirect acquisition of a qualifying holding in a bank or investment firm must notify this intent to the FMA in writing. Further, any intended direct or indirect increase of a qualifying holding must be notified if, as a result of the increase, the thresholds of 20%, 30% or 50% in the capital or voting rights of the bank or investment firm are reached or exceeded, or if the bank or investment firm would become a subsidiary of an acquirer.
The FMA examines the suitability of the proposed acquirer and the soundness of the intended acquisition or increase and may object, if the influence of the acquirer could impair the prudent and sound management of the target. If a participation is acquired or increased despite an objection by the FMA, the voting rights of the acquirer may not be exercised until the objection has been amended or revoked by appeal or the objection has been withdrawn by the FMA. A cast vote in spite of an objection is null and void.
As far as the approvals are concerned, the would-be acquirer of a qualifying holding (i.e. any direct or indirect holding which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the regulated entity) in a credit institution notifies its intention to acquire such holding to the national bank-ing supervisor of the target bank. The national supervisor performs the initial assessment and prepares a draft proposal for the European Central Bank (the "ECB"). In cooperation with the national supervisor, the ECB performs its own assessment and then notifies the proposed ac-quirer and the national supervisor(s) involved about the outcome of the assessment.
Any change in the shareholding structure, direct or indirect, has to be approved by the CSSF. Under Luxembourg law, any natural or legal person who intends to acquire, directly or indirectly, a qualifying holding (as referred to in the response to Question 17. above) or to further increase, directly or indirectly, such qualifying holding as a result of which the proportion of the voting rights or of the capital held would reach or exceed 20%, 33 1/3% or 50 % or so that the regulated entity would become its subsidiary, is required to first notify in writing such intention to the CSSF, including the size of the intended holding.
Any individual or legal entity who intends to own, directly or indirectly, a qualifying holding in a credit institution shall inform, in advance, Banco de Portugal of such intention.
Banco de Portugal shall be provided with several information, such as the identity of the proposed acquirer, and information related to the nature of the acquisition, including the acquisition's financing method.
Disposal of qualifying participations are also subject to a duty to communication.
Any person who acquires, directly or indirectly, at least 5% but less than 10% of the share capital or of the voting rights in a credit institution must inform the MFSA in writing, indicating the size of the share-holding.
Further, all shareholders meeting the definition of a ‘qualifying shareholder’ must be approved by the MFSA prior to effectively becoming a shareholder of a credit institution. For this purpose, a ‘qualifying shareholding’ is defined by the Banking Act as a direct or indirect holding in an undertaking which represents 10% or more of the share capital or of the voting rights, or which makes it possible to exercise a significant influence over the management of the credit institution in which that holding subsists. Qualify-ing shareholders who are individuals must submit a Personal Questionnaire to the MFSA, together with a recent police conduct certificate as well as a certified passport copy and recent utility bill confirming the residential address. Qualifying shareholders other than individuals are required to submit a Corporate
Questionnaire, accompanied by the audited financial statements of the last three years, as well as copies of applicable constitutional documents.
In assessing the application for approval as qualifying shareholder, the MFSA aims to ensure the sound and prudent management of the credit institution in which an acquisition is proposed, and have regard to the likely influence of the proposed acquirer on the credit institution. For this purpose, it shall appraise the suitability of the proposed acquirer and the financial soundness of the proposed acquisition.
Further increases, directly or indirectly, to such qualifying shareholding in a credit institution as a result of which the proportion of the voting rights or of the capital held would reach or exceed 20%, 30% or 50%, would also require MFSA prior approval.
Any disposals of qualifying shareholdings must be notified to the MFSA in accordance with the applicable thresholds.
Banks are required to be up-to-date with all developments that may have an impact on the risk management function. These developments may be internal such as, balance sheet and income statement, or external developments, such as geographical expansion, introduction of new products or business lines, mergers and acquisitions and these ought to be reported to the Central Bank. The Bank should have adequate procedures to address new activities, such as mergers and acquisitions. These processes should include, for example, the ability to assess relative risks arising from these activities, to identify potential shortcomings in internal controls projections and to adapt adequate measures to manage such risks and to have measures identifying and assessing new risks resulting from introduction of new products, or change in business line, complexity, economic or operating environment, type of portfolio, mergers and acquisitions. These variables should be taken into consideration while measuring risk with the use of qualitative and quantitative methods.
The EU regulatory requirements (e.g. Directive 36/2013) and EU level banking sector guidelines (i.e. EBA guidelines) apply.
Any potential acquirer and any significant shareholder who decided to increase or decrease its qualified holding (so as to set above or under 20%, one third or 50%) has an obligation to first notify in writing the NBR about such intention and submit supporting documentation and information.
If the potential acquirer intends to obtain the control over the target bank, the NBR must be presented with specific documentation that includes: (i) a business plan reflecting potential acquirer’s intention regarding he activity and organization of the bank; (b) envisaged structure of the group to which it forms a part; (c) an evaluation of the financial consequences of the proposed acquisition, including a medium term financial forecast.
If the potential acquirer will purchase a qualifying holding (i.e. a direct or indirect holding in an bank which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that bank), the NBR must be filed with a strategy document, considering the envisaged degree of involvement of the potential acquirer within the activity of the bank.
If it deems necessary, the NBR may require to be filed with additional documents and information.
Upon finalization of its assessment, the NBR may oppose to the proposed acquisition if it deems based on reasonable grounds that there are not met the requirements regarding a prudent management of the bank.
No person can acquire direct or indirect ownership in the bank enabling 5% to 20%, over 20% to 33%, over 33% to 50% and over 50% of voting rights without prior consent of the National Bank of Serbia. Therefore, the acquisition of share or control over banks is possible only with prior consent of NBS.
The UK regime relating to changes in control is ultimately derived from CRD IV. A change of control of a UK bank is subject to a notification and clearance regime.
Under section 178 of the Financial Services and Markets Act (FSMA), to acquire or increase control over a UK-authorised bank, a person must notify the PRA writing before making the acquisition and must await either positive consent from the PRA (or the expiry of the 60 day statutory assessment period) before making the acquisition. Control for these purposes looks at both shareholding and voting power. It is a criminal offence under section 191F of the Financial Services and Markets Act (FSMA) to acquire or increase control without notifying the PRA and receiving approval first.
There are no reporting or approval requirements that apply to the acquisition of shareholdings in banks, unless such a shareholding gives the acquiror (or a group of which the acquiror is part) ‘control’ or a controlling influence with respect to such bank or bank holding company. If a company seeks to acquire ‘control’ of a bank, it must be approved by the FRB under the BHC Act. If an individual (or group of persons acting together in concert) seeks to acquire ‘control’ of a bank without the use of an intervening corporate entity, it must be approved by the principal regulator(s) of the bank under the Change in Bank Control Act or similar state laws.
With some variation among laws, ‘control’ of a bank generally means ownership, control or power to vote (whether individually, or as a part of group) 25% or more of the outstanding shares of any class of the bank’s voting securities or the power, directly or indirectly, to direct the management or policies of the bank, although in some cases “control” may be deemed to arise through a small shareholding. Generally speaking, a person acquiring more than 10% of the voting shares of a bank or bank holding company should consider consultation with the applicable US banking agency to determine whether, in the view of the agency, the acquiror has thereby acquired ‘control’ of the bank or bank holding company. In the case of state banks, the respective states also have change of control provisions.
Pursuant to article 19 of the Italian Banking Act, the ECB shall authorise acquisition of shareholdings in banks which entail the control or voting rights at least equal to 10% of the share capital. Such authorisation is also required when the shareholding or voting rights exceed the following thresholds: 20%, 30% and 50%.
In this context, as Italy adhered to the Single Supervisory Mechanism, the Bank of Italy has a role of entry point and therefore shall submit to ECB a framework decision related to the release of such authorisation.
The FIB Act requires that any person who directly or indirectly holds or possesses five per cent or more of the total issued shares of a financial institution shall report the holding or possession of the shares to the BoT in accordance with the rules prescribed in the notification of the BoT.
The number of shares referred to in the first paragraph shall include the shares held or possessed by related persons of the person referred to in the first paragraph.
The shares referred to in the first paragraph shall not include preferred shares without voting rights.
In addition, the FIB Act provides that no person shall directly or indirectly hold or possess more than ten per cent of the total issued shares of a financial institution, except with permission from the BoT or in accordance with the rules prescribed in the notification of the BoT.
The number of shares under the above paragraph shall include the shares held or possessed by related persons of the person under the first paragraph. The shares shall not include preferred shares without voting rights.
Any person or a group of persons that intends to acquire bank shares in order to achieve or exceed a qualifying holding (i.e. direct or indirect holding in a bank which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that bank) shall obtain authorization from the Bank of Slovenia prior to acquiring such a shareholding.
A request to issue authorization to acquire a qualifying holding shall be submitted to the Bank of Slovenia and must include the information on the level of participation in voting rights or in the capital of a bank that the future qualifying holder intends to acquire and the documentation and information confirming that the future qualifying holder satisfies the criteria prescribed by the Slovenian Banking Act and Regulation on holders of qualifying holdings in banks and savings banks. In accordance with the Regulation No. 1024/2013 Bank of Slovenia must forward the proposal for a decision in regards to the request to the ECB, which can oppose or not to the acquisition on the basis of the assessment criteria set out in relevant EU law.
A qualifying holder, who carries out any further acquisition of shares, exceeding previously authorized acquisition, is obliged to obtain new authorization.