6 Financial services
| (27813)
12915/06
COM(06) 507
+ADDs 1-2
| Draft Directive amending 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 for the prudential assessment of acquisitions and increase of shareholdings in the financial sector
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| Legal base | Articles 47(2) and 55 EC; co-decision; QMV
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| Document originated | 12 September 2006
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| Deposited in Parliament | 22 September 2006
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| Department | HM Treasury |
| Basis of consideration | EM of 1 October 2006
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| Previous Committee Report | None
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| To be discussed in Council | November 2006
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared, further information requested
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Background
6.1 In September 2004 the ECOFIN Council asked the Commission
to examine possible explanations for the perceived low level of
pan-European consolidation in the banking sector, by reviewing
the obstacles to cross-border mergers and acquisitions so as to
identify possible internal-market failures, gaps or shortcomings.
The Commission extended this remit to consider consolidation in
the financial services sector as a whole. In its resultant consultations
one of the Commission's key questions was whether the regulatory
framework for the supervisory approval of cross-border mergers
and acquisitions was a barrier to them. The response from interested
parties was that this was so. Subsequently the Commission proposed
to review the legislation governing the approvals process for
mergers and acquisitions, initially in the banking sector, but
then, with the support of Member States, across all financial
services sectors so as to ensure a consistency of approach.
The document
6.2 The Commission now presents this draft Directive which would
revise the procedural rules and evaluation criteria for the prudential
assessment of acquisitions and increase of shareholdings in the
financial sector contained in all the relevant banking, insurance
and securities Directives.
6.3 The draft Directive would provide for:
- articulation of the entire
procedure to be applied by the supervisor when assessing acquisitions
on prudential grounds;
- introduction of a clear and transparent notification
and decision-making process for supervisors and firms;
- reduction of the deadlines within which the competent
authority must make the assessment. Requests by supervisors to
"stop the clock" to ask for further information would
be limited to one occasion and subject to clear conditions;
- clearly laid out prudential criteria for the
assessment — the reputation of the proposed acquirer, the
reputation and experience of any person that may run the resulting
institution or firm, the financial soundness of the proposed acquirer,
on-going compliance with the relevant sectoral Directives and
the risk of money laundering and terrorism financing; and
- maximum harmonisation of the provisions relating
to the supervisory approvals process.
6.4 The proposal is accompanied by the Commission's
impact assessment. This considered a "do nothing" option
and legally-binding and non-binding regulatory options. The assessment
concludes that:
- a legally-binding regulatory
solution is necessary in order to achieve the objectives of legal
certainty, clarity and transparency for competent authorities
as well as for market participants;
- to meet these objectives and to ensure consistency
within sectors and between sectors it is appropriate to aim for
a high level of harmonisation with regard to the procedure as
well as the criteria for the prudential assessment;
- a lower level of harmonisation — leaving
considerable flexibility to Member States and their competent
authorities — would not fulfil the explicit aims of increased
legal certainty, predictability and consistency in relation to
the supervisory assessments of acquisitions and increased shareholdings
in financial institutions and investment firms;
- the proposal would not seem to lead to any additional
administrative costs; and
- indeed it suggests that the proposed acquirer
might be saved administrative costs.
The Government's view
6.5 The Economic Secretary to the Treasury (Ed Balls)
says that:
- mergers and acquisitions of
financial services firms at a cross-border level can bring benefits
such as improving the allocation of capital across the Community
so as to produce economies of scale and scope, introducing new
and innovative products, enhancing competition and competitive
pressures and allowing consumers to benefit from a deeper and
more integrated European financial services market;
- the current supervisory rules governing a proposed
cross-border merger or acquisition effectively permit supervisors
to block the acquisition of certain shareholdings in a financial
institution;
- the draft Directive would ensure that the rules
governing this process are sufficiently clear and transparent
to provide the optimal regulatory framework for mergers and acquisitions
to take place; and
- during negotiations the Government will seek
a couple of small technical amendments to the proposal, to ensure
that it is both appropriate and proportionate.
6.6 The Minister also tells us that:
- his department has carried
out informal consultations;
- it has issued a discussion paper on the proposal,
in September 2006;
- interested parties will continue to be consulted
throughout the negotiations of the Directive;
- there may be small ongoing administrative costs
associated with the shortened time period allowed for supervisors
to make an assessment; but
- the Government's own Regulatory Impact Assessment
will only be issued during consultation about implementation of
the finalised Directive.
Conclusion
6.7 This proposal seems unexceptionable. However,
before we consider the document further we should like to:
- hear of the response to
the department's discussion paper; and
- have confirmation that it is because the Government
accepts the Commission's assessment that there would be no additional
administrative costs for proposed acquirers that it is not producing
the normal Regulatory Impact Assessment whilst the draft Directive
is still negotiable.
6.8 Meanwhile we do not clear the document.
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