Authors
Authors
Felicitas Scriba
German Federal Financial Supervisory Authority (BaFin)’s promulgation of the Third Regulation amends the Regulation on the Control of Holders (InhKontrollV). It reflects amendments to the German Banking Act (Kreditwesengesetz – KWG), the German Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG) and the “Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the banking, insurance and securities sectors” issued by the European Supervisory Authorities.
In addition, responsibility for the licensing procedure and for decisions on the acquisition of significant shareholdings in the Capital Requirements Regulation (CRR) credit institutions has since been transferred to the European Central Bank, which was not the case in the rules under the Capital Requirements Directives, which preceded the CRR.
The InhKontrollV regulates notification obligations of companies and persons pursuing the acquisition of a significant interest in a credit institution, financial services institution, insurance company or pension fund, or in certain insurance holding companies. The aim of the amendments is to facilitate owner control procedures, but at the same time to tighten notification and disclosure obligations of persons who are subject to notification requirements. In addition, the annexes to the InhKontrollV have been amended with the help of standard forms to be used for notifications.
Tightening of provisions
With regard to the tightening of notification and disclosure obligations, the duty to notify under the InhKontrollV has been extended by the addition of section 7.
Section 7.2.2 extends the notification obligation to the acquirer as soon as the acquirer expresses its intention to acquire a significant participation prior to the completion of the acquisition. In this case, the duty to notify also covers the period after the end of the assessment period.
Section 7.2.3 also extends the duty to notify. Since the duty already applies as soon as the participation threshold is merely “reached,” more circumstances will need to be covered. In addition, BaFin will be given the opportunity to review decisions with the help of notification obligations that arise again and again.
In addition to the expansion, the amendments have strengthened notification requirements. First, the scope of the notifications has been expanded to include additional documents and declarations of certain notifying parties and the disclosure obligation for groups of companies. Furthermore, a broader group of persons on behalf of the target company is now included in the duty to notify and there is to be an intensification of the control density.
As part of the amendments, a new Section 8a has been added. This is aimed at notifying parties domiciled in a third country. In future, affected parties to whom the provision applies must, when making disclosures, include a clearance certificate issued by a public body or the financial supervisory authority of the third country. Ideally, where possible, there should also be a statement from the financial supervisory authority that there are no impediments to the provision of the information necessary for the supervision of the target company. In addition, a summary of the third country’s prudential regulation must be provided within the disclosures. Finally, hedge funds and private equity funds are subject to more stringent notification requirements as a result of the increased risk due to their significant participation in the financial market. If the notifying party can be assigned to one of the two, it must also disclose the fund’s investment policy, strategy and corporate history (within the meaning of the KWG) and also provide details of decision-making structures and anti-money laundering procedures.
Section 9 (1) sentence 2 also requires shareholders who exercise a significant influence on the party required to notify to provide information on that party’s reliability.
A new section 11a was introduced to regulate the effects of group structures on supervision. Under section 11a, legal entities that form part of a group of companies have a special duty of disclosure. They must provide an analysis on a consolidated basis, including a description of the scope of supervision. In addition, they must indicate which entities in the group fall within the scope of supervision and the standing of those entities within the group structure. Furthermore, an assessment is to be made and shared as to whether and to what extent the acquisition would have an impact on how information can be passed on to the financial supervisory authority, thus ensuring efficient supervision by the authority.
Section 12 has been extended with the addition of paragraphs 6 and 7, which standardize an extended disclosure obligation regarding interests and business relationships. Accordingly, persons subject to the disclosure obligation must disclose all interests and business relationships that the persons named in section 8.7 and their family members have in or with persons in key positions at the target company, the parent company or the subsidiary, or holders of at least 5% of the capital or voting rights of the target company.
In addition, section 15 (1) sentence 5, (3) No. 3 requires interested acquirers to make statements in their respective business plans on their willingness and ability to provide further capital to the target company.
Easing of provisions
In addition to the above-mentioned tightening of the regulations, certain provisions were made easier for those obliged to notify.
As part of the amendments, section 9 was revised and the time frame, which was previously vague, was made concrete. As a result, persons obliged to notify need only look back over the previous 10 years when determining the reliability of a managing director or a personally liable partner; in the old version, the only reference was to “previously,” without a time frame. In addition, in the case of legal entities, information is now only required for companies that are currently controlled.
Section 16 (1) sentence 1 provides for the period of validity of past filings to be extended. According to this provision, notifying parties who have already submitted a notification pursuant to section 2c (1) KWG or section 17 (1) or (2) VAG within the last two years do not have to do so again, provided that the already submitted documents and declarations are still valid. Previously, this period was only one year.
Furthermore, in certain cases, prior submissions now remain valid indefinitely. Section 16 (1) sentence 3 of the InhKontrollV states that if the acquisition merely transforms an indirectly significant shareholding into a directly significant shareholding, past filings shall remain valid indefinitely. In addition, according to section 16 (10) sentence 4, documents containing information on persons, companies and group structure need only be submitted in the case of acquisition transactions within a group of companies if these have not yet been provided under previous notifications.
Finally, factoring and finance leasing institutions are now subject to more straightforward provisions. Section 16 (12) makes it easier for them to participate in such transactions in that participating group members can waive the documents and declarations required under sections 8 to 15 in the case of notifications of intent, as long as they are only indirectly involved and are not the group’s controlling entity. The same applies if the transaction takes place exclusively within a group of companies.
Client Alert 2023-032
Authors
Authors
Felicitas Scriba