(2007/44/EC) (the "Directive") applies to persons seeking to gain influence/control over authorised firms in the insurance, banking and securities sectors. Concerns have been expressed about integration and perhaps a reluctance to effect cross-border mergers and acquisitions as a result of differing approaches across the EU. Implementation must take place across Member States by 21 March 2009.
The change of control regime in the United Kingdom
The change of control regime under the Financial Services and Markets Act 2000 is well established but has not been without its critics. For example, it is often not clear to parties when an application has started and the fact of the application itself means building in a potential 3 month delay to any proposed change of control, in effect stalling the M&A process.
Whilst in our experience this problem is generally mitigated by the FSA coming back with a decision well within the 3 month timeframe, an expedited process is not guaranteed.
The Directive
This particular issue is dealt with head-on in the Directive with a 60 working day deadline for the relevant supervisory authority to make its assessment. This 60 working days period can only be interrupted once for the regulator to ask for additional information, and such interruption may last for no more than 20 days. Further requests for information can be made by the regulator but these will not "stop the clock".
An exhaustive list of assessment criteria is also set out within the Directive. The criteria include consideration of the reputation of the potential acquirer, the reputation and experience of those who will direct the business of the target post acquisition, the financial position of the acquirer and any potential increase of money laundering or terrorist financing.
Supervisory authorities cannot use any other criteria. This is designed to meet head-on the charge that some Member States might use a change of control regime in a political manner to reject applications that are not viewed as being in their national interest. In our view, however, the criteria set out in the Directive are not specific enough to limit the charge that the rejection has been made on spurious grounds against the spirit of the Directive.
Implementation in the UK
A consultation paper issued in September 2008 gave an indication of how the Directive will be implemented in the United Kingdom. Please follow the following link to the consultation paper:
http://www.fsa.gov.uk/pubs/cp/acquisitions_directive.pdf
The following points should be noted:
- The current 33% approval threshold will be reduced to 30%.
- The change of control regime will apply to any natural or legal person or such persons acting in concert.
- Decisions to oppose acquisitions will have to be conformed to the acquirer in writing within two days of the decision being made.
- The penalty for non-compliance is likely to be increased to an unlimited fine after conviction on indictment.
- The FSA may make orders in respect of the entire holding of shares in the target, not just the excess over the relevant threshold.
Practical implications
Our view is that the new regime will not be materially different from the existing. Clients will still have to build in a change of control "delay" into their transaction structure, however the levelling of cross-border regulation could in theory be significant and the intention of the Directive is therefore very welcome.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.