Who is in scope?

The new notification requirements are anticipated to affect in particular:

  1. credit institutions;
  2. investment firms performing the investment services of dealing on account and/or underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis and having assets of a total value equal or exceeding EUR 30 billion; and
  3. (mixed) financial holding companies (including parent financial holding companies and EU parent financial holding companies), required to seek approval under Article 21a of Directive 2013/36/EU, as amended (CRD)),

who intend to participate in:

  1. acquisitions or disposals of material holdings, irrespective of the nature (regulated / non-regulated) of the “target” entity; and/or
  2. material transfers of assets and/or liabilities; and/or
  3. mergers or divisions.

The Obliged Entities shall consider that the above operations shall become more time-consuming and cumbersome upon application of CRD VI, demanding more regulatory notifications (as described in detail below), and in effect entailing higher costs and potential delays.

New notification obligations

Acquisition or divestiture of a material holding  

Under the proposed CRD VI regime, direct and/or indirect acquisitions of material holdings by Obliged Entities, in any type of company (the Proposed Acquisitions) are subject to a prior written notification to and approval by the national competent authority (NCA), which in the case of Luxembourg shall be the Commission de Surveillance du Secteur Financier (CSSF). For this purpose, a material holding is a holding equal to or exceeding 15% of the Obliged Entity’s eligible capital (comprising its Common Equity Tier 1, its Additional Tier 1 and Tier 2 capital).

The CRD VI proposal explicitly provides that where the target of the Proposed Acquisition is a credit institution, the above notification procedure shall be supplemented by the existing acquisition of a qualifying holding notification obligation provided for under Article 22(1) CRD, as transposed in Luxembourg under Article 6(5) LFS. From a Luxembourg point of view, the same is anticipated to apply where the target entity qualifies as an investment firm and/or any other professional of the financial sector (Article 18(5) LFS), as well as a payment institution (Article 12(4) of Law of 10 November 2009 on payment services, on the activity of electronic money institution and settlement finality in payment and securities settlement systems, as amended (PSL)), and/or an e-money institution (Article 24-8(4) PSL).

For more information on the existing qualifying holdings regime in Luxembourg please refer to our most recent Banking Regulation Guide.   

Upon receipt of the above notification, NCAs shall assess the Proposed Acquisition, by evaluating the sound and prudent management of the Obliged Entity in the post-completion setting and the risks it is or might be exposed to, considering:

  1. the Obliged Entity’s compliance with the prudential requirements provided under the CRD, Regulation (EU) No 575/2013, as amended (CRR), and any other applicable legislation; and
  2. any reasonable money laundering and/or terrorist financing suspicions relating to the Proposed Acquisition.

Cooperation and information sharing with other supervisory authorities (e.g., AML authorities) in the context of the above assessment will be necessary and could potentially lead to a suspension of the Assessment Period (for a period not exceeding thirty (30) working days). Consultation with the consolidating supervisor (where applicable and where different from the relevant NCA) shall also be required. Regulatory Technical Standards setting out the minimum information to be submitted to the NCA as part of the notification file are expected to be issued.

In principle, the NCA would have a period of sixty (60) working days (the Assessment Period) to assess the relevant notification file (upon acknowledgment of receipt thereof); nonetheless, when a qualifying holding acquisition notification filing is assessed in parallel, the two assessment periods shall expire simultaneously. The NCA (individually or jointly with the consolidating supervisor, where applicable) shall then decide to either approve or oppose the Proposed Acquisition; in the latter case it shall provide reasons for its objection (in writing), within two (2) working days as from the completion of the assessment and in any case before the end of the Assessment Period.

Intragroup acquisitions could be exempted from the above assessment (under the national implementation of CRD VI) but shall trigger the relevant notification obligation vis-à-vis the NCA on behalf of the respective acquiring entities. The same will apply with respect to proposed direct or indirect disposals of material holdings (divestitures), which shall be subject to a prior written notification to the NCA by the Obliged Entity (without the need for the performance of an assessment).

Obliged Entities who fail to comply with the above notification obligation for material acquisitions / divestitures and/or who effectuate a Proposed Acquisition without the prior approval of the relevant NCA will be subject to sanctions.

Material transfers of assets and liabilities

In a similar vein, material transfers of assets and liabilities (the Proposed Transfers) shall be subject to a prior written notification to be submitted to the relevant NCA on behalf of each Obliged Entity involved (i.e., both the transferring and the acquiring entity).

For this purpose, a transfer shall qualify as material where it represents at least 10% of the Obliged Entity’s total assets or liabilities (the threshold is set at 15% for intragroup transfers). For the avoidance of doubt, CRD VI states that transfers of the following assets/liabilities are not to be considered in the above threshold calculations and shall not trigger any notification obligations, and in particular:

  1. non-performing assets;
  2. assets to be included to cover pools securing payment obligations relating to covered bonds;
  3. assets to be securitised;
  4. assets / liabilities transferred within the context of resolution mechanisms.

In any case, no prior approval shall be required by the NCA for the validation and completion of the Proposed Transfers. Non-compliance with the imposed notification obligation, is however subject to the application of appropriate remedial measures (including sanctions) by the NCA.

Mergers and divisions

Under the proposed CRD VI, Obliged Entities participating in merger and division operations, entailing the transfer of all or part of their assets and liabilities to one or more existing or newly-formed entities, are also required to submit a prior written notification to the relevant NCAs (the ones responsible for the supervision of the entity/entities resulting from the proposed merger or division), upon finalization and adoption of the draft terms of the respective transaction and prior to the completion thereof. This obligation shall not apply to mergers or division undertaken within the context of bank recovery and resolution procedures pursuant to Directive 2014/59/EU, as amended.

Completion of the proposed merger or division shall require the prior approval thereof by the relevant NCAs. Such approval shall be subject to an assessment of the sound prudential profile of the all financial stakeholders involved post-completion and the risks such stakeholders are or might be exposed to with regard to the proposed merger or division, particularly when considering:

  1. the reputation and financial soundness of the participating entities;
  2. their compliance with the prudential requirements provided under the CRD, the CRR, and any other applicable legislation
  3. the soundness and feasibility of the implementation plan of the proposed merger or division; and
  4. any reasonable money laundering and/or terrorist financing suspicions relating to the proposed merger or division.

The assessment procedure closely resembles the one described above for proposed acquisitions of material holdings. Intragroup mergers and divisions could be exempted from the above assessment (under the national implementation of CRD VI) from the NCA approval requirement (but not from the prior notification obligation).

Obliged Entities not complying with the above notification obligation and/or for mergers or divisions completed without the prior written approval of the respective NCAs will be subject to sanctions.

For more information on the recently adopted CRD VI, please refer to our relevant publication on the new third-country branch regime.