Response to consultation on joint Guidelines for the prudential assessment of acquisitions of qualifying holdings
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For example, with respect to the determination of direct or indirect holding of voting rights in an insurance or reinsurance undertaking, Article 63 Solvency II Directive 2009/138/EC (Solvency II Directive) refers to Article 9 and 10 of the Transparency Directive (2004/109/EC). Through this reference the aggregation of voting rights is determined with respect to:
- Voting rights held by third parties with whom a person is acting in concert (Article 63 Solvency II Directive in connection with Article 10 (a) of the Transparency Directive)
- Voting rights held or aggregated by controlled undertakings (indirect holdings) (Article 10 (e) of the Transparency Directive).
Hence, the definition of acting in concert should be consistent with other relevant Directives and regulations. Section 4.1 of the Guidelines foresees a definition of “acting in concert” that requires to aggregate the voting rights of “persons who decide to acquire or increase a qualifying holding in accordance with an explicit or implicit agreement between them”. This definition deviates materially from the relevant definition in Article 10 (a) of the Transparency Directive to which Article 63 Solvency II Directive refers, and which requires to aggregate “voting rights held by a third party with whom that person or entity has concluded an agreement, which obliges them to adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards the management of the issuer in question“.
The deviation concerns two elements: Firstly, Article 10 (a) of the Transparency Directive requires concerted exercise of voting rights, whereas Section 4.1 looks at a concerted acquisition (which may or may not involve subsequent concerted influence on the undertaking). Secondly, Article. 10 (a) of the Transparency Directive requires a lasting common policy towards the management of the target company whereas there is no such requirement in the Guidelines. It should also be noted that the definition contained in Section 4.1 of the guidelines, would not capture transactions by which two parties agree to exercise the voting rights already held by each of them in a concerted way, i.e. without the occurrence of any acquisition.
For all these reasons, the guidelines should not contain an autonomous definition of “acting in concert”, but should refer to the Transparency Directive as stipulated in Article 63 of the Solvency II Directive.
- Option B deviates from Article 10 (e) of the Transparency Directive which is referred to in article 63 of the Solvency II Directive with respect to the determination of the voting rights held. This article corresponds to Option A. as it requires to take account of “voting rights which are held, or may be exercised within the meaning of points (a) to (d), by an undertaking controlled by that person or entity.”
For practical reasons, the control concept stipulated in article 10 (e) of the Transparency Directive should apply. Large investors can monitor threshold crossings of their holdings only on the basis of elaborated monitoring systems. Applying different concepts of indirect holding of voting rights increases monitoring cost and the risk that such system-based monitoring fails.
The Guidelines should not contain any definition of “indirect acquisition of qualifying holding” as such definition is not necessary and carries the risk of being in contradiction with the applicable Transparency Directive provisions.
As few as possible participations in a shareholding chain should be qualified as “indirect acquisitions”, especially only those participations which are controlled (regularly more than 50% of shares required).
The Transparency Directive requires maximum harmonization with respect to the aggregation of voting rights as from November 2016. Thus, the possibility of different interpretations of the aggregation rules are considerably reduced. A review could be used to follow this direction further - not a new autonomous set of requirements.
Question 2. Do you consider the level of detail used in the draft Guidelines to be appropriate?
The level of detail in the Guidelines could be materially reduced, by avoiding redundancy and conflicting requirements. Furthermore, the Guidelines should take into account Article 59 (4) Solvency II Directive which states that member states, when making publicly available a list of necessary information, shall not require information that is not relevant for a prudential assessment. The list of information to be provided should therefore also be materially reduced.For example, with respect to the determination of direct or indirect holding of voting rights in an insurance or reinsurance undertaking, Article 63 Solvency II Directive 2009/138/EC (Solvency II Directive) refers to Article 9 and 10 of the Transparency Directive (2004/109/EC). Through this reference the aggregation of voting rights is determined with respect to:
- Voting rights held by third parties with whom a person is acting in concert (Article 63 Solvency II Directive in connection with Article 10 (a) of the Transparency Directive)
- Voting rights held or aggregated by controlled undertakings (indirect holdings) (Article 10 (e) of the Transparency Directive).
Hence, the definition of acting in concert should be consistent with other relevant Directives and regulations. Section 4.1 of the Guidelines foresees a definition of “acting in concert” that requires to aggregate the voting rights of “persons who decide to acquire or increase a qualifying holding in accordance with an explicit or implicit agreement between them”. This definition deviates materially from the relevant definition in Article 10 (a) of the Transparency Directive to which Article 63 Solvency II Directive refers, and which requires to aggregate “voting rights held by a third party with whom that person or entity has concluded an agreement, which obliges them to adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards the management of the issuer in question“.
The deviation concerns two elements: Firstly, Article 10 (a) of the Transparency Directive requires concerted exercise of voting rights, whereas Section 4.1 looks at a concerted acquisition (which may or may not involve subsequent concerted influence on the undertaking). Secondly, Article. 10 (a) of the Transparency Directive requires a lasting common policy towards the management of the target company whereas there is no such requirement in the Guidelines. It should also be noted that the definition contained in Section 4.1 of the guidelines, would not capture transactions by which two parties agree to exercise the voting rights already held by each of them in a concerted way, i.e. without the occurrence of any acquisition.
For all these reasons, the guidelines should not contain an autonomous definition of “acting in concert”, but should refer to the Transparency Directive as stipulated in Article 63 of the Solvency II Directive.
Question 3. Which approach identified above do you consider to be the most appropriate, Option A or Option B? Please explain your answer.
The approach in Option A (control concept) is the most appropriate for the following reasons:- Option B deviates from Article 10 (e) of the Transparency Directive which is referred to in article 63 of the Solvency II Directive with respect to the determination of the voting rights held. This article corresponds to Option A. as it requires to take account of “voting rights which are held, or may be exercised within the meaning of points (a) to (d), by an undertaking controlled by that person or entity.”
For practical reasons, the control concept stipulated in article 10 (e) of the Transparency Directive should apply. Large investors can monitor threshold crossings of their holdings only on the basis of elaborated monitoring systems. Applying different concepts of indirect holding of voting rights increases monitoring cost and the risk that such system-based monitoring fails.
The Guidelines should not contain any definition of “indirect acquisition of qualifying holding” as such definition is not necessary and carries the risk of being in contradiction with the applicable Transparency Directive provisions.
As few as possible participations in a shareholding chain should be qualified as “indirect acquisitions”, especially only those participations which are controlled (regularly more than 50% of shares required).
The Transparency Directive requires maximum harmonization with respect to the aggregation of voting rights as from November 2016. Thus, the possibility of different interpretations of the aggregation rules are considerably reduced. A review could be used to follow this direction further - not a new autonomous set of requirements.
Question 4. Would you propose a different test for assessing whether a qualifying holding is being acquired indirectly? Please explain your answer.
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