Changes in the owner control regime in Germany

More clarity on intra-group acquisitions, additional reliefs and adjustments, but more granular requirements for private equity, hedge funds, sovereign wealth funds and non-EU/EEA vehicles

Proposed acquirers of German credit institutions, financial institutions and insurance companies are subject to a revised owner control regime. New provisions clarify that also intra-group restructurings may be subject to the notification obligation. Key changes include reliefs for indirect intra-group acquisitions in terms of required deliverables, but introduce new granular requirements for private equity, hedge funds, sovereign wealth funds and non-EU/EEA vehicles. The novelization implements Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the banking, insurance and securities sectors (JC/GL/2016/01) by the European Supervisory Authorities and it applies since 28 December 2022.

New provisions and reliefs relevant for intra-group acquisitions

The revised Owner Control Regulation sheds more clarity on the topic of intra-group acquisitions. The new provisions clarify that proposed acquirers are obliged to notify BaFin and Bundesbank of the intention to acquire a qualifying holding, i.e. direct or indirect holding of 10% or more of capital, voting rights or another possibility to exercise a significant influence over the management of the regulated target entity (Qualifying Holding), even if the acquisition is a result of an intra-group restructuring among entities already holding a Qualifying Holding.However, intra-group transactions can benefit from significant reliefs, in particular if the documents and information submitted to the German regulators, BaFin and Deutsche Bundesbank (Bundesbank) are still up-to-date. The new/revised reliefs include:

• General relief which exempts all proposed acquirers (i.e. not only intra-group) from filing anew documents and information to BaFin and Bundesbank that were already submitted in past owner control proceedings. The novelisation extended the default time availability of this relief from one to two years from the past filing, whereby both before and after the novelisation this default time period may be extended by BaFin on a case by case basis (see Sec. 16 (1) sent. 1 of the Owner Control Regulation),
• New relief exempting proposed acquirers whose holdings change from an indirect Qualifying Holding into a direct Qualifying Holding in the same target entity form submitting again information and documents that have already been submitted to BaFin and Bundesbank in the previous owner control proceedings and have not changed – without any time limit (see new Sec. 16 (1) sent. 3 of the Owner Control Regulation),
• Relief applicable to all intra-group transactions and thus also to constellations other than in the bullet above (e.g. change of a direct Qualifying Holding into an indirect Qualifying Holding or intra-group restructurings of intermediate holding companies) specifying that only documents and information that concern persons, entities and the group structure which have not been submitted in the past owner control proceedings as well as documents and information that are no longer up-to-date have to be submitted in the new owner control proceedings – without any time limit (see revised Sec. 16 (10) sent. 3 (previously Sec. 10 (3)) of the Owner Control Regulation),
• Relief allowing BaFin and Bundesbank to waive, in part or in full, the submission of documents and information if the proposed acquirer shall acquire an indirect Qualifying Holding and is not the ultimate parent undertaking at the top of the group structure (see revised Sec. 16 (10) sent. 1 of the Owner Control Regulation),
• New relief stating that proposed acquirers of indirect Qualifying Holdings which are not the ultimate parent undertaking of the group do not have to submit a full business plan for the target entity, but only a so-called document on strategy, irrespective of the percentage of the indirect Qualifying Holding to be acquired, i.e. even if control over the target shall be acquired (see Sec. 16 (10) sent. 2 of the Owner Control Regulation),
• Previous reliefs for acquisitions of Qualifying Holdings in factoring or finance leasing targets (which do not conduct other regulated business subject to a BaFin license) have been revised so that that proposed acquirers which are not ultimate parent companies at the top of the group and shall acquire an indirect Qualifying Holding in the target are exempt from the obligation to submit documents and information if the acquisition is intra-group (see Sec. 16 (12) (previously Sec. 10 (5))of the Owner Control Regulation).

More granular requirements for private equity, hedge funds, sovereign wealth funds and non-EU/EEA vehicles

The revised Owner Control Regulation introduces new requirements for private equity, hedge funds, sovereign funds and non-EU/EEA vehicles (see Sec. 8a of the Owner Control Regulation).

The new requirements for private equity funds and hedge funds include filing of the following additional information:

• detailed description of the performance of previously acquired Qualifying Holdings in credit institutions, financial institutions, insurance companies and pension funds,
• details on the investment policy, investment restrictions along with details on the monitoring of investments,
• factors for the decision to invest in the target regulated entity as well as factors that would lead to a change of the proposed acquirer’s success strategy,
• decision-making structures, including the names and functions of the persons responsible for the investment decisions, and
• detailed description of proposed acquirer’s anti-money laundering procedures, including the applicable legal framework.

The new requirements for sovereign wealth funds include filing of the following additional information:

• detailed information on the name of the ministry or government department responsible for setting the fund's investment policy,
• details of the investment policy and any investment restrictions,
• names and functions of the persons responsible for the investment decisions of the fund, and
• details on the influence of the relevant ministry or government department on the day-to-day operations of the fund and of the target regulated entity

The new requirements for non-EU/EEA entities include filing of the following additional information:

• a certificate of good standing issued by an official authority of the relevant third country or, if that third country does not provide for certificates of good standing, an equivalent certificate issued by the financial supervisory authority of the third country in respect of the proposed acquirer,
• if available, a statement issued by the financial supervisory authority of the third country that there are no obstacles or limitations to the provision of information necessary for the supervision of the target regulated entity, and
• a summary of supervisory provisions of the third country applicable to the proposed acquirer

Other key changes

The revised Owner Control Regulation includes a number of further changes as well as new template forms for notification purposes and for the fit and proper assessment. The key changes include the following:

• The Revised Owner Control Regulation specifies that capital holding of 10% or more in the target held by a shareholder who is, directly or indirectly, controlled by another entity shall be attributed in full to such entity (see 5 (1) new sent. 2 of the Owner Control Regulation). This provision is relevant for determining the circle of proposed acquirers and can be of particular relevance for private equity structures involving General Partners functions. It reflects the approach expressed so far by the European Supervisory Authorities and the European Central Bank to combine the multiplication criterion (generally used for calculation of indirect Qualifying Holdings of capital) with the control criterion,
• More granular disclosures are now required for persons who shall be appointed to the management board of the target; new forms are to be used for the purpose of fit and proper assessment concerning beside the reputation also information on further mandates and time availability. In case of targets that are CRR credit institutions questionnaires on professional suitability, personal reputation, conflicts of interests and sufficient time availability are to be submitted. The revised disclosures direct thereby towards the requirements applicable to appointments in the normal course of business, that is outside the owner control change scenario,
• Disclosures relating to the proposed acquirers and their management board members now include some formal easements, e.g. an explicit provision allowing for compiled disclosures for managed and controlled entities and a possibility to submit a list of such entities and the relevant information rather than separate forms; further, there is now an explicit specification that disclosures on controlled and managed entities concern entities that have been controlled and/or managed by the proposed acquirer in the past ten years,
• Explicit provision allowing case-by-case arrangements with BaFin in the event of legal obstacles to providing certain information or documents,
• Proposed acquirers that are not natural persons are obliged to submit an analysis of the scope of consolidated supervision, including information about which group entities would be included in the scope of consolidated supervision requirements after the proposed acquisition and at which levels within the group those requirements would apply on a full or sub-consolidated basis. Proposed acquirers shall also provide an analysis of the impact of the proposed acquisition on the ability of the target to continue to provide timely and accurate information to BaFin and Bundesbank.