Consolidation in European financial markets is picking-up but is still lagging behind other sectors. This is unfortunate because, whilst consolidation is not an end in itself, it remains a means to achieving greater efficiency. Consolidation allows institutions to reach their full potential and to compete internationally.
It should of course be decided and by the market and only by the market. However, my role is to make sure that no undue obstacles stand in the way of market operators. Undue interference by regulators, national or supra-national authorities in the implementation of a business decision that would have resulted in consolidation would prevent the proper functioning of the market. In the extreme, an abusive use of powers could frustrate and render impractical an otherwise economically justifiable initiative.
Until now, EU rules have allowed supervisory authorities to block proposed mergers and acquisitions in the financial sector on the grounds of 'suitability of the proposed acquirer'; unfortunately, these rules did not provide any clarity on what an assessment for 'suitability' should entail; they do not provide specific criteria for assessing the suitability of the acquirer and thus afford considerable latitude to the relevant authorities in accepting, discouraging or even rejecting a proposed acquisition.
Furthermore, the current Directives do not set out in detail the procedure by which acquisitions are to be assessed. To avoid any uncertainty for the market and to introduce transparency into the process, the Commission is now addressing the shortcomings of the current legal framework by way of amendments to the various Directives covering the banking, insurance and securities sectors.
These new rules mean that supervisory authorities will have to be clear, transparent and consistent when assessing mergers and acquisitions, domestic or cross-border, in the financial sector. And critically, they leave no room for political interference or protectionism. This has to be the way forward if we're really serious about improving growth in Europe and enabling our financial companies to compete globally. Markets are dynamic and we have to provide the appropriate framework to avoid any obstacles to their dynamism.
The amending Directive introduces clear procedural rules and a closed list of criteria for the conduct of supervisory assessments of proposed acquisitions; these will provide clarity and transparency and help to ensure the consistent handling by supervisors of proposals for cross-borders M&As. The rules are intended to enhance the predictability of the process and the result thereof amongst the market players concerned.
The amending Directive introduces specific deadlines and formal communications ensuring both efficiency and transparency throughout the assessment process. Given the clearer definition of the scope of the assessment, the period allowed for the latter has been reduced from three months to thirty working days.
The criteria against which the prospective acquisition would be assessed will be: the reputation of the proposed acquirer, reputation and experience of any person that may run the resulting institution or firm, financial soundness of the proposed acquirer, compliance with relevant EU Directives in the financial sector and risk of money laundering and terrorism financing.
This closed list is critical to ensure that the assessments do not go beyond what is necessary to carry out a prudential assessment. You will appreciate that the first three criteria would provide adequate coverage of what could be envisaged in determining the 'suitability' of a proposed acquirer. Anything going beyond these criteria is difficult to justify as the last two criteria remind us that we are in the presence of a sector that is already heavily regulated.
The above will obviously contribute to fairness and transparency. At the same time, the new rules maintain the 'tools' essential for supervisors to carry out the necessary assessment of the proposed acquisition at stake. It is perhaps important to note that from a practical perspective, the availability, up front, of a list of information required from a proposed acquirer when making a notification of a proposed acquisition will prove invaluable for high quality notifications to the supervisor.
There is also a requirement for co-operation between supervisors of the acquirer and the target if indeed the initiative involves regulated entities on both sides. The prerogative of the final decision, however, remains with the supervisor of the target institution. Any negative decisions will need to be articulated in the interest of transparency and fairness.
While work was being carried out on preparing the above proposal, the issue of similar initiatives in the area of regulated markets was raised. I can confirm, that in view of the potential for further consolidation in the area of stock exchanges and in view also of the parallelism between provisions for investment firms and regulated markets, the Commission will consider urgently whether it is necessary and possible to extend the procedures and criteria established in the current proposal to regulated markets. The Commission will decide on the appropriateness of such an intervention as soon as possible taking into account the special nature of the business conducted by regulated markets as well as the views of stakeholders and regulators.
