Banking regulation Q&A: change of control and transfers of banking business
The banking regulation Q&A series provides a comprehensive overview of the rules governing the banking sector in Luxembourg. Today's chapter focuses on change of control and transfers of banking business.
How are the assets and liabilities of banks typically transferred in your jurisdiction?
There are no particular provisions with respect to the transfer of assets and liabilities of banks in the Law of 5 April 1993 on the financial sector, as amended ('Banking Act'). A transfer of assets and liabilities will typically be subject to an asset purchase agreement. Where a change of control of a target entity is involved, the conditions set out under the next paragraph below must be complied with. Certain transfers may be subject to specific provisions of the Luxembourg law of 10 August 1915 on commercial companies, as amended.
From a regulatory perspective, the entities involved in the transfer must assess whether the specific assets and liabilities in question constitute a regulated activity requiring an authorisation and ensure that the acquiring entity has the appropriate authorisation. Both the seller and the acquirer must update their respective business plans in order to reflect the change of business resulting from the disposal and acquisition of an activity, respectively (the provision of a business plan is part of the licensing process for Luxembourg credit institutions, and any change to the activities of the credit institution will be a change to the conditions of the initial authorisation which must be notified to the Commission de Surveillance du Secteur Financier (CSSF)).
What requirements must be met in the event of a change of control?
According to the Banking Act, any natural or legal person - whether acting alone or in concert with other persons that have taken a decision either to acquire, directly or indirectly, a qualifying holding (ie, 10% or more of the voting rights or of the capital) in a Luxembourg bank - shall first notify in writing the CSSF of their intention to acquire such qualifying holding.
The CSSF will conduct a review of the acquisition documentation in order to assess:
- the professional standing of the acquirers;
- the professional standing and the professional qualifications of the persons who will direct the daily business of the bank;
- the financial soundness of the acquirers;
- the capacity of the bank to keep complying with the prudential requirements under the Banking Act, pursuant to its change of control; and
- the absence of suspicion of money laundering of terrorist financing by the acquirers.
The CSSF has up to 60 working days (which can be extended up to 90 working days) as from the notification in order to assess these elements and to declare whether it is opposed to the acquisition.
The notification to the CSSF must include written submissions describing the intended acquisition and requesting its prior approval, as well as several documents such as commercial register excerpts, structure charts, corporate documentation relating to the acquirer(s), consolidated accounts, the share purchase agreement and a business plan.
The CSSF carries out its assessment in accordance with the principle of proportionality. It also reviews the proposed acquisition in light of the Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector published by the Joint Committee of the European Supervisory Authorities (JC/GL/2016/01, 20 December 2016).
In case of changes to the composition of the target's management body and its senior staff, the CSSF's approval is also required. The candidate(s) must complete an application form and provide the CSSF with several supporting documents (eg, identity documents, a curriculum vitae, a recent criminal record extract, a declaration of honour, a copy of the highest diploma and a copy of the corporate documentation appointing the candidate).
The seller of a qualifying holding in a credit institution must also notify the CSSF and credit institutions must inform the CSSF without delay of any acquisitions or disposals of holdings in their capital that exceed or fall below certain thresholds.
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.
First published in Mondaq
Michael SchweigerLocal Partner Attorney at law / Solicitor
Michael Schweiger, Local Partner, is a member of the Banking & Finance practice group in our Luxembourg office. He leads the Luxembourg financial regulatory team and regularly advises banks, e-money and payment institutions, insurers, and other clients regarding financial regulation.T: +352 466 230 520 E: email@example.com