M&A Vocabulary – Experts explain: Holder Control

published on 22 November 2023 | reading time approx. 2 minutes

In this ongoing series, a number of different M&A experts from the global offices of Rödl & Partner present an important term from the specialist language of the mergers and acquisitions world, combined with some comments on how it is used. We are not attempting to provide expert legal precision, review linguistic nuances or present an exhaustive definition, but rather to give or refresh a basic understanding of a term and provide some useful tips from our consultancy practice.

Holder Control refers to the requirement for individuals and businesses to report both to the Federal Financial Supervisory Authority (hereinafter: BaFin) and the Deutsche Bundesbank of their intention to acquire a significant holding in a credit institution, a financial services institution, an insurance undertaking, a pension fund or certain insurance holdings. This reporting obligation arises from Section 2c of the German Banking Act (Kreditwesengesetz, KWG) and from Section 17 of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz, VAG). They have been specified in the so-called Holder Control Regulation (Inhaberkontrollverordnung) issued by BaFin (Regulation on notifications in accordance with Section 2c KWG and Section 17 VAG).

Anyone intending to acquire a significant/qualifying holding in an investment firm or to increase an existing shareholding must adhere to the Delegated Regulation (EU) 2017/1946 when filing notifications under Section 24 para. 1 of the German Securities Institutions Act (Wertpapierinstitutsgesetz, WplG).

On 28^th December 2022, the Holder Control Regulation was amended to reflect the changes in KWG and VAG. An updated version of the leaflet issued by BaFin on 27^th November 2015 is expected to be released soon.

Addressees

On one hand, holder control pertains to enterprises as prospective buyers from outside the financial industry. On the other hand, in addition to direct holdings in credit institutions, financial services institutions, insurance undertakings, pension funds or certain insurance holdings, holder control also extends to the acquisition of holdings in companies from outside the financial industry, which, however, are used for the indirect acquisition of a target entity according to the Holder Control Regulation.

The notification obligation centres on the acquisition of a significant holding. Significant holding denotes a direct or indirect holding in an business which represents 10% or more of the capital or voting rights or which makes it possible to exercise a significant influence over the management of that business. Moreover, certain increases in already existing significant holdings must be reported. In addition, a notification must be filed where acquisition had not been planned but took place for example by way of universal succession due to inheritance.

Holder control procedure

The holder control procedure commences with filing the report of shareholding. Those who are obliged to submit such a report must provide, amongst others, information on the reason for the report, the type of enterprise in which they hold shares, and information on the percentage of their shareholding in the entire nominal capital of the enterprise.

Subsequently, all proposed acquirers are assessed based on the following criteria:

Reliability of the proposed acquirer
Reliability and professional qualifications of the future senior managers of the institution
Financial soundness of the proposed acquirer
Whether or not the institution will continue to be able to fulfil the relevant prudential requirements in the future
Whether the proposed acquisition is linked to money laundering or terrorist financing

Then, a decision is made by the BaFin. The BaFin decides whether to approve or prohibit the intended acquisition or increase of the holding based on the completeness, accuracy and fulfilment of requirements in the Holder Control Regulation. If facts are known which warrant the assumption that the above-mentioned criteria are not fulfilled BaFin may prohibit the acquisition.