GERMANY LAW AND PRACTICE Contributed by: Daniel Möritz, Jan Bonhage, Hendrik Bockenheimer, Carl-Philipp Eberlein, Markus Ernst, Matthias Rothkopf, Christoph Wilken and Alexander Rang, Hengeler Mueller
trigger criminal sanctions and administrative fines, including for foreign investors and the investment entities involved.
companies. It is part of the due diligence process to identify such regulated subsidiaries and participations of the target company in order to initiate the prudential review procedure in due time before closing. Objective of Prudential Assessment The purpose of the notification requirement is to ensure that the competent authority has adequate information about changes in the direct and indirect shareholdings of entities that are subject to financial regulation. On the one hand, this prevents cash flow from illegal activities into the financial sector (preven - tion of money laundering and terrorist financing). On the other hand, this ensures the stability and sound- ness of financial institutions in order to protect the clients and creditors of such institutions (eg, deposi - tors or policyholders), as well as the stability of the financial system as a whole. The notification by the purchaser allows the compe - tent authorities to assess the suitability and the finan - cial soundness of the purchaser. If the competent authority concludes, for example, that the prospec - tive shareholder does not comply with fit-and-proper requirements or is otherwise not capable of ensur - ing the sound and prudent management of the regu - lated entity, the competent authority may object to the acquisition. The same applies if – specifically, in a third-country context – there is reason to believe that the transaction may result in a structure that makes it impossible to exercise effective supervision and to effectively exchange information between regulatory authorities. Qualifying Holding A qualifying holding is a direct or indirect holding that represents 10% or more of the capital or of the voting rights in the regulated entity or that enables the holder to exercise significant influence over the management of the regulated entity. An indirect qualifying holding can result from the “control criterion” (holding the majority of the voting rights or otherwise controlling the holder of the qualifying holding) or the “multiplica - tion criterion” (multiplied shareholding down the cor - porate chain of 10% or more). In a corporate group, all entities having direct or indirect control are subject to prudential assessment.
8. Other Review/Approvals 8.1 Other Regimes
The acquisition of companies active in certain indus - try sectors may be subject to an additional regulatory review or approval process. Specifically, the acquisi - tion of a company in the financial industry is subject to a prudential assessment by the competent regulatory authority, which may object to the transaction within a certain period after the purchaser has filed a notifica - tion with the authorities. Anyone who intends to acquire a qualifying holding in certain regulated entities must notify such intention to the competent regulatory authority in Germany (share - holder control procedure). The types of entities that may trigger a shareholder control procedure include: • regulated entities from the banking and financial services sector, such as credit institutions and investment firms; • regulated entities from the insurance sector, such as insurance and reinsurance undertakings, pen - sion funds, and insurance holding companies; • Undertaking for Collective Investment in Transfer - able Securities (UCITS) management companies; and • regulated entities providing payment services, such as licensed payment service providers and e-mon - ey institutions. Similar provisions apply to entities operating a stock exchange, central counterparties (CCPs) and central securities depositories (CSDs). This prudential assessment procedure may also be triggered by acquisitions of companies outside the financial sector that hold participations in regulated entities. These transactions may qualify as an indirect acquisition of a qualifying holding in such regulated entity. Many German corporate groups have in fact established licensed entities, such as captive insurers, pension funds or group internal leasing or factoring
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