Simplifying qualifying holding procedures: A step towards efficiency and deregulation in Germany

In line with current market sentiment and regulatory initiatives to streamline regulatory processes and reduce bureaucratic hurdles, the German Federal Financial Supervisory Authority (BaFin) has proposed a new draft regulation aimed at simplifying qualifying control procedures (QHPs) for financial institutions.

The proposal ties in seamlessly with the statement made by the BaFin President at BaFin’s annual press conference, who emphasized that “(…), we need less complexity in regulation and more proportionality” and is a further building block in the broader deregulation approach that BaFin currently appears to be pursuing.

I. Addressing the problem

QHPs, which aim to ensure the integrity and stability of financial institutions by assessing the reliability and financial soundness of their proposed acquirers, have often been criticized for being overly complex and time-consuming, especially in Germany. This is not least due to various information requirements that must be fulfilled by the proposed direct and indirect acquirers including adherence to specific form requirements.

Furthermore, the assessment period for these procedures can extend up to 90 working days in exceptional cases, however, starting only after the completeness of the notification is confirmed. As BaFin regularly has follow-up and clarification requests before it confirms completion, it can therefore be a lengthy process before the clock starts ticking, which can be a significant burden for businesses, delaying important transactions and strategic decisions.

II. Proposed changes

The draft regulation proposes several key changes to address these issues. It includes amendments to two key pieces of delegated legislation:

• Inhaberkontrollverordnung (IKV): The IKV stipulates information and documentation requirements for QHPs. Changes include, among others, the introduction of electronic submissions and simplified requirements for indirect acquirers.
• Anzeigenverordnung (AnzV): The AnzV provides for information and documentation requirements in the context of other regulatory notifications. The proposed amendments shall reduce the need for physical signatures and align documentation requirements with the IKV.

The following summary focuses on the proposed changes of the IKV:

1. Electronic submission:

The draft regulation would allow BaFin and Bundesbank to require an electronic submission of the filing. The proposed amendment resembles the existing § 1(3) ZAGAnzV, on the basis of which BaFin has set out detailed criteria as to which documents must still be sent as hard copy. Full digitalization does therefore not necessarily become the new normal but rather an option at the discretion of the regulators. However, in the recent past BaFin has frequently accepted the electronic submission of documents and one may expect that this trend is continuing.

2. Simplified documentation and form requirements:

• Flexibility for indirect non-operational entities: Entities within a corporate group, such as holding companies, that acquire or increase only an indirect holding in a target company and that are not the ultimate parent entity of the group, will no longer have to submit the full set of required documents. This change acknowledges that these entities typically do not have direct operational control over the target company. This change will have a significant impact since 425 QHPs per year (which amount to ca. 50% of all QHPs) concern indirect holding companies according to the consultation.
• Streamlined background checks: The draft regulation clarifies the scope of required background checks for individuals with ties outside Germany. However, specifically the – quite burdensome – current practice to require apostilled hard copies is not changed by BaFin. In addition, in accordance with BaFin’s current administrative practice, natural persons who have neither worked nor lived in Germany in the last ten years before a filing would no longer have to submit an extract from the German central trade register. 
• No more wet-ink signatures: CVs of board members of the acquirer currently have to be signed in wet-ink; the draft regulation proposes foregoing this requirement. 
• Reduced redundancy in submissions: If a financial institution has already submitted certain documents in previous QHPs or other regulatory processes, they generally do not need to resubmit these documents as long as the information remains up-to-date. The proposal goes now a step further by deleting the time limitation of two years during which this facilitation can be currently invoked. Hence, the new proposal offers even more flexibility and decreases red tape. On the other hand, a new time limit of 12 months is established for criminal record checks and German central trade register excerpts. Hence, under the new rules, it would not be possible to rely on previously submitted, older, documents, even if the notifying party confirms that nothing has changed in this respect.
• Update of information for existing qualifying holders: Existing holders of qualifying holdings are required to update BaFin and Bundesbank on certain developments, in particular the appointment of new board members. The draft regulation now proposes significant simplifications in this respect. If the shareholder only has an indirect qualifying holding and is not the ultimate parent entity of the group, it shall only be required to provide background checks and CVs for newly appointed members of the board if BaFin expressly requests so. Further, BaFin is granted the discretion to waive this requirement for newly appointed directors of the ultimate parent entity of the group, provided the direct shareholder in the regulated entity is a member of the same group.

3. Simplifications in relation to target companies that are leasing or factoring institutions

• Acquirers of target companies that offer leasing or factoring services may benefit from additional (limited) facilitations compared to the current rules. For example, if the target company is subject to liquidation, BaFin may waive all or certain information requirements. 

III. Assessment and need for further changes

The proposed new rules are a welcomed step in the right direction of reducing red tape in QHPs and digitalising administrative procedures. By reducing the documentation and information requirements and introducing additional options to waive them, a quicker confirmation of completeness of the notification may be possible, which means that the assessment period can begin earlier. The proposed changes therefore have the potential to shorten the overall duration of the QHP.

However, additional facilitations may be warranted: BaFin should use the chance to fully overhaul the IKV. Among others, the following additional changes should be considered:

• Many other financial regulators are fully digital and do not require the submission of any physical documents (e.g. original versions of constitutional documents), let alone wet-ink signatures or apostilles. BaFin should consider following their example to further simplify QHPs.
• Corporate reorganisations that involve the change from an indirect to a direct qualifying holding traditionally triggered the necessity for a QHP in Germany. With judgment dated 19 September 2024 in joined cases C-512/22 and C-513/22 P, the CJEU found that the change from an indirect to a direct qualifying holding does not constitute an acquisition of a qualifying holding. BaFin should consequently expressly recognise, either in the IKV or otherwise in writing, that such corporate reorganisations no longer trigger QHPs in Germany. 
• The requirements regarding the content and structure of CVs to be submitted as part of a QHP (§ 10 IKV) are overly complex and formalistic. The level of detail that is required in the context of QHPs is the same as for the appointment of new members of management or supervisory boards of regulated entities (§ 5a AnzV), even though acquirers and their directors are not subject to the same fit and proper requirements. This misalignment should be corrected.
• The IKV only takes into account the activities of the target company of the QHP to a very limited extent. Specifically, certain requirements are currently waived if the target company is only regulated as a factoring or leasing firm. BaFin should consider applying this principle more broadly and expanding such waivers to other types of regulated targets. 

In any case, it needs to be acknowledged that BaFin’s room for facilitations is limited. Many requirements are direct transpositions of the ESA Joint Guidelines on the prudential assessment of qualifying holdings (JC/GL/2016/01) so that amendments to these guidelines by the ESAs would have the greatest impact on QHPs. 

From a practical perspective, it should be kept in mind that, specifically when it comes to CRR credit institutions, further stakeholders will have a say on the scope of required documents. It remains to be seen whether the ECB, which is competent for approving QHPs concerning CRR credit institutions, will still request information and documents that the new IKV would waive. Furthermore, to the extent that the CRR credit institution is a member in the German voluntary deposit protection scheme (ESF) and therefore an approval for new qualifying shareholders is required from the German Banking Association/German Auditing Association, many of the (new) facilitations may in practice become irrelevant if similar exemptions are not granted.

IV. Next steps

BaFin will accept comments during the consultation phase until 5 June 2025. Market participants should use this opportunity to achieve that further cut red tape in the context of M&A transactions and corporate reorganisations.