In brief: ownership and acquisition of banks in Ireland

Ownership restrictions and implications

Describe the legal and regulatory limitations regarding the types of entities and individuals that may own a controlling interest in a bank (or non-bank). What constitutes ‘control’ for this purpose?

To acquire a controlling interest in an Irish bank, the potential acquirer needs to provide a notification to the Central Bank of Ireland (CBI), following which the CBI will conduct a detailed assessment of the proposed acquisition and the proposed acquirer. While individuals can acquire controlling interests in an Irish bank, the CBI prefers that an individual does not hold a dominant interest in a bank, that the shareholding of a bank is widely held, and that any proposed acquirer is financially sound and has the requisite reputation, knowledge and skill to hold the relevant interest in the target bank.

Rather than control, the CBI focuses on qualifying holdings in a bank, which is a direct or indirect holding in the bank that represents 10 per cent or more of the capital or of the voting rights. Otherwise, if less than 10 per cent, a qualifying holding is a holding that makes it possible to exercise a significant influence over the bank’s management. Prior ownership experience of banks or other financial institutions will be an advantage in applying for the approval of an acquisition of a qualifying holding.

Are there any restrictions on foreign ownership of banks (or non-banks)?

There are no restrictions on the foreign ownership of banks. However, as part of the authorisation where the applicant will be owned by one or more foreign entities, the CBI will consult with the relevant supervisors of those foreign entities before deciding whether to propose the granting of an authorisation. The CBI has expressed preferences in the past that banks not be owned or controlled by single private individuals and that ownership of banks should not be stacked under insurance undertakings.

What are the legal and regulatory implications for entities that control banks?

All direct shareholders and indirect shareholders with qualifying holdings will be assessed in connection with an application for authorisation. Those entities may also be subject to consolidated supervision by the CBI.

What are the legal and regulatory duties and responsibilities of an entity or individual that controls a bank?

Any shareholder with the ability to exercise a significant influence on the conduct of the affairs of a bank may be subject to the CBI’s Fitness and Probity Regime. Where direct or indirect shareholders acquire additional shares in a bank, they must notify the CBI if their holding increases above prescribed thresholds of 20 per cent, 33 per cent and 50 per cent.

What are the implications for a controlling entity or individual in the event that a bank becomes insolvent?

In accordance with the usual rules regarding loss absorption in companies, the shareholders will rank last in the capital hierarchy, meaning that they will be the first to suffer losses in an insolvency.

Changes in control

Describe the regulatory approvals needed to acquire control of a bank (or non-bank). How is ‘control’ defined for this purpose?

Under the European Union (Capital Requirements) Regulations 2014–2020, the European Union (Capital Requirements) (No. 2) Regulations 2014–2020 and the European Union (Capital Requirements) (Amendment) (No. 3) Regulations 2021 (the Irish Capital Regulations), a proposed acquirer cannot (directly or indirectly) acquire a qualifying holding in a bank without prior notification to and approval from the CBI. The notification to the CBI is made by the submission of an acquiring transaction notification form (ATNF). Any acquisition is subject to the final approval of the European Central Bank (ECB) for all banks within the scope of the Single Supervisory Mechanism (SSM).

Where direct or indirect shareholders acquire additional shares in a bank, they must notify the CBI if their holding increases above prescribed thresholds of 20 per cent, 33 per cent and 50 per cent.

The determinative factor in any acquisition of bank shares is the level of interest being directly or indirectly acquired in the target bank rather than a concept of control.

Any acquirer of bank shares will also need to determine whether such an acquisition triggers merger control notifications.

Are the regulatory authorities receptive to foreign acquirers? How is the regulatory process different for a foreign acquirer?

Foreign acquirers are subject to the same notification requirements as domestic acquirers. If an ATNF is received from a proposed foreign acquirer, the CBI will consult with the relevant supervisor of that proposed acquirer as part of the application process.

Under what circumstances can a foreign bank (or non-bank) establish an office and engage in business? For example, can it establish a branch or must it form or acquire a locally chartered bank?

A bank authorised in another EU member state can passport throughout the rest of the European Union (including Ireland) without the need to establish a subsidiary in another member state. Passporting can be effected through either the establishment of a branch in Ireland (subject to notifying the home member state) or by the provision of services in Ireland (ie, where services are provided but no physical presence is established).

Licensed banks outside the European Economic Area (EEA) are, pursuant to section 9A of the Central Bank Act 1971, entitled to apply for authorisation to operate as a bank in Ireland. The CBI, following the submission of an application for authorisation, may grant authorisation to a third-country credit institution to operate a branch for the purpose of carrying on banking business in Ireland.

There is no legal obligation for a foreign bank to acquire a locally authorised bank to undertake banking business in Ireland.

What factors are considered by the relevant regulatory authorities in an acquisition of control of a bank (or non-bank)?

The requirements in relation to the acquisition and disposal of qualifying holdings in credit institutions are set out in the Irish Capital Regulations.

The 2016 joint guidelines on the prudential assessment of acquisitions and increases in holdings in the financial sector published by the European Supervisory Authorities have been adopted by the CBI. The factors taken into consideration when a person is acquiring a qualifying holding include how the acquisition will be financed and the impact on supervision.

CBI approval must be sought before an acquisition can proceed. A proposed acquirer can only complete an acquisition if the CBI notifies the proposed acquirer that it has no opposition to the acquisition or if the assessment period lapses without the CBI opposing it.

It may be necessary to seek merger control approval from the Competition and Consumer Protection Commission.

Describe the required filings for an acquisition of control of a bank.

The proposed acquirer must complete the ATNF. Prior to an ATNF, the CBI expects that the proposed acquirer makes contact with it and pre-notification meetings will usually take place. The purpose of the meeting is to ensure that the application, when made, is as complete as possible.

Supporting information and documentation must be included with the ATNF, including:

• a detailed legal and financial overview of the proposed target;
• organisation charts showing the current ownership and the proposed structure following the proposed acquisition, setting out the capital and voting rights and highlighting where significant influence exists;
• completed individual questionnaires and curricula vitae for each proposed natural acquirer, and for each proposed new appointee to the board of the target bank or the board of its holding company;
• detailed corporate information about each acquirer and its directors or controllers; and
• where the proposed acquisition will involve a change in control, a business plan.

What is the typical time frame for regulatory approval for both a domestic and a foreign acquirer?

Once the completed ATNF is submitted to the CBI, the CBI must acknowledge receipt within two working days of receipt. The CBI must then notify the ECB (where the target bank is subject to the SSM) within a further five working days.

When acknowledging receipt, the CBI must tell the proposed acquirer when the assessment period will end (the assessment must be completed within 60 working days). Additional information may be requested up to the 50th working day of the assessment period. If this occurs the assessment period may be extended by up to 20 working days (for EEA-based acquirers) and 30 working days (for non-EEA-based acquirers).

The application is then considered by the ECB, the CBI and any other relevant regulatory authority. The CBI will propose a draft decision to the ECB for its consideration as to whether or not to approve the proposed acquisition. The proposed acquirer will be notified by the ECB, rather than the CBI, of the outcome.

The above time frame applies equally to a proposed domestic acquirer and a proposed foreign acquirer.

Law stated date

Give the date on which the information above is accurate.

19 February 2021.