Navigation path

Left navigation

Additional tools

Other available languages: none


Brussels, 8 November 2005

Frequently Asked Questions (FAQs) on cross-border consolidation in the EU financial sector

I. General questions

What is meant by ‘cross-border consolidation’?

By ‘cross-border consolidation’, we mean mergers or acquisitions (of full or partial stakes) involving two or more financial institutions (defined as a credit institution, an insurance undertaking or an investment firm) located in at least two different EU Member States.

Why is cross-border consolidation needed? What will the benefits be for citizens and businesses?

The Commission does not take a view on the desirability of consolidation as such. That is for the market to decide. But in a truly integrated EU capital market, cross-border mergers and acquisitions must be one of the options open to financial institutions. Cross-border consolidation can be a channel of financial integration, alongside others such as direct cross-border provision of services, greenfield investments, alliances, joint ventures or cooperation agreements. A well-functioning integrated market for financial services is expected to benefit businesses (easier and cheaper access to finance) and consumers (increased choice of products, higher returns for investments) alike. Theoretical and empirical evidence supports the view that integration in the banking sector can enhance overall economic performance via macroeconomic stabilisation, higher levels of efficiency and consumer welfare.

What are the cross-border opportunities for companies in the EU Single Market?

The EU single market is now made up of 25 Member States, with a population of more than 450 million people. Companies which operate on an EU-wide basis can offer their products and services to a significantly larger number of potential customers than within their domestic market. By enlarging their customer base, companies can benefit from scale economies as well as increased risk diversification. Hence the EU single market increases the growth potential for the individual market players as well as for the EU economy as a whole.

II. Questions on the Commission analysis

What prompted the Commission to present this analysis? Is it in response to recent events?

No. This analysis is the response to the Economic and Financial Affairs Council (Ecofin) mandate of September 2004 to review potential obstacles to cross-border mergers and acquisitions. It draws on economic and legal analyses, as well as the results of the survey conducted in spring 2005 (see IP/05/444).

However, specific cases might have put the spotlight on problematic issues, which the survey aims to identify.

Which empirical data showed that the level of cross-border consolidation is low?

The Commission’s analysis of European cross-border consolidation shows that, between 1999 and 2004, cross-border deals accounted for around 20% of the total value of deals within the financial sector. In other sectors, this proportion equalled 45%.

Cross-border deals in the financial sector typically involve smaller targets or only minority stakes, compared with majority stakes in domestic transactions, which often involve larger companies.

The detailed analysis can be found in a Commission Staff Working Document on “Cross-border consolidation in the EU financial sector”, which has just been made public and is available on the Commission’s website at:

What has the Commission already done to improve the situation?

The Commission has worked on the creation of an integrated EU financial market by carefully guarding the basic freedoms of the EC Treaty – in particular the freedom of capital movements and the freedom of establishment. This has led to a number of important steps taken by EU Member States in opening their domestic financial markets – for example by eliminating capital controls.

Enforcing Treaty rules has been complemented by EU legislation, in particular, the Financial Services Action Plan (FSAP), launched in 1999 and now nearing completion. The FSAP has - along with other political initiatives - been a successful step towards the creation of a single European financial market.

What is the relevant European Court of Justice case law?

Recent ECJ case law is analysed in an interpretative Communication adopted by the Commission on 21 October 2005. The Communication aims at reminding national authorities and private sector operators of how the basic Treaty freedoms of capital movements and establishment apply in the financial sector.

In particular, recent case law supports the Commission position that any national supervisory legislation and approval process has to be non-discriminatory, be proportionate to the objectives pursued, provide legal certainty and follow transparent procedures.

Does the Commission play an active role in cross-border consolidation?

No. The role of the Commission is to ensure that existing EU law is enforced properly, as well as to propose measures to support growth, in line with EU competitiveness policy.

It is not the Commission’s intention to favour specific business models or to influence individual market decisions, as long as they are compatible with the Treaty rules and EU law.

Rather, it is the role of the Commission to analyse market functioning in order to identify any unjustified obstacles that could hamper companies in making their own decisions regarding their business organisation within the Internal Market.

III. Questions on the revision of Article 16 of the Banking Directive 2000/12/EC

Why is a review of Article 16 at all necessary?

First, the review of Article 16 was mandated by Finance Ministers at the Informal ECOFIN last September.

Second, the results from the survey on cross-border obstacles reinforce the case for reviewing the supervisory approval process. Respondents pointed at the diverging supervisory practices, which, in the case of the supervisory approval processes, may constitute a serious execution risk. Furthermore, a number of respondents, especially those with previous experience in cross-border mergers and acquisitions, indicated that the current rules may offer room for inappropriate political interference or potential misuse of supervisory powers.

Third, under the current framework, the supervisory appraisal of mergers and acquisitions potentially varies considerably between Member States. This raises level-playing field concerns, particularly as European financial integration is set to increase significantly in the years to come.

This is still work in progress. A Commission proposal is not expected before summer 2006. In line with Better Regulation principles, any proposal will be based on a broad consultation of market participants and an impact assessment to be carried out early next year.

Why does the Commission envisage reviewing the rules in the insurance and securities sector as well?

Article 15 of the Life and Non-Life Insurance Directives, Articles 19-23 of the Reinsurance Directive and Article 10 of the Directive on Markets in Financial Instruments are very similar to Article 16. Member States and industry have consistently viewed achieving cross-sectoral consistency as a key priority of the EU financial services policy for 2005-10. There is no reason for not maintaining similar rules across the financial sector.

There are also important level-playing field considerations, especially as many companies active in cross-border consolidation are large conglomerates, with activities in the different market segments. If we look at the rules and procedures that apply when an insurance company wishes to acquire a bank (Article 16 Banking Directive), it is only natural to look simultaneously at the provisions that apply when a bank wishes to acquire an insurance company.

How does the review of Article 16 relate to the Communication on "Intra-EU investment in the financial services sector”

The interpretative Communication adopted by the Commission reminds national authorities and private sector operators of how the basic Treaty freedoms of capital movements and establishment apply in the financial sector.

Recent case law by the European Court of Justice supports the Commission position that any national supervisory legislation and approval process has to be non-discriminatory, proportionate to the objectives pursued, provide legal certainty and follow transparent procedures.

The Communication reminds Member States and operators in the financial market that while prudential concerns are legitimate grounds for constraining Treaty freedoms, there is a limit to restrictions and discretion in this area.

Side Bar