Legal and regulatory framework
Legislation
What primary laws govern financial services M&A transactions in your jurisdiction?
Laws that govern financial services M&A include:
Regulatory consents and filings
What regulatory consents, notifications and filings are required for a financial services M&A transaction? Should the parties anticipate any typical financial, social or other concessions?
Regulatory notices or approvals may be required for M&A involving insured depository institutions, depository institution holding companies, investment advisers, broker-dealers and entities holding certain state licences, such as state lending licences. Whether any particular transaction requires approval will depend on the nature of the buyer and target and the structure of the transaction.
Ownership restrictions
Are there any restrictions on the types of entities and individuals that can wholly or partly own financial institutions in your jurisdiction?
Generally speaking, there are no restrictions on the types of entities and individuals that can wholly or partly own financial institutions in the United States. However, in many cases the regulatory application process for a transaction requires significant shareholders, officers or directors to submit background check materials to the relevant regulator, including materials for a background check and to verify the financial wherewithal of the applicant. An applicant could be disqualified based on the results of such a background check. For example, an individual with a history of personal bankruptcy or who was an executive of a company that became insolvent may face challenges in obtaining approval to be a significant shareholder, officer or director of a target company. The same may be the case for an individual that previously was subject to a regulatory enforcement action or was a senior executive of a company at the time the company was subject to a regulatory enforcement action.
Directors and officers – restrictions
Are there any restrictions on who can be a director or officer of a financial institution in your jurisdiction?
Generally speaking, there are no restrictions on the types of individuals that can be directors or officers of financial institutions in the United States. However, in many cases the regulatory application process for a transaction requires officers or directors to submit background check materials to the relevant regulator, including materials for a criminal background check and to verify the financial wherewithal of the applicant. An applicant could be disqualified based on the results of such a background check. For example, an individual with a history of personal bankruptcy or who was an executive of a company that became insolvent may face challenges in obtaining approval to be an officer or director of a surviving institution. The same may be the case for an individual that previously was subject to a regulatory enforcement action or was a senior executive of a company at the time the company was subject to a regulatory enforcement action.
In addition, directors of national banks are required to be US citizens, although the Office of the Comptroller of the Currency has some discretion to waive this requirement. State banking laws may have similar requirements.
Directors and officers – liabilities and legal duties
What are the primary liabilities, legal duties and responsibilities of directors and officers in the context of financial services M&A transactions?
The duties and liabilities for directors and officers in financial services M&A transactions are similar to most other M&A transactions: to achieve the best outcome for their constituents, which, in most cases, are the shareholders. Directors also are subject to obligations under federal banking law and supervisory guidance. A director would need to meet those standards when evaluating an M&A transaction, such as by exercising effective challenge of management and considering whether and the extent to which the transaction is consistent with the company’s strategy and risk tolerance.
Foreign investment
What foreign investment restrictions and other domestic regulatory issues arise for acquirers based outside your jurisdiction?
The Committee on Foreign Investment in the United States (CFIUS) has the authority to review certain foreign investment transactions to determine the effect of such transactions on the national security of the United States. CFIUS can review any transaction that could result in foreign control of a US business, certain types of non-controlling but non-passive investments by a foreign person in a US business and certain real estate transactions. With limited exceptions, filing with CFIUS is voluntary, although closing a transaction that is within CFIUS’s jurisdiction without its approval entails the risk that CFIUS subsequently imposes conditions or, in extreme cases, forces a divestiture. Certain transactions that involve (1) a US business that deals with critical technology or (2) a foreign investor that is substantially owned by a foreign government must be notified to CFIUS at least 30 days prior to closing. CFIUS regularly reviews financial services M&A transactions, particularly where the US business in question deals with large amounts of sensitive personal data or is considered to be critical infrastructure.
In addition, in the United States, there is a specialised regulatory framework that applies to foreign banking organisations. Generally, a foreign banking organisation is any non-US entity that controls a US-insured depository institution or has a branch or agency in the United States. This framework generally does not apply US law to activities conducted outside the United States, but in some cases there can be nuance and complexity regarding certain non-US activities that are subject to US law. In addition, notice to the Federal Reserve (and potentially state regulators) can be required if there is a change of a control of a foreign banking organisation that has a branch or agency in the United States. Further, in some cases, as part of reviewing a transaction, the Federal Reserve or other regulators may need to analyse whether the law of the jurisdiction of a foreign acquirer imposes consolidated comprehensive supervision or includes certain reciprocity for US firms acting in that jurisdiction.
Competition law and merger control
What competition law and merger control issues arise in financial services M&A transactions in your jurisdiction?
In the United States, certain acquisitions by or of banking organisations require banking agency prior approval and such approval includes a review of the competitive effects of the proposed transaction. If banking agency approval is not required, then a filing with the Federal Trade Commission and the Department of Justice (DOJ) Antitrust Division under the Hart-Scott-Rodino Act (HSR Act) is required. If only a portion of a transaction requires banking agency prior approval, an HSR Act filing may be required for the remaining portion of the transaction. Certain transactions that require banking agency approval due to the size of the parties in the transaction can require an HSR filing even though the transaction in its entirety is subject to prior banking agency approval. Bank M&A transactions are reviewed from a competition perspective concurrently by the DOJ Antitrust Division and the relevant banking agency. Generally speaking, the DOJ will furnish a report to the relevant banking agency on the competitive factors regarding bank M&A transactions. The DOJ and the federal banking agencies have issued guidelines regarding how they evaluate bank mergers (although the DOJ and the federal banking agencies are currently re-evaluating their review standards, which have not been revised for decades (1995 Bank Merger Competitive Review Guidelines)). Applicants generally may not consummate the transaction within 15 days of receiving the banking agency’s approval; if the DOJ has provided adverse comments, that waiting period can be extended to allow the DOJ time to exercise its authority. In addition, state banking agencies often require prior approval or notice of transactions affecting regulated institutions within their jurisdiction. Financial services transactions outside of the banking sector generally are subject to the HSR Act process.
