The Banking and Insurance Sector

This chapter focuses on procedures and mechanisms to control foreign direct investments into the EU banking and insurance sector. It explains and analyzes the relationship between the prudential ownership control procedures under EU supervisory law and the proposed FDI screening mechanisms under Regulation 2019/452. In the outset, an overview on prudential ownership control and the FDI screening mechanisms under Regulation 2019/452 is given. Then the main areas and principles of prudential supervision are described for credit institutions, insurance companies and investment firms, followed by a detailed explanation of prudential ownership control requirements and procedures. On this basis, an analysis of the new framework for the screening of foreign direct investments under Regulation 2019/452 is undertaken with regard to the possible design of the screening mechanisms, the application of such mechanisms to financial institutions in addition to the prudential ownership control procedures and the new cooperation mechanisms between Member States and the Commission. The analysis shows that Member States are not obliged to adopt an FDI screening mechanism for foreign direct investments into financial institutions. As prudential ownership control requirements always apply, a Member State may refrain from setting up an additional FDI screening mechanism if security and public order in the sense of Regulation 2019/452 are effectively protected by prudential ownership control procedures. This may be the case with regard to the protection of the financial infrastructure of the Member States and the Union against risks posed by certain foreign investments; the same could be held with regard to the protection of sensitive data collected by financial institutions and to the defence against foreign investors involved in criminal activities. So far, the prudential ownership control procedures may be described as a hidden investment screening mechanism already in place. However, as the prudential ownership control is neutral as to the origin of a foreign investor and does not discriminate against certain foreign states, it may be necessary for Member States to set up an FDI screening mechanism at least to screen the proposed acquisition of qualifying holdings in financial institutions by certain foreign states and state funds. Furthermore, Regulation 2019/452 provides for cooperation mechanisms between Member States and the Commission with regard to foreign direct investments, independent of whether such investments are subject to FDI screenings or not, for which there is no corresponding concept under supervisory law.