10 February 2012 - European Commission



European Commission

Rue de la Loi 200 BLACKROCK

1049 Bruxelles 12 Throgmorton Avenue

Belgium London, EC2N 2DL

United Kingdom

10 February 2012

European Commission Public Consultation on the application of Directive 2007/44EC as regards acquisitions and increase of holdings in the financial sector

Dear Sirs,

BlackRock welcomes the opportunity to comment on the Consultation Paper on the application of Directive 2007/44EC as regards acquisitions and increase of holdings in the financial sector.

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At December 31, 2011, BlackRock’s AUM was $3.513 trillion (€2.71 trillion). BlackRock offers products that span the risk spectrum to meet clients’ needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®.

Our client base includes corporate, public funds, pension schemes, insurance companies, third-party and mutual funds, endowments, foundations, charities, corporations, official institutions, banks and individuals. BlackRock represents the interests of its clients and it is from this perspective that we engage on all matters of public policy. BlackRock supports regulatory reform globally where it increases transparency, protects investors, facilitates responsible growth of capital markets and, based on thorough cost-benefit analyses, preserves consumer choice. BlackRock is a member of European Fund and Asset Management Association (“EFAMA”) and a number of national industry associations[1] reflecting our pan-European activities and reach.

Yours faithfully,

Martin Parkes

Director, Government Affairs & Public Policy

+44 (0)20 7743 4646

martin.parkes@

12 Throgmorton Avenue

London, EC2N 2DL

United Kingdom

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BlackRock response to the European Commission Public Consultation on the application of Directive 2007/44EC as regards acquisitions and increase of holdings in the financial sector

10 February 2012

BlackRock has focused its response on two areas relating to the prudential assessment of the acquisition and qualifying holdings in the financial sector in its application to asset management firms in terms of:

• their day to day management activities, and

• applying additional requirements to the existing prudential assessment criteria.

Question 7: Do you believe it is sufficiently clear when persons 'are acting in concert' for the purposes of the directive? Have you encountered any difficulties with the application of the definition of acting in concert given in Appendix 1 of the Level 3 Guidelines or with another definition of 'acting in concert' applied by the regulator in

relation to the obligations of the Directive? Please explain.

Application to asset managers

We note that as part of the ongoing debate on shareholder engagement the UK FSA provided additional guidance in January 2011 on the term “acting in concert”, in particular in relation to aggregation of voting rights. The Level 3 Guidance was not intended to be comprehensive or define the scope of who needs to notify the competent authorities on this issue. We therefore recommend that, in any future review of the Level 3 Guidelines, ESMA take into account guidance issued by national regulators in the context of national laws and in particular that does not negatively affect a legitimate collective shareholder engagement with companies as included in the UK Stewardship Code (Principle 5).

Question 10: Are there, in your view any other cases than the one laid down in the

Directive which would warrant an exemption from the notification requirement? Please explain.

Application to asset managers acting in their course of business

The Acquisitions Directive already points out it is not intended to prevent market participants, including asset managers, from operating effectively in the securities market. In addition, the Level 3 Guidelines point out that a proportionate approach for asset managers is needed. The FSA has instituted a generic pre-notification regime in relation to acquisition and disposals in the usual course of business of an investment manager (as long as total holdings in a company remain at less than 20%). Therefore, it is already recognised that asset managers are a special case and that this directive is not intended to impact the asset managers’ business as usual.

Question 20: The experience in the financial and economic crisis has triggered several important regulatory initiatives aiming at reinforcing financial stability. Do you consider it necessary to adjust the prudential assessment criteria to address for example concerns about financial stability and the emergence of financial institutions that are “too big to fail” resulting from M&A activity?

The Acquisitions Directive aims to prevent national supervisors from arbitrarily blocking acquisitions in order to protect national companies from foreign competition or for other reasons. The Directive also provides that that the authority responsible for the prudential

assessment of an acquisition of a qualifying holding is the competent authority of the target institution working “in full consultation” with the potential acquirer’s competent authority.

The competent authority applies a series of standard criteria for prudential assessment across all financial firms whether they are banks, insurance companies or investment firms such as asset managers.

In light of recent events, we appreciate that additional requirements are being considered for mergers and acquisitions in the banking sector. In the UK, for example, the highest profile case relating to cross border acquisitions in the banking sector relates to the RBS acquisition of ABN-AMRO. The recent UK FSA report on RBS’ failure[2] makes a number of recommendations including that, in the future, major bank acquisitions should be subject to formal regulatory approval.

In terms of determining the risk of market participants and considering the introduction of additional criteria for prudential assessment it is important to appreciate that the business model of asset managers is fundamentally different from those of other financial institutions (such as commercial banks, investment banks, insurance companies and government sponsored entities). We recommend that due weight is given to the different risk profile presented by asset managers relative to the other institutions in the financial services sector and that asset managers be therefore exempted from the consideration of additional prudential criteria. These differences include:

• Asset management firms act under a mandate, or a specific set of instructions, from clients. This means that asset managers invest on behalf of clients and not with their own balance sheets making them less susceptible to financial distress and unlikely to impact adversely the broader economy if under distress.

• Clients’ assets are normally held by a separate legal entity (depository/custodian) in which they are ring-fenced from the asset manager’s own assets. Thus, if the asset manager were to fail or to run into financial difficulties the assets under management would be protected and the situation corrected through the appointment of another asset manager.

• Asset managers rely on a generally stable fee-based income stream; accordingly, there have been few failures of asset managers of any substantial size.

• Asset managers are easily resolvable because of (i) the simplicity of their legal, funding and operating structures, (ii) the ease with which advisory roles can be transferred, (iii) the use of third-party custodians for client assets and most importantly (iv) the lack of concentration in the industry.

.

Consequently, acquisitions of asset managers do not pose systemic risk or the potential need for public financial support. We would highlight the following acquisitions of European asset managers in this context: Henderson’s acquisition of Gartmore Group (2011); Man Group’s acquisition of GLG Partners (2010); BlackRock’s acquisition of Barclays Global Investors (2009); and Crédit Agricole’s acquisition of Société Générale AM (2009).

We appreciate the opportunity to address and comment on the issues raised by this Consultation paper. We are prepared to assist the European Commission in any way we can, and welcome continued dialogue on these important issues.

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[1] Association of British Insurers (ABI), Association Française de Gestion (AFG), Assogestioni, Association française des Sociétés financières (ASF), Association suisse des institutions de prévoyance (ASIP), Bundesverband Investment and Asset Management (BVI), Dutch Fund and Asset Management Association (DUFAS), Eumedion, Financial Reporting Council (FRC), Irish Association of Pension Funds (IAPF), Irish Funds Industry Association (IFIA), Investment Management Association (IMA), Inverco, Alternative Investment Management Association (AIMA) and National Association of Pension Funds (NAPF)

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