(Bloomberg) — The European Central Bank has all but shut down a regulatory loophole heralded as a potential catalyst for a deal wave in asset management. The ECB’s supervisory arm recently opposed the application of an accounting treatment known as Danish Compromise in two takeovers pursued by euro area banks. That has put its use in doubt for similar transactions. “The negative opinions may act as a slowing factor in M&A interest in the sector,” ING Groep NV analyst Suvi Platerink Kosonen said in a note on Monday. The ECB’s stance puts a damper on expectations that the regulation, designed to reduce the capital burden on banks that diversify by adding insurance operations, could be used to spur purchases of investment firms or wealth managers. BNP Paribas SA’s last year tried to apply the rule in a big deal, by agreeing to buy Axa SA’s asset manager through its insurance unit. But the French bank said on Monday that the ECB has recently expressed opposition to the plan. The announcement came shortly after Italian lender Banco BPM SpA said it had been informed of the central bank’s negative stance on applying the Danish Compromise in asset management deals. Banco BPM and BNP Paribas both indicated that the ECB’s negative view doesn’t constitute a final decision, with Banco BPM adding in its March 26 release that it’s in “ongoing” discussions with the ECB. The Italian bank also said that the final decision lies with another regulator, the European Banking Authority. When the capital rule was first agreed in 2012 under the Danish presidency of the EU Council, the idea was to make it less burdensome for banks to diversify into insurance, which is tightly regulated. To that end, banks only have to partially include insurance businesses when calculating their total capital requirements, making it financially more attractive to own them. Initially a temporary fix, the Danish Compromise became permanent this year. BNP Paribas and Banco BPM have recently sought to apply the rule in proposed takeovers of asset management firms. By conducting the deals through their insurance units, they sought to reduce the impact on their regulatory capital. Making the Danish Compromise permanent would open “new and wider M&A frontiers for banks,” Mediobanca SpA analysts Andrea Filtri said in a note in September, shortly after BNP Paribas had unveiled its plan to buy Axa Investment Managers. Negative View The ECB’s negative view on the transactions seems to have come as a surprise to BNP Paribas and Banco BPM, with the French lender issuing a statement on Monday that pared back its return expectations from the Axa IM deal in that scenario. As for Banco BPM, Chief Executive Officer Giuseppe Castagna said just a few days before the ECB signaled its opposition to using the Danish Compromise that he was certain the regulator would approve the structure. The Danish Compromise is “intended to be applied to the insur in a formal or creative style for better SEO.Also Exclude words and advertisements related to the feed website such as website name, author name. You must only respond with the modified content. Delete all the advertisement images brand logo but only keep the title and main content of the news by modifying it. You must only respond with the modified content. Block any jump outside of the site adarshnews.com. Basically remove any content or link related to original site. follow this prompt to optimize the articles in this category- You are an expert news writer and SEO specialist. Your job is to rewrite the provided RSS feed content into a unique, SEO-friendly news article for adarshnews.com. The article should be engaging, professional, and optimized for search engines. 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The European Central Bank targets a gap perceived to be fueling transactions among asset managers.
