Italy: Banking & Finance (2nd edition)

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This country-specific Q&A provides an overview to banking and finance laws and regulations that may occur in Italy.

This Q&A is part of the global guide to Banking & Finance. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance-2nd-edition/

  1. What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?

    The main national authorities for banking regulation, supervision and resolution in Italy are:

    (i) the Bank of Italy, which is responsible of the banking and financial supervision on banks and non-banking intermediaries enrolled in specific registers. Since November 2014, banking super-vision has been carried out within the framework of the Single Supervisory Mechanism (“SSM”);

    (ii) the Minister of Economy and Finance (“MEF”), which carries out the tasks and the responsibili-ties of the State in the fields of economic policy, financial policy, budgeting, and tax policies. Additionally, it carries out all activities related to the coordination of public spending and its oversight, planning of public investments, monitoring and oversight of public financial man-agement, public debt management, and of State stockholdings. The MEF mainly resolves on the application of certain principles and provisions set forth under the Legislative Decree no. 385 of 1 September 1993, (“Italian Banking Law” - e.g. on the notion of reserved banking and fi-nancial activity);

    (iii) the Interministerial Committee for Credit and Savings (Comitato Interministeriale per il Credito e il Risparmio - “CICR”), which has the task of the high supervision on credit and savings. The CICR resolves, on proposal of the Bank of Italy, principles and criteria for the exercise of the supervi-sion.

    In addition, it should be noted that also as a result of the SSM, the European Central Bank (“ECB”) is direct-ly responsible for the supervision of Italian “significant banks”.

  2. Which type of activities trigger the requirement of a banking license?

    In Italy, banking activity, save for some exceptions, is reserved to banks and in order to perform it an au-thorisation from the Bank of Italy is required.

    What constitutes banking activity is set forth in article 10 of the Italian Banking Act and comprises:

    (i) the collection of funds from the public (i.e. the collection of funds with repayment obligation, ei-ther in the form of a deposit or in another form), and

    (ii) the granting of financing, in whatever form, on a professional basis. It is worth nothing that the granting of financing is also allowed to financial companies enrolled in specific registers held by the Bank of Italy.

    In addition, the provision of payment services and other investment services requires a license too.

  3. Does your regulatory regime know different licenses for different banking services?

    There are several types of licenses issued by the Bank of Italy depending on the activity to be exercised:

    (i) banking activity license, pursuant to article 14 of the Italian Banking Act, which may be issued for a bank;

    (ii) financial intermediary license, pursuant to articles 106 and 107 of the Italian Banking Act, which may be issued for financial intermediaries in order to allow them to the exercise of the activity of granting of financing, in whatever form, toward the public (including the issuance of guaran-tees);

    (iii) electronic money institution license, pursuant to article 114 quinquies of the Italian Banking Act, which may be issued for electronic money institutions in order to issue, redeem and distribute electronic money and to provide ancillary activities to payment services (such as guaranteeing the execution of payment transactions, money exchange and data storage);

    (iv) payment institutions license, pursuant to article 114 novies of the Italian Banking Act, which may be issued for payment institutions in order to provide payment services (as listed in the EU Payment Service Directive 2015/2366 – “PSD”) and manage payment systems;

    (v) guarantee consortia (consorzi fidi - Confidi) license, pursuant to article 112 of the Italian Banking Act, which may be issued for guarantee consortia (consorzi fidi - Confidi) in order to exercise the activity of collective guarantee of exposures (garanzia collettiva dei fidi) and the connected services.

  4. Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?

    Yes, the banking authorisation released by the Bank of Italy pursuant to article 14 of the Italian Banking Act automatically allows banks to (i) issue, redeem and distribute electronic money; (ii) provide payment services (as listed in annex I to the PSD); (iii) provide ancillary activities to payment services (such as guaranteeing the execution of payment transactions, money exchange and data storage); (iv) manage payment systems.

  5. Is there a “sandbox” or “license light” for specific activities?

    Generally, credit activity (which also includes the purchase of receivables) is a reserved matter, being included in the concept of banking activity. However, there are some exceptions, amongst which:

    (i) pursuant to Ministerial Decree no. 53/2015, companies can require a license for the activity of the extrajudicial recovery of receivables that, at certain specific conditions, allows these companies to purchase receivables for “recovery purposes”;

    (ii) pursuant to Law 30 April 1999, no. 130, in the context of securitisation transactions the vehicle company (i) can acquire receivables and (ii) can grant loans to borrowers, other than private person and small enterprises, at certain conditions (i.e. the debtor must be identified by a bank or a financial company; the securitisation notes are destined to qualified investors and the bank or financial company retains at least 5% of the risk related to the transaction), provided that the sums paid by the debtor or by the assigned debtors are exclusively destined by the assignee vehicle company to satisfy the rights embedded in the securities issued by the vehicle company itself or by another company, to finance the purchase of these receivables, as well as the payment of the costs related to the securitisation transaction.

    Moreover, pursuant to article 111 of the Italian Banking Act recorded as “Micro-credit”, some companies enrolled in a specific register of the Bank of Italy, may grant financing to individuals, partnerships (società di persone), simplified limited liability companies, associations and cooperatives. The facilities granted in this way must be used by the beneficiary exclusively for the start-up or the exercise of independent work or micro-enterprise, can not exceed the amount of Eur 25,000.00 and cannot be secured by pledge/mortgage guarantees.

  6. Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?

    In Italy there is not yet a complete legislation on crypto currencies.

    In particular, with reference to the issuance of crypto currencies, in the absence of specific rules, the practice is to follow the interpretation of the Italian Financial Markets Supervisory Authority (“CONSOB”) on the nature of crypto currencies which, until now, has qualified them as financial instruments pursuant to article 1, paragraph 1, let. u), of the Legislative Decree no. 58 of 24 February 1998 (“Italian Financial Act”). As a consequence, embracing CONSOB’s interpretation, all the restrictions provided for in the Italian Financial Act for the issuance of financial instruments will be applicable to the issuance of crypto currencies.

    With reference to the custody of crypto currencies, the Legislative Decree no. 90 of 25 May 2017 (i) has amended the Legislative Decree no. 231 of 21 November 2007, introducing the definition of “crypto currencies” and of “providers of services related to the use of crypto currencies” in order to apply the Italian anti money laundering legislation to the exchange and the deposit of crypto currencies; (ii) has amended the Legislative Decree no. 141 of 13 August 2010, introducing the obligation for such providers of services related to the use of crypto currencies to register in a special section of the register of agents and ombudsman held by the Italian Ombudsman Body and supervised by the MEF.

  7. What is the general application process for bank licenses and what is the average timing?

    The authorisation can be required by newly incorporated companies or by existing companies. The application must be submitted to the Bank of Italy (Regulations and Macroprudential Analysis Directorate, New Banks and Financial Intermediaries Division) and the ECB has become ultimately responsible for granting banking licenses to banks.

    At the end of the investigation phase:

    (i) if the applicant does not meet the regulatory authorisation requirements, the Bank of Italy can reject the application without requiring any decision by the ECB;

    (ii) if the Bank of Italy is satisfied that the application complies with all conditions laid down in the relevant national law, it will draw up a draft decision to grant an authorisation and send it to the ECB. The ECB then has 10 working days (with the option of extending this deadline by another ten days) to assess whether it agrees with the draft decision. If it does, a positive authorisation decision will be notified to the applicant.

    The applicant shall attach to the request of authorisation, inter alia:

    (i) the deed of incorporation (atto costitutivo) and the bylaws (statuto);

    (ii) a “program of activity” concerning the initial activity. In case the applicant is an existing company, it must include also the activities previously carried out, the financial statements of the 3 previous years and the initiatives which it intends to promote;

    (iii) the list of subjects who participate directly or indirectly to the corporate capital of the bank;

    (iv) the documentation necessary in order to verify the requirements of professionalism, independence, respectability, operational expertise of the subjects who acquire, directly or indirectly, major participations in the bank;

    (v) the certification of the payment of the capital, released by the bank where the payment has been made;

    (vi) information on the sources of the amounts with which the corporate capital of the bank is subscribed;

    (vii) the description of the group of companies to which the bank belongs (if any).

    In any case, the Bank of Italy releases or denies the authorisation within 180 days from the receipt of the request for authorisation and of all the documentation required by the law (this term could be extended by the Bank of Italy if it requires further documentation and information).

  8. Is mere cross-border activity permissible? If yes, what are the requirements?

    Foreign banks can offer banking services in Italy through a branch or without a permanent establishment on a cross-border basis, in accordance with procedures that differ for EU and non-EU banks.

    With reference to EU banks, pursuant to articles 15 and 16 of the Italian Banking Act:

    (i) they can establish a branch in Italy in accordance with the procedures established by the provisions of the SSM; the first establishment of a branch of EU banks whose home Member State does not participate to the SSM shall be preceeded by a communication from the competent authority of that Member State to the Bank of Italy; or

    (ii) they can provide banking services without a permanent establishment in Italy. In this case an authorisation by the Bank of Italy is not required, but it is required only a notification from the home competent authority on the basis of the home country control principle.

    With reference to non-EU banks, pursuant to article 13, paragraph 4, of the Italian Banking Act, the establishment in Italy of the first branch of a non-EU bank is authorized by the Bank of Italy, after consulting the Ministry of Foreign Affairs and International Cooperation and taking into account, inter alia, the conditions of reciprocity between the home and host countries.

    The provision of banking services without a permanent establishment in Italy by non-EU banks requires the authorisation of the Bank of Italy.

  9. What legal entities can operate as banks? What legal forms are generally used to operate as banks?

    Italian banks must be incorporated under the legal form of a joint stock company (società per azioni) or limited liability cooperative company (società cooperativa per azioni a responsabilità limitata).

  10. What are the organizational requirements for banks, including with respect to corporate governance?

    Banks can exercise their right to choose between the three administration and control systems:

    (i) the traditional system (shareholders’ meeting, board of directors and board of statutory auditors);

    (ii) monistic system (whereby an internal control committee is appointed within the board of directors);

    (iii) dualistic system (where the management board is appointed by the supervisory board, that is in turn appointed by the shareholders’ meeting).

    The choice must be based on an in-depth self-assessment, which must allow the identification of the model concretely more suitable in order to ensure the “sound and prudent management” and the effectiveness of the controls, taking into account also the costs connected with the adoption and the functioning of the chosen model. In the valuation, banks have to consider, in particular, the following elements: the ownership structure and the relevant degree of openness towards the risk capital market, the size and the operational complexity; the medium and long-term strategic objectives; the organizational structure of the group in which it is inserted (if any).

    Banks have to identify the bodies responsible for the main prudential functions (strategic supervision, management and internal control):

    (i) corporate bodies in charge of strategic supervision and management which must assure control of the risks banks are exposed to;

    (ii) the supervisory body which monitors compliance with all laws, regulations and statutory rules, the proper administration and the adequacy of the organizational and accounting structures.

  11. Do any restrictions on remuneration policies apply?

    Banks must adopt remuneration systems in line with the values, strategies and long-term corporate objectives, related to the company results, adjusted in order to take into account all the risks, consistent with the levels of capital and liquidity required to perform the activities undertaken.

    The Bank of Italy Circular no. 285/2013 (“Circular 285”), accordingly to EU legislation (CRD IV and European Banking Authority and Financial Stability Board policies) contains the provisions on remuneration and incentive policies and practices for banks and banking groups, which state, inter alia, that:

    (i) all remunerations must be divided in a fixed and a variable component;

    (ii) the ratio between fixed and variable component cannot exceed 100 per cent. (the ratio may be increased up to 200 per cent. if so provided in the by-laws and approved by a shareholders’ resolution with a qualified quorum);

    (iii) the variable component is parameterized to performance indicators and measured net of the risks and its overall amount (i.e. bonus pool) is based on effective and lasting results; it must take into account the risks and the results of the bank or of the group considered as a complex and of those of the single business units;

    (iv) the variable remuneration is subject to mechanism of ex post risk adjustment (malus and claw back).

    The above requirements must be applied by banks taking into account their size and features, based on their classification as major, middle or minor banks.

  12. Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?

    Yes, the Capital Requirements Regulation (CRR) is directly applicable in Italy and the provisions of the Capital Requirements Directive IV (CRD IV) have been transposed into Italian law by means of the Legislative Decree no. 72 of the 12 May 2015, which entered into force on the 27 June 2015.

    The Circular 285 contains now specific sections dedicated to the transposing provisions of the CRD IV and of the CRR. In implementing the CRD IV and CRR, the Bank of Italy exercised its discretionary power to, inter alia, increase banks’ minimum initial capital from Eur 5 million (as provided by CRD IV) to Eur 10 million. Moreover, the Bank of Italy has provided for an exemption for banks belonging to a group from holding the liquidity requirements individually.

  13. Are there any requirements with respect to the leverage ratio?

    Yes, after the implementation of the Basel III framework, a limitation to the leverage ratio (including off-balance sheet exposures) has been established with a backstop function to the risk-based capital requirement, and in order to contain the excess of leverage ratio at a systemic level. The calculation of the leverage ratio has to be made in accordance to article 429 of the CRR.

  14. What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?

    Italy has implemented the Basel III liquidity requirements, and both the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) apply in Italy.

    Italian banks belonging to a banking group are exempted from the application of the LCR on an individual basis, while banking groups, if some conditions and requirements are met, are exempted from calculating the leverage ratio of exposures to entities that belong to the same group and are incorporated in Italy.

  15. Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?

    Pursuant to article 51, paragraph 1, of the Italian Banking Act, the banks shall submit to the Bank of Italy their financial statements, with the terms and conditions established by the Bank of Italy itself.

    In particular pursuant to the Bank of Italy regulation: (i) the banks shall submit to the Bank of Italy, on a quarterly basis, a report related to their regulatory capital and prudential ratios; and (ii) the financial intermediaries shall submit to the Bank of Italy a periodic report on a semi-annual basis.

    Pursuant to article 2435 of the Italian Civil Code, within 30 days from the relevant approval, a copy of the annual accounts shall be filed with the office of the register of enterprises under the responsibility of the directors.

    Listed banks must publish their annual and semi-annual financial statements, respectively, within 4 months from the end of each financial year and within 3 months from the end of the first half of the financial year (article 154-ter, paragraphs 1 and 2, of Italian Financial Act).

  16. Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?

    Yes. The banking groups are supervised pursuant to the provisions set out under articles 65-69bis of the Italian Banking Act. In particular, the consolidated supervision is structured on three levels:

    (i) the Bank of Italy requires to the members of the relevant banking group the transmission of, also on a periodic basis, situations and data, as well as any other useful information;

    (ii) the Bank of Italy has the power to give instructions to the parent company concerning, inter alia, the capital adequacy, the containment of risk, the admissible shareholdings and the corporate governance;

    (iii) the Bank of Italy has the power to carry out inspections towards the supervised entities.

  17. What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?

    Pursuant to article 19 of the Italian Banking Act, the ECB shall authorise acquisition of shareholdings in banks which entail the control or voting rights at least equal to 10% of the share capital. Such authorisation is also required when the shareholding or voting rights exceed the following thresholds: 20%, 30% and 50%.

    In this context, as Italy adhered to the Single Supervisory Mechanism, the Bank of Italy has a role of entry point and therefore shall submit to ECB a framework decision related to the release of such authorisation.

  18. Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?

    Yes. With reference to the major participations (i.e. the owners subject to the authorisation provided under article 19 of the Italian Banking Act), pursuant to article 25 of the Italian Banking Act, the relevant owner must have the necessary requisites of honorability and satisfy the requirements of competence and fairness in order to grant the sound and prudent management of the bank.

  19. Are there specific restrictions on foreign shareholdings in banks?

    No.

  20. Is there a special regime for domestic and/or globally systemically important banks?

    Yes. As a result of the SSM (i) significant banks having their registered office in Italy are under are under direct supervision of the ECB and (ii) the banks qualified as less significant institutions are supervised by the Bank of Italy.

  21. What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?

    Depending on the nature of the breach, the Italian Banking Act provides for criminal, administrative or disciplinary sanctions. The type of sanction ranges from up to 4 years imprisonment to pecuniary sanctions (up to 10% of turnover or Eur 5 million with reference to individuals). In the most serious cases, in addition to the pecuniary sanctions, the Bank of Italy may impose a temporary interdiction from taking office.

    Criminal and administrative sanctions concern, inter alia, the following conducts:

    • unlawful collection of public savings;
    • illegal banking or financing activity;
    • illegal issuance of electronic currency;
    • unauthorized acquisition of shareholdings in banks (it is envisaged the suspension of voting rights related to the shareholding acquired without the necessary authorisation).
  22. What is the resolution regime for banks?

    Italy implemented the Bank Recovery Resolution Directive 2014/59/UE (BRRD) by means of the Legislative Decree no. 180 and no. 181 of 16 November 2015, which set out the BRRD regime and updated the Italian Banking Act and the Italian Financial Act.

    Notwithstanding the BRRD regime, Italian banks are subject to the existing national legislation which provides for two different proceedings, the special administration and the compulsory administrative liquidation, on the basis of the nature of the crisis affecting the bank. The special administration consists of a short-term and temporary measure, undertaken with the aim of checking the possibility of restoring adequate capital, organization and business conditions. It can be activated when the losses and the breaches in bank’s management are considerable but not irrevocable. The compulsory administrative liquidation is activated when the crisis is irreversible and there are not the conditions for the resolution. The outcome of the compulsory administrative liquidation is the closure of the bank.

  23. How are client’s assets and cash deposits protected?

    Italy has implemented the European Deposit Protection Directive (2014/49/EU) through Legislative Decree no. 30 of 15 February 2016. As a consequence, Italian banks have to adhere to one of the systems of protection of depositors constituted and recognized in Italy. It is provided for, inter alia, a statutory protection of deposits up to an amount of Eur 100,000.00.

    Moreover, in case of compulsory administrative liquidation (liquidazione coatta amministrativa) of the bank, client’s assets and cash deposits are protected by several provisions aimed to realize the segregation of the assets of the bank (segregazione patrimoniale), so that from the date of installation of the winding-up bodies, inter alia: (i) the payments of liabilities and the restitutions of third-parties assets are suspended; (ii) the bank loose the management and the availability of the assets; (iii) all the actions and payments made by the bank are ineffective towards creditors.

  24. Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?

    Yes, the BRRD was transposed into Italian law under Legislative Decree no. 180/2015 (“Decree”).

    The following liabilities are excluded from the application of the bail-in tool and, consequently, they can not be written down or converted into shares:

    • deposits protected under the deposit guarantee scheme, i.e. up to Eur 100,000.00;
    • secured liabilities, including covered bonds and other guaranteed instruments;
    • liabilities resulting from the holding of customers’ goods or in virtue of a relationship of trust;
    • interbank liabilities (except those within the same banking group) with an original maturity of less than 7 days;
    • liabilities deriving from participation in payment systems with a residual maturity of less than 7 days;
    • debts to employees, commercial payables and tax liabilities, if these are privileged under bankruptcy law.

    Liabilities that have not been expressly excluded can be included in a bail-in. However, pursuant to article 49, paragraph 2, of the Decree, in exceptional circumstances, such as when the bail-in entails a risk for financial stability with significant negative effects on the economies of a Member State or EU, the authorities may, at their discretion, exclude other liabilities as well. Such exclusion shall be notified in advance by the Bank of Italy to the European Commission.

    The creditors included in a bail-in are ranked as follows: i) shareholders; ii) holders of other capital instruments; iii) other subordinated creditors; iv) unsecured creditors; v) individuals and small businesses for the part of their deposits above Eur 100,000; vi) the deposit guarantee fund, which contributes to the bail-in in the place of guaranteed depositors.

    Pursuant to article 52, paragraph 2, of the Decree, the shareholders and creditors cannot, in any event, be required to suffer greater losses than they would incur under normal insolvency proceedings.

  25. Is there a requirement for banks to hold gone concern capital (“TLAC”)?

    Currently there is no specific requirement to hold gone concern capital. However, considering that the amendments of the CRR that are currently underway will include also rules on the TLAC of banks, it can be expected that certain minimum levels for the total loss absorbing capacity will be introduced.

  26. In your view, what are the recent trends in bank regulation in your jurisdiction?

    In our view, the bank regulation in Italy will provide new regime on Fintech market and crypto currencies and will continue to regulate the phenomena of the alternative lenders.

  27. What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?

    We believe that the capacity to manage the non-performing exposures of the Italian banks will play an essential role for the success of the financial sector.