Long awaited regulations on financial intermediaries finally taking shape

Publication | March 2012


The Bank of Italy has recently published a consultation document relating to new Regulations which would result in significant changes to the laws that currently regulate the activities of financial intermediaries in Italy (financial intermediaries being financial institutions within the meaning of the Capital Requirements Directive).

The proposed Regulations would align the Italian legal framework on credit and financial institutions with the principles introduced pursuant to the Capital Requirements Directive.

New rules on financial intermediaries were first introduced in a legislative decree enacted in August 2010 (Legislative Decree n. 141), which largely amends the Italian Consolidated Banking Act (also referred to as Legislative Decree n. 385 of 1 September 1993). The main objective of the proposed new Regulations is to strengthen the overall stability of the Italian financial system.

Operators in the financial services sector are invited to study and send comments to the Bank of Italy on the consultation document by mid-March 2012.

The text of the proposed new Regulations is expected to be adopted and come into force by the end of September 2012.

Main features of the proposed new Regulations

Some of the main features of the proposed new Regulations are:

  1. A reduction in the number of so-called “licensed activities”, which would be limited for the most part to lending and servicing operations. However, financial intermediaries could apply for specific authorisation to offer payment services, issue e-money and offer other types of financial services to clients.
  2. The establishment of a single register for financial intermediaries to be kept by the Bank of Italy. This single register would substitute the current dual-register system, which provides for a general register for “simply registered” financial intermediaries and a special register for financial intermediaries which require “supervision”.
  3. More stringent requirements for the authorisation, ownership and structure of financial intermediaries; for example, prior to granting authorisation, the regulator will look at the “honesty and professional profile” of the applicant’s shareholders and managers as well as the applicant’s business plan. This will allow the regulator to better assess the risks related to the applicant’s business.
  4. New minimum capital requirements equal to € 2 million for companies engaging only in lending activities and € 3 million for companies engaging in lending activities as well as providing guarantees, as compared to respectively € 600,000 and € 1,500.000, required by the current regulations.
  5. A new regime for consolidated supervision applicable in case of a financial group, composed of financial intermediaries and its subsidiaries with greater responsibility on the part of parent companies for the activities of branches performing financial intermediary activities in Italy.
  6. Specific rules for financial intermediaries relating to corporate governance, risk control, risk management, internal flow of information, administrative and accounting procedures and measures to ensure business continuity and disaster recovery. In particular, as regards corporate governance, the roles and responsibilities of the company’s management team and statutory auditors must be clearly defined. So-called “control functions” (i.e. risk management, compliance and internal audit) must be independent and only small entities (defined as those financial intermediaries belonging to class 3 of the ICAAP rules with total assets not exceeding € 100 million, unless they are parent companies of a financial group, are engaged in deposit operations through securities, securitisation transactions or are authorised to provide payment services, investment services, or issue e-money) will be allowed to delegate more than one of these functions to a single officer or manager. Outsourced activities will also be evaluated. In sum, the rules relating to financial intermediaries will become very similar to those currently imposed on banks.
  7. A new obligation to monitor exposure to liquidity risk on an ongoing basis.

The proposed new legal framework also allows financial intermediaries to acquire shareholdings in other companies in order to develop their business, but not without limitation. To this extent, the consultation document introduces specific provisions, similar to those applicable to banks. In particular, investments in fixed assets (real estate and shareholdings) would be limited to an overall of 60 percent of overall capital investment.

Whilst no such limitation would apply to the acquisition of shareholdings in other financial intermediaries (or companies exercising ancillary activities), the proposed new Regulations impose not only notification obligations but also new authorisation requirements in the event of a proposed acquisition of shareholdings in financial intermediaries. In addition, prior to granting authorisation, the Bank of Italy will analyse the intentions of the acquirer, to ensure that these are honest and part of a sound and prudent management of the business, backed by financial stability. This is an important change in the existing legal framework, which requires only notification to and not authorisation by the Bank of Italy for these types of acquisitions.

The text of the consultation document is available in Italian only here