Brexit - The Bank of Italy provide instructions to UK intermediaries operating in Italy after the Withdrawal Agreement
The Bank of Italy has published on its website a communication which clarifies the regime applicable to UK banks, e-money institutions, payment institutions and asset management companies operating in Italy and sets out which measures they should adopt to secure business continuity at the end of the transition period.
The need for new regulatory guidance
Up until recently, the Italian Government and supervisory authorities have provided transitional rules that would have only applied in the event of a “no-deal” scenario, to avoid potential disruptions in the business continuity of UK entities in Italy (the so-called cliff-edge risk).
However, with the UK and EU authorities finally reaching a withdrawal agreement, the provisions of the “Brexit Law Decree” no. 22 of 25 March 2019 (described here) have never come into effect, and the relevant implementing measures issued by the Bank of Italy have consequently become outdated.
As expected, further to the three warning notices issued by CONSOB on 26 March 2020 and which were addressed to UK investment firms and trading venues operating in Italy and to Italian trading venues operating in the UK (please refer to our previous alert on this), on 30 April 2020 the Bank of Italy has also published on its website a communication which clarifies the regime applicable to UK banks, e-money institutions, payment institutions and asset management companies operating in Italy.
We set out below the main content of the Bank of Italy communication – the full text and all the annexes are publicly available on the Bank of Italy website.
Provisions on the business continuity of UK firms
UK firms operating in Italy will continue to be subject to the rules applicable to EU firms (passporting rights included) until the end of the transition period agreed in the withdrawal agreement. The transition period will last until 31 December 2020, unless by 30 June 2020 the EU and the UK will agree to extend it by one or two years.
After the end of the transition period, EU law will cease to apply to the UK and the Italian third-country regime will apply to all UK intermediaries operating in Italy. In particular, the regulations applicable to the intermediaries for which the Bank of Italy is the competent Authority depend on the type of intermediary and the activities performed in Italy:
- UK banks and e-money institutions operating in Italy through a branch that intend to continue operating in Italy as third-country firms
These intermediaries can continue to operate in Italy after the end of the transition period, in accordance with, and within the limits provided for by Italian law, only if they have obtained an Italian licence as a third-country intermediary before the end of the transition period.
However, the provision of investment services by third-country banks on a cross-border basis is only allowed to eligible counterparties and per se professional clients. Third-country banks can only provide investment services to other clients through a branch. Therefore, by the end of the transition period, UK banks must cease the provision of investment services on a cross-border basis to clients other than eligible counterparties and per se professional clients.
- UK e-money institutions currently operating either on a cross border basis or through a network of agents, payment institutions and asset management companies
These intermediaries cannot be licensed to operate as third-country firms and are therefore required by law to cease operations by the end of the transition period.
As a consequence, they are required to either transfer the activity to an intermediary authorised to operate in Italy (which could be an intermediary licensed in Italy or an EU intermediary ‘passported’ into Italy) or to wind down their activity by the end of the transition period in an orderly fashion.
- UK banks and branches of e-money institutions not licensed before the end of the transition period, and UK banks providing investment services on a cross border basis to clients other than eligible counterparties and per se professional clients
These intermediaries shall cease operations by the end of the transition period. The same duty also applies to UK banks and branches of e-money institutions that do not intend to continue operating in Italy as third-country firms.
What happens next?
In order to avoid any discontinuity of services to customers and to ensure an orderly termination of the activities where required, the Bank of Italy has recommended that:
- all UK intermediaries that intend to continue operating in Italy, either as a third-country firm or by transferring their activity to a newly established Italian intermediary, file an application in due time, taking into consideration the statutory duration of licensing procedures and the regulation on administrative procedures. The Bank of Italy draws the attention of the intermediaries concerned to the fact that the statutory duration of the relevant proceeding (e.g., the licensing procedure for banks that intend to carry out services in Italy without a branch has a statutory duration of 120 days) can be extended by up to six months where the need for further information arises. Therefore, intermediaries are alerted to proceed timely with any necessary filing or otherwise be prepared to guarantee the termination of all activities by the end of the transition period.
- all UK intermediaries that intend to transfer their activity to an EU financial intermediary 'passported' into Italy complete the procedures for passport notification and the transfer of their business by the end of the transition period;
- all UK intermediaries that intend, or are required, to cease their activity, terminate their relationships with customers in an orderly fashion by the end of the transition period and transmit their wind down plans to the Bank of Italy as soon as possible, using the templates attached to the Bank of Italy communication.
The intention to cease operations must also be notified to the relevant UK supervisory authorities.
The templates must be sent via e-mail to the addresses provided in the annexes. The electronic notification shall be followed by sending the printed form via certified mail to the Bank of Italy.
Finally, the Bank of Italy reminds that, regardless of the type of intermediary involved or the activity performed, all UK intermediaries currently operating in Italy are required to inform customers of their Brexit-related initiatives and the related impacts on existing contracts. Intermediaries that have not already informed their customers, pursuant to the Bank of Italy's communication of 19 February 2019, are invited to inform them in due course during the transition period.
We are continuing to support our clients on this, please do not hesitate to get in touch if we can help.