A general introduction to the banking regulatory regime in Italy & More News Here

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Introduction

The Italian banking sector proved very resilient all through the second 12 months of the pandemic, thanks to the extraordinary measures adopted by the Italian authorities. The postponement of the debt moratoria to the finish of 2021, the greater than €200 billion below the National Recovery and Resilience Plan (NRRP) to assist reforms to be carried out between 2021 and 2026 and the progress in the vaccination marketing campaign contributed to strengthening shopper and enterprise confidence, boosting investments and marking the development of the native economic system over the previous 12 months. Against this background, the Italian GDP rose by over 6.5 per cent in 2021.

The upturn in the economic system and the supporting measures issued by the authorities, together with these concerning local weather change and digital transition, mitigated the affect of the pandemic on the high quality of banks’ belongings. Sales of unlikely-to-pay portfolios and different non-performing loans continued, thereby contributing to the secure lower of banks’ non-performing exposures (NPEs). Capital ratios, which have virtually doubled over the previous 10 years, are nonetheless on the up: at the finish of 2021, the CET1 ratio averaged 15.3 per cent, up from 15.1 per cent at the finish of 2020.²

The consolidation of the banking sector continued all through 2021 and the starting of 2022. Various main gamers acquired and merged a number of banks to increase their geographical presence (e.g., Crédit Agricole Italia) or improve their experience in area of interest markets (e.g., Banca Ifis). In April 2021, Intesa Sanpaolo (ISP) accomplished the aggregation course of with UBI Banca, and one month later Banca Ifis acquired a going concern of Aigis Banca, stopping the social and financial penalties of the Aigis Banca’s disaster because of the latter’s publicity in direction of the German financial institution Greensill Bank AG, bancrupt since March 2021. Over the previous 12 months, Crédit Agricole Italia has continued its growth in the Italian market by launching in June 2021, just some months after the voluntary tender supply launched on Credito Valtellinese SpA, a voluntary tender supply on Crédit Agricole FriulAdria’s shares. These transactions have been efficiently accomplished, bringing Italy in line with the transnational pattern of getting bigger, stronger banking teams, and the pattern will proceed as extra transactions are anticipated to happen throughout 2022. In August 2021, the Ministry of Economy and Finance (MEF) and Unicredit referred to as off negotiations over the sale of Banca Monte dei Paschi di Siena (MPS), and the MEF will now search an extension of the deadlines agreed with the European Commission authorities to reprivatise MPS. Meanwhile, BPER entered into an settlement for the acquisition of a controlling shareholding amounting to roughly 80 per cent of Banca Carige’s share capital, at present held by the FITD, the Italian deposit assure fund.

From a regulatory standpoint, in November 2021, the Banking Act³ was reformed to align it with the provisions of CRD V and CRR II. The reform will strongly affect the authorisation procedures for the acquisition of qualifying shareholdings in banks, banking teams and monetary holding firms (see Section II). In 2021, the Bank of Italy additionally up to date its supervisory directions, implementing CRD V provisions regarding company governance and remuneration and incentive insurance policies (see Section III.ii).

In the finance business, the mixture of the pandemic and the lockdown drove banks and monetary intermediaries to velocity up the digitalisation course of. This had a significant affect on prospects’ cost habits, with a robust improve of on-line funds and transactions, and on the credit score course of, with new strategies to assess the creditworthiness primarily based on automated processes and third-party supplier mechanisms. At the similar time, the digital revolution gave wider room to cyberattacks and malware, forcing gamers to transfer in direction of safer digitalisation processes.

To monitor extra intently the fintech wave, in 2021 the Bank of Italy arrange the ‘Milano Hub’, the innovation centre constructed to assist the digital banking evolution, appeal to new expertise and assist the fintech banks that have been born throughout the covid-19 period (e.g., AideXa).

The chart beneath particulars the CET1 ratio of the 4 largest banking teams in Italy as at 31 December 2021.

Banking group	CET1 ratio (per cent)
UniCredit*	15.03
Intesa	14
BPM	13.4
MPS	12.5
*UniCredit is included in the record of world systemically essential banks revealed by the Financial Stability Board in November 2021. Source: quarterly monetary studies

The regulatory regime relevant to banks

In addition to the EU laws (particularly, the Capital Requirements Directive (CRD IV,⁴ as amended by CRD V⁵), the Capital Requirement Regulation (CRR,⁶ as amended by CRR II⁷) and the Single Supervisory Mechanism (SSM) Regulation⁸), the rules governing banking actions and funding companies are contained respectively in the Banking Act and the Italian Financial Act.⁹ In the previous, each acts underwent an in-depth assessment to, inter alia, implement PSD2 and the second Markets in Financial Instruments Directive (MiFID II),¹⁰ and align nationwide laws with the Markets in Financial Instruments Regulation.¹¹

The rules implementing these rules are primarily set by the Bank of Italy, in specific by way of the issuance of Circular No. 229 of 21 April 1999 and Circular No. 285 of 17 December 2013, as subsequently amended (the Supervisory Instructions); and by Consob, the impartial public authority accountable for regulating the Italian securities market, notably by way of intermediaries, issuers and market rules. Further guidelines will be set by the Ministry of Economy and Finance (MEF) and the Inter-ministerial Committee for Credit and Saving (along with the Bank of Italy, Consob and the MEF, the supervisory authorities).¹² Specific powers in the anti-money laundering (AML) area are ascribed to the Financial Intelligence Unit.

The legal guidelines and rules on banking and monetary markets govern lending, deposit taking, securities actions and cross-border operations. A particular set of provisions lays out the circumstances and limits below which sure actions (e.g., lending-based crowdfunding) fall outdoors the financial savings assortment regime, and thus these will also be carried out by non-regulated entities. Lending actions will be carried out by banks, monetary intermediaries, insurance coverage undertakings, particular goal autos (topic to limitations), EU various funding funds and Italian funding funds, if sure necessities are met.

While Consob continues to be accountable for the securities market, following the SSM’s entry into power in November 2014, the duties ascribed to the Bank of Italy modified as a consequence of the distinction between vital establishments (SIs) and fewer vital establishments (LSIs), and the key function performed by the European Central Bank (ECB). Specifically, below the SSM:

1. the ECB is accountable for:
   • supervising Italian SIs, with the help of the Bank of Italy;
   • resolving on purposes to receive and withdraw a banking licence, and the authorisation to purchase certified or controlling shareholdings in banks, no matter their significance (see Section VI); and
   • making certain the efficient and constant functioning of the SSM and the Bank of Italy; and
2. the Bank of Italy’s duties primarily encompass:
   • supervising LSIs;
   • monitoring all Italian banks in relation to transparency, shopper safety and AML issues; and
   • aiding the ECB in supervising Italian SIs.

The ECB additionally has supervisory powers granted below Italian legislation in relation to, inter alia, the following operations involving Italian SIs:

1. outsourcing of actions;
2. mergers and demergers;
3. asset transfers and divestments; and
4. amendments to by-laws.

Foreign banks might perform enterprise in Italy by way of the institution of a department, or on a cross-border foundation, in accordance with a process that differs for EU and non-EU banks. EU banks can begin mutual recognition actions after a notification process between the residence nation authority and the Bank of Italy, whereas non-EU banks can solely function after being duly authorised to achieve this and are topic to stricter necessities. Following the implementation of MiFID II, non-EU banks are actually allowed to present funding companies for retail purchasers in Italy completely by way of the institution of a department.

Similar rules apply to Italian banks after they intend to undertake banking actions in different EU nations, together with the Bank of Italy’s authorisation for an Italian financial institution wishing to function in a non-EU nation.

Banking teams topic to ECB direct supervision are supervised by Banking Supervision Desk I; and all different banks are supervised by Banking Supervision Desk II and Bank of Italy branches. Both Desks have intensive powers that primarily end result in supervising nationwide and transnational teams on a consolidated foundation, analysing dangers and managing administrative proceedings.

As for Italy’s banking construction, there are at present 59 banking teams¹³ and 90 banks not belonging to banking teams.¹⁴ The variety of financial institution counters has been diminished by about one third.¹⁵ Regarding the presence of international banks, there are 81 Italian subsidiaries of international banks.¹⁶

Regarding authorized kind, 118 banks are integrated as joint-stock firms, 238 banks are integrated as cooperative credit score banks (CCBs) and 19 are mutual banks.¹⁷

In November 2021, the Banking Act underwent a big reform aimed toward implementing the CRD/CRR bundle (as final up to date) and the European authorities’ pointers. In this context, Legislative Decree No. 284 of 29 November 2021 amended the provisions on financial institution’s qualifying holdings process by introducing new instances in which authorisation of the ECB is required, reformed the banking group’s perimeter and regulation and elevated the variety of entities topic to the Bank of Italy’s authorisation and supervision, together with Italian and EU monetary holding firms that management Italian banks.

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