How to start providing payment services and e-money services in Italy

How can I start providing payment services and e-money services in Italy?

Anyone can take up the business of a payment institution (hereinafter PI) or an e-money institution (hereinafter EMI) through a stand-alone company or a subsidiary. In both cases, the authorization procedure follows the same rules.

A subsidiary is a distinct legal entity from its parent company and is accordingly subject to all the applicable prudential requirements.

Foreign PIs and EMIs may also offer their services in Italy:

1. through a branch;
2. without a permanent establishment;
3. through a network of agents (EMIs have to operate through distributors in order to issue e-money).

a. A branch is an extension of the payment institution to which it is affiliated, i.e. it is not treated as a separate legal entity for regulatory purposes.

EU PIs and EMIs do not need authorization in order to carry out their activities in Italy through a branch:they must submit a notification from the competent authority of the home country.

Non-EU PIs cannot operate in Italy through a branch; therefore, they must establish a subsidiary in order to carry out their activities in Italy. On the contrary, non-EU EMIs can provide their services through a branch which has to be authorized by the Bank of Italy.

b. The provision of services without any permanent establishment implies that PIs and EMIs carry out their activities in Italy without any permanent physical presence.

EU PIs and EMIs do not need authorization in order to carry out their activities in Italy without a permanent establishment: they must submit a notification from the competent authority of their home country.

Non-EU PIs and EMIs cannot operate in Italy without a permanent establishment; therefore, in order to carry out their activities in Italy, they must establish a subsidiary or, in the case of non-EU EMIs, a branch.

c. EU PIs and EMIs do not need authorization in order to carry out their activities in Italy through a network of agents or distributors, since they must only submit a notification from their home country’s competent authority.

Non-EU PIs and EMIs cannot operate in Italy through a network of agents or distributors; therefore, in order to carry out their activities in Italy, they must establish a subsidiary or, in the case of non-EU EMIs, a branch.

Which activities can I carry out?

Payment institutions can:

• provide payment services as listed in Annex I to the PSD;
• provide ancillary activities, such as guaranteeing the execution of payment transactions, money exchange and data storage;
• manage payment systems.

Electronic money institutions can carry out all the above activities and issue, redeem and distribute electronic money.

Both PIs and EMIs can grant credit within the limits set out in Disposizioni di vigilanza per gli istituti di pagamento e gli istituti di moneta elettronica, Chapter VIII, Section II. The granting of credit is subject to Italian prudential requirements, regardless of the nationality of the PI or EMI.

Applicants may carry out business activities not related to the provision of payment services and electronic money services, provided that adequate assets are segregated for the provision of payment and e-money services.

To whom do I apply for authorization?

Your application must be submitted to the Bank of Italy, Supervisory Institutional Relations Directorate, New Banks and Financial Intermediaries Division (riv@pec.bancaditalia.it).

Can I approach the Bank of Italy to have pre-application discussions?

You are encouraged to get in touch with the Bank of Italy. While not mandatory, pre-application discussions with prospective PIs or EMIs can prove beneficial for applicants wishing to gain a better understanding of the various stages of the authorization process and of the Bank of Italy’s expectations in this regard. Requests for a meeting must be submitted to the Bank of Italy, Regulations and Macroprudential Analysis Directorate, New Banks and Financial Intermediaries Division (ram@pec.bancaditalia.it).

Why is it important that the application be complete?

When you submit an application, the Bank of Italy first assesses whether it is complete or not; if the application is not complete, the authorization process cannot begin or will be suspended until the additional information has been supplied. The completeness of the information provided is crucial to ensuring that the authorization process begins and the application is processed as smoothly as possible. 

The following Frequently asked questions (FAQ) are intended to help applicants prepare complete applications by explaining the assessment criteria.

What does the Bank of Italy assess in the case of an application for a stand-alone company or a subsidiary?

The Bank of Italy assesses the soundness of the initiative and the transparency and adequacy of the shareholding structure. If the new PI or EMI belongs to a group, the Bank of Italy assesses the group structure and the ability of the Bank of Italy to perform adequate supervision.

Initial paid-up capital

For a PI, initial paid-up capital must be at least:

• €20,000 where the PI provides only money remittance services (point 6 of Annex I to the PSD);
• €50,000 where the PI provides only payment transaction services and the authorization of the payer is given through a digital or an electronic device;
• €125,000 where the PI provides all the other payment services (point 1 to 5 of Annex I to the PSD).

For an EMI, initial paid-up capital must be least €350,000.

Shareholding structure

The Bank of Italy assesses the suitability of qualified shareholders (i.e. holding at least 10 per cent of shares or voting rights). In order to be suitable, shareholders must be of good repute, proven integrity, possess sufficient knowledge and be financially sound. The integrity requirements are detailed in Decree 144/1998¹ issued by the Minister of the Treasury. The reputation, experience and financial soundness requirements are defined in Disposizioni di vigilanza per gli istituti di pagamento e gli istituti di moneta elettronica (Supervisory regulation for payment institutions and electronic money institutions) issued by the Bank of Italy.

Regarding financial soundness, the Bank of Italy assesses whether the financial situation of the shareholders is sufficiently sound to support the activities of the new intermediary after authorization.

The Bank of Italy also takes into account the degree of influence exerted by shareholders or others persons, and the existence and content of shareholders’ agreements governing the PI’s or EMI’s management. The ownership structure must enable the exercise of effective supervision and ensure the sound and prudent management of the new PI or EMI.

For assessment purposes, the Bank of Italy takes into account links of whatever nature, including family or associational ties, between shareholders and other persons.

Programme of operations

The Bank of Italy assesses whether the activity envisaged by the applicant fits into the legal categories of payment services listed in Annex I of the PSD and does not fall under the negative scope (services that are not considered payment services by the Directive, although they involve the transfer of funds).

Business plan

The Bank of Italy assesses the viability and sustainability of the proposed business plan, having regard to the amount of the initial investment required to create the technical and organizational structure and volumes of business that the PI or EMI proposes to achieve and expected outturns. The Bank of Italy evaluates applicants’ ability to reach and maintain profitability and to comply with the prudential rules during the start-up phase. Applicants are requested to provide a financial plan, including a projected balance sheet and profit and loss account for the base case and worst case scenarios for at least the first three business years, with evidence of their funding profile.

Where appropriate, the Bank of Italy may require that the applicant’s shareholders offer specific financial commitments in order to safeguard the sound and prudent management of the applicant. The origin of the resources used for the acquisition also comes under scrutiny.

Corporate governance structure and management bodies

The Bank of Italy assesses the corporate governance structure in order to verify if it ensures the monitoring of all risks, its consistency with the scale and dimension of the new PI or EMI, the clarity in the allocation of tasks among different corporate bodies and in the relationship with shareholders.

The persons performing administrative, managerial or control functions (including board members and senior managers) must satisfy the experience and integrity requirements by the law and regulations. These requirements are detailed in Decree 161/1998 issued by the Minister of the Treasury and in Disposizioni di vigilanza per gli istituti di pagamento e gli istituti di moneta elettronica (Supervisory regulation for payment institutions and electronic money institutions) issued by the Bank of Italy.

The integrity requirements mainly refer to criminal proceedings, e.g. preventive measures issued by the judicial authorities or conviction to a term of imprisonment of at least one year or two years for the specific crimes indicated in Decree 161/1998.

Board members and senior managers are required to prove that they have specific experience in managerial roles, academic positions, professional or civil servant career posts.

The presence of independent directors is positively evaluated by the Bank of Italy, if it is necessary to reduce the risk of conflicts of interest.

The ban on interlocking directorships, introduced by Article 36 of Law 201/2011, also applies to new PIs or EMIs.

According to Italian law, the assessment falls under the responsibility of the applicant’s corporate bodies, which assess the suitability of the proposed directors: the applicant must submit to the Bank of Italy a copy of the minutes of the meeting in which the verification of suitability took place. The more accurate and motivated the minutes, the less likely it is that the Bank of Italy will request information. Vice versa, in the case of an incomplete assessment by the applicant, the Bank of Italy may conduct its own investigation and require the original documentation (including extracts of official criminal records) to be submitted.

Internal control system

The Bank of Italy evaluates the consistency and the effectiveness of the applicant’s technical, organizational and geographical structure along with its proposed dimension and scale of the activities to be carried out.

The IT system that the PI or EMI adopts must allow for the smooth functioning of its activities and satisfy the supervisory reporting requirements. The IT system must ensure that:

• the PI or EMI is able to monitor, handle and follow up security incidents;
• all pending payment transactions shall be executed in case of termination of the payment services provided;
• access to sensitive payment data of payment service users shall be restricted and constantly monitored by the applicant.

Special attention will be given to the measures put in place in order to safeguard the funds of payment service users or e-money service users, including accounting procedures.

PIs and EMIs can outsource functions, depending upon their operational complexity; the outsourcing contract identifies the minimum guaranteed level of services and ensures the possibility of access for the supervisory authority. In any case, the PI or EMI is ultimately responsible for the outsourced activities.

PIs and EMIs should also ensure compliance with the anti-money laundering provisions adopted in line with the Italian regulations: they should respect the “know your customer” rule and the obligation to report suspicious transactions.

What information should I provide when submitting an application for a stand-alone company or subsidiary?

• copies of instruments of incorporation and bylaws of the newco;
• a programme of operations;
• a business plan;
• governance arrangements and organizational structure report;
• a list of the persons who directly or indirectly participate in the capital of the PI or EMI, with an indication of the shares held; for indirect holdings, an indication of the company through which the capital is held;
• documentation showing that persons directly or indirectly holding a qualifying share of the capital or control of the applicant satisfy the reputation requirements;
• a map of the group the applicant will belong to after obtaining the authorization;
• a depository bank declaration certifying the existence and amount of initial paid-up capital. In case the applicant carries out other business activities not related to the provision of payment services and electronic money services, evidence that it holds segregated assets amounting to the initial paid-up capital;
• a copy of the minutes of the meeting in which the suitability of the managers has been assessed by the board. In case the applicant carries out other business activities not related to the provision of payment services and electronic money services, the assessment regarding the professional experience of the proposed manager shall be limited to the member of the Board responsible for the management of payment services/electronic money services;
• information on the provenance of the funds.

The Bank of Italy also takes account of other information in its possession or in possession of other public authorities, such as the competent supervisory authorities of the foreign countries concerned.

With specific reference to the business plan, Disposizioni di vigilanza per gli istituti di pagamento e gli istituti di moneta elettronica, Chapter II, Section III provides guidelines on its content. In particular, the plan must indicate:

• the different payment services envisaged and the expected volume of transactions;
• the applicant's technical, organizational and geographical structure, its procedures for internal controls and the characteristics of its IT system;
• the projected budget calculation for the first three years of business operation.

With specific reference to the governance arrangements and organizational structure report, this must indicate at least:

• the composition, role, and functioning (also in terms of the allocation of powers) of the management bodies;
• the composition and role of any committees, if established;
• the organizational chart with an indication of the number of full-time employees per unit.

With specific reference to the description of the internal control system, the documentation and information submitted should indicate for each control function (i.e. Risk Management, Compliance, Internal Audit), the:

• role, responsibilities and reporting lines to the board;
• skills of the heads of units;
• number of people allocated to each control function.

The IT infrastructure shall include a description of the back-up facilities, the disaster recovery procedures and the IT structure; the head of the IT unit should also be indicated, along with a description of his or her role, responsibilities and professional skills.

What does the Bank of Italy assess in an application by a branch of a non-EU EMI?

The Bank of Italy authorizes the establishment in Italy of the first branch of a non-EU EMI. In this case, the Bank of Italy assesses the existence of an endowment fund, the business plan and the suitability of the qualified shareholders and the proposed managers of the branch. The application should contain the consent of the home country’s competent authority to carry out electronic money services in Italy, having regard to the adequacy of own funds and the organizational structure.

The Bank of Italy also takes into account its ability to perform adequate supervision, having regard to the applicant’s group, the adequacy of the supervision system of the home country, the existence of memorandum of understanding with the home country’s competent authority and/or the ability of the Bank of Italy to exchange information with the home country’s competent authority.

Endowment fund

The endowment fund must be at least €350,000 for a branch of a non-EU EMI.

Business plan

The Bank of Italy assesses the viability and sustainability of the proposed business plan, having regard to the amount of the initial investment required to create the technical and organizational structure and volumes of business that the branch proposes to achieve and  expected outturns.The Bank of Italy evaluates the applicants’ ability to reach and maintain profitability and to comply with the prudential rules during the start-up phase. Applicants are requested to provide a financial plan, including a projected balance sheet and profit and loss account for the base case and worst case scenarios for at least the first three business years, with evidence of their funding profile.

Branch managers

The branch managers must prove that they meet the same requirement of the directors and managers of Italian PIs or EMIs. These requirements are detailed in Decree 161/1998 issued by the Minister of the Treasury².

Board members and senior managers must prove that they have experience in managerial roles, academic positions, professional or civil servant career posts.

The integrity requirements mainly refer to criminal proceedings, e.g. preventive measures issued by the judicial authorities or conviction to a term of imprisonment of at least one year or two years for the specific crimes indicated in Decree 161/1998.

According to Italian law, the assessment falls under the responsibility of the applicant’s corporate bodies, which assess the suitability of the proposed directors: the applicant must submit to the Bank of Italy a copy of the minutes of the meeting in which the verification of suitability took place. The more accurate and motivated the minutes, the less likely it is that the Bank of Italy will request information. Vice versa, in the case of an incomplete assessment by the applicant, the Bank of Italy may conduct its own investigation and require the original documentation (including extracts of official criminal records) to be submitted.

If the requirements are satisfied by all the board members of the new PI or EMI the application can be approved.

Internal control system

The Bank of Italy evaluates the consistency of the applicant’s technical, organizational and geographical structure with the branch’s complexity, specific operations and scale of the activities to be carried out.

The IT system that the branch adopts must allow for the smooth functioning of its activities and satisfy the supervisory reporting requirements.

Special attention will be given to the measures put in place in order to safeguard the funds of payment service users, including accounting procedures.

Branches should also ensure compliance with the anti-money laundering provisions adopted in line with the Italian regulations. Branches should respect the “know your customer” rule and the obligation to report suspicious transactions.