Business scope and applicable regime

Can registered loan guarantee schemes pursuant to Article 106 of the TUB acquire property for corporate use?

Yes, they can acquire buildings to be used as part of their financial operations, including office space, housing units to be rented to employees, real estate to be held only temporarily for debt recovery purposes, and any other property acquired for pursuing the corporate purpose of the buying entity or of other group entities.

It is understood that loan guarantee schemes can rent out any real estate assets acquired before registering pursuant to Article 106 of the TUB.

What is the supervisory regime for loan guarantee schemes registered pursuant to Article 106 of the TUB?

Like banks, registered loan guarantee schemes under Article 106 of the TUB are subject to prudential supervision in order to protect financial stability and ensure the sound and prudent management of supervised entities. In accordance with the principle of proportionality, the supervisory regime reflects the complexity and size of each organization, as well as the nature of its operations.

The Bank of Italy performs its supervisory role with due regard for the entrepreneurial nature of the supervised entities, which are free to choose their own strategies, organizational models and investment policies in compliance with the prudential regulatory framework.

The Bank carries out analysis and takes measures to promptly identify any signs of potential anomalies in the intermediaries' technical/organizational structures and urges them to take appropriate corrective measures.  It performs both documentary checks - based on the collection, processing and systematic analysis of a set of statistical, accounting and administrative information - and on-site inspections to confirm the quality and accuracy of the data provided by intermediaries and to have a better understanding of organizational and management aspects.  On-site inspections are tailored to reflect the profile, size and complexity of each supervised entity and focus on material risks, corporate governance and internal audit. 

Controls cover all operations, with a focus on the soundness of organizational structures, the quality of risk management and risk mitigation, capital adequacy in the event of losses, fairness and transparency vis-à-vis customers.

Licensing

Is there an application form?

There is no standard form. However, Bank of Italy Circular 288/2015 lists the documents to be attached to the application and includes templates for the proposed business plan, the organizational structure report and fact sheets.

What documents should be attached to the application?

The information and documents to be submitted with the licensing application are listed in Bank of Italy Circular 288/2015. As a rule, the following documents are required:

1. memorandum and articles of association;
2. business plan and organizational structure report;
3. list of direct and indirect shareholders, with the values of their holdings. For indirect holdings, the entity through which the interest is held must be specified;
4. evidence that the direct and indirect qualified shareholders meet all requirements;
5. group chart;
6. proof of payment of capital contributions to the extent required by law, issued by the head office of the bank with which the payment was made;
7. information on the origin of the money used to pay capital contributions;
8. fit and proper certificates for members of the management body, including with reference to interlocking rules laid down in Article 36 of Decree Law 201/2011;

The application shall also attach the following:

• evidence of compliance with the minimum business volume requirement for the six months following the end of the last financial year. This statement must refer to public documents (e.g. statement of accounts as at the end of the half year following the end of the financial year for which the requirements have been verified) or to internal accounting records;
• a breakdown of financial assets, as per the template provided for in Bank of Italy Circular 288/2015;
• details of operations, as per the template provided for in Bank of Italy Circular 288/2015.

Depending on their situation and business model, applicants may be required to produce additional documents for preliminary assessments (e.g. an expert analysis for any contributions in kind). 

The documents referred to in points d), g) and h) must be no older than 6 months prior to the date of the licensing application.

What should the corporate purpose clause read in the articles of association?

The corporate purpose clause shall list the applicant's business operations, with no mention of any financial services that it does not offer or intend to offer within the time horizon covered by the business plan.

How does the Bank of Italy assess the ownership structure of a loan guarantee scheme registered under Article 106 of the TUB?

When assessing licensing applications from newly set-up loan guarantee schemes, the Bank of Italy checks that their members comply with the provisions of Article 13 of Decree Law 269/2003, including with regard to membership and capital contribution requirements. Furthermore, for holders of qualifying holdings (i.e. investors that hold at least 10 per cent of the shares or voting rights or can exercise a significant influence over the scheme), the Bank of Italy pays particular attention to their financial soundness and quality, in order to make sure that the loan guarantee scheme will be able to manage start-up risks and, in the event of a crisis, to minimize the costs associated with value destruction.

For this purpose, the Bank of Italy will assess the quality of qualified shareholders and the financial soundness of the business plan, based on the following criteria: the good repute, ethics, professionalism and expertise of those who, as a result of the acquisition of a qualifying holding, will perform administrative and management functions in the organization; the financial soundness of qualified shareholders; the intermediary's ability to comply with the provisions governing its business following the acquisition of a qualifying holding; the suitability of the group structure of qualified shareholders for the purposes of effective supervision; no grounds to suspect that the acquisition is associated with money laundering or terrorist financing.   These assessments are carried out in line with the provisions of Article 19 of the TUB and the Bank of Italy Measure of 26 July 2022.

The analysis of the applicant's ownership structure will not result in a separate decision on qualifying holdings or follow the procedures laid down in the relevant legislation, but will feed into the preliminary assessment for licensing.   

This assessment is carried out based on the information and documents produced in accordance with the Bank of Italy Measure of 26 October 2021.

How does the Bank of Italy assess corporate governance and members of the management body?

The Bank of Italy will assess the intermediary's governance structure for risk management capabilities, consistency with the prospective business scope and size, and transparency in the allocation of tasks among corporate boards and in investor relations.

In addition, the Bank of Italy will conduct fit and proper (F&P) assessments of corporate officers in administrative, management and auditing functions, which is key to ensure sound and prudent management.

Members of the management body must meet all fit and proper requirements (e.g. professionalism, integrity, independence, expertise and fairness).

F&P assessment rules are laid down in Article 26 of the TUB (only in Italian) and in Ministerial Decree 169/2020 (only in Italian).

Financial intermediaries are responsible for identifying fit and proper corporate officers and for ensuring that the appointees meet F&P requirements and criteria throughout their term of office.

Members of the management body must also comply with interlocking rules laid down in Article 36 of Decree Law 201/2011.

What should be included in the business plan?

The content of the business plan is covered by Bank of Italy Circular 288/2015.  The document, to be drawn up by the directors based on the complexity and size of the organization, as well as the nature of its operations ('principle of proportionality'), must contain:

• an overview of the applicant's operations and prospective business lines;
• a description of its technical and organizational structure, internal control system and IT system;
• provisional budgets for the first three financial years showing investment amounts, expected financial results, and compliance with prudential requirements for the first three years of operation, both in a baseline scenario and in an adverse (i.e. stress) scenario.

How does the Bank of Italy assess an applicant's business plan?

The Bank of Italy will assess applicants' business plans for: a) sustainability, taking into account the required start-up investment and prospective business volumes; b) compliance with all capital requirements since inception.

Shareholders may be required to commit to provide financial support to the company for business development purposes or in the event of financial distress.

What should be included in the organizational structure report?

The organizational structure report, to be drafted in accordance with Bank of Italy Circular 288/2015, shall include at least the following:

• composition, role and functioning of corporate bodies;
• composition and role of any committees;
• rules on conflict-of-interest and compensation policies;
• risk appetite framework;
• credit and finance regulations;
• organizational chart with the number of resources allocated to each unit.

With reference to the description of the internal control and risk management system, the documents to be submitted must specify, for each control function:

• roles, responsibilities and reporting lines;
• responsibilities of function heads;
• number of persons allocated to each unit;
• annual internal audit plan.

Where corporate functions (processes, services or operations) are outsourced, applicants must submit evidence that these arrangements will not prevent the intermediary from complying with legal requirements, affect customer relationships, reduce the quality of the internal control system or hinder supervision. Please refer to the FAQ on this specific point.

The report shall include the regulations on key corporate processes (e.g. internal regulation, credit regulation).

What information should be provided when corporate functions are outsourced?

Intermediaries can outsource corporate functions (processes, services or operations), including core functions, provided that these arrangements do not prevent the intermediary from complying with legal requirements, affect customer relationships, reduce the quality of the internal control system or hinder supervision.

Supervisory provisions require intermediaries to adopt specific corporate policies to ensure that the outsourced functions are performed properly, the internal control system works smoothly and external providers' operations are regularly monitored. Applicants outsourcing any corporate functions are required to include the following information, in accordance with the EBA/GL/2019/02 Guidelines:

• a brief description of outsourced operations;
• the names of external providers, together with a Board of Directors assessment - for core operations only - of their suitability, both in qualitative and quantitative terms, also considering any other outsourcing contracts they may have with other intermediaries;
• the corporate outsourcing policy document setting out the following basic information, in line with the principle of proportionality: i) the decision-making process for outsourcing corporate functions; ii) the basic content of outsourcing contracts and the expected service levels for outsourced operations; iii) how outsourced functions are monitored; iv) internal information flows intended to ensure the full understanding and governance of the risk factors associated with outsourced functions; v) contingency plans for providers' failure to perform outsourced operations properly;
• a summary of the outsourcing contract for core operations specifying the parties' main rights and obligations; the expected service levels, in objective and measurable terms, and the service performance metrics; any conflicts of interest and the corresponding mitigation measures; the contract duration and renewal terms, as well as the mutual obligation provisions for contract termination;
• a description of the measures taken, including organizational measures, to ensure ongoing monitoring of outsourced operations. The document should also specify the internal resources designated as outsourcing managers, whose professional profiles should be in line with this position.                  

Intermediaries using outsourced services are required to oversee the risks arising from outsourcing decisions, keep control of and remain responsible for outsourced operations, and retain the technical and management skills required to backsource them. It is understood that corporate boards and the heads of outsourced functions will remain responsible for the overall performance of those operations.

Can the Bank of Italy run specific checks on applicants as part of the licensing process?

The Bank of Italy may order an assessment of the overall viability of an applicant's corporate structure and check the existence and amount of its capital. For this purpose, it may use its own inspectors or request a third-party appraisal. Depending on the applicant's line of business, the Bank may highlight additional points to be assessed and covered in the assessment report.

When does the Bank of Italy deregister a loan guarantee scheme pursuant to Article 106 of the TUB?

The Bank of Italy shall remove a financial intermediary from the register if its licence is withdrawn or has lapsed. 

Likewise, financial intermediaries will be deregistered in the event of voluntary dissolution or change of corporate purpose. In such cases, the application for cancellation shall be sent to the Bank of Italy by the company or its liquidators within 10 days of the corresponding decisions being entered into the business register.

Under what conditions is a licence withdrawn?

Without prejudice to the cases of licence withdrawal permitted by law, the Bank of Italy shall withdraw the licence granted to a loan guarantee scheme if it finds that its business volume has been lower than €150 million for at least three consecutive financial years. Should this condition materialize, the legal representative of the loan guarantee scheme will be required to inform the Bank of Italy. This communication shall attach evidence of the changed business situation and a plan to dispose, over a period not longer than 12 months, of any balance sheet assets resulting from operations that cannot be legally performed by registered loan guarantee schemes pursuant to Article 112 of the TUB. 

When a loan guarantee scheme loses its licence because it longer meets the size requirements, it will be registered ex officio with Organismo dei Confidi Minori.