FAQs - Financial intermediaries under Article 106 of the TUB

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Business scope and applicable regime

What does 'lending in any form' mean?

Lending in any form is regulated by Ministerial Decree 53/2015. By way of example, this includes cash financing, consumer credit, finance leasing, the purchase of performing and non-performing loans, mortgage lending, issuing guarantees and letters of credit, accepting and endorsing claims, undertaking to grant credit, and any other form of guarantee or commitment.

Can financial intermediaries engage in ancillary or related activities?

Yes, financial intermediaries may engage in ancillary or related activities to support or expand their core business.

Ancillary activities are intended to support the core business and include the following:

  1. economic and financial research and analysis;
  2. property management, including buildings and real estate acquired or held for debt recovery purposes, pending its sale;
  3. IT services and data processing;
  4. staff training.

Related activities are intended to expand the core business and include the following commercial and financial operations that are not subject to licensing requirements:

  1. credit reference services;
  2. corporate finance advice (e.g. on the client's financial structure and industrial strategy);
  3. third-party debt collection;
  4. operating lease.

Can financial intermediaries acquire property for business 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 for debt recovery purposes and any other property acquired for pursuing the corporate purpose of the buying entity or of other group entities.

How can registered financial intermediaries pursuant to Article 106 of the TUB be licensed to provide investment services?

Financial intermediaries may offer investment services to the public under Article 18(3) of the TUF, provided that these are related to their core lending business and specifically mentioned in their corporate purpose.

The licensing application, signed by the legal representative, may be submitted at the same time as the application for registration under Article 106 of the TUB.

The application shall list the services for which the intermediary is seeking authorization and shall include the relevant resolution of the strategic oversight board, the explanatory report required by Bank of Italy Circular 288/2015 and the certificate of membership of an investor compensation scheme recognized under Article 59 of the TUF.

The licence shall be deemed to have been granted if the application is not rejected within 90 days of receipt.

What provisions apply to financial intermediaries that are authorized to provide investment or payment services or to issue electronic money?

The following specific supervisory provisions shall apply:

  • for investment services, Bank of Italy Regulation of 5 December 2019 and CONSOB regulation pursuant to Article 6(2) and (2)-quater of the TUF;
  • for payment services and electronic money issuance, Bank of Italy Measure of 23 July 2019.

Can financial intermediaries provide services under Article 106 of the TUB abroad without a new licence?

The regulation of financial intermediaries is not harmonized at European level; therefore, mutual recognition is not allowed at EU level, with the exception of entities controlled by EU banks (see Article 18 of the TUB, only in Italian).

What does a servicer do for the purposes of registration under Law 130/1999 on debt securitization?

Pursuant to Article 2(3)(c) of Law 130/1999, a servicer in securitization transactions collects loans transferred and provides cash and payment services on behalf of the special-purpose vehicle (SPV) as referred to in Article 3 of the same law. Moreover, in accordance with Article 2(6-bis) of said law, the servicer is responsible for verifying the compliance of a securitization transaction with the law and the offering memorandum.

Therefore, servicers perform operational tasks and ensure that securitization transactions are properly executed in the interest of securities holders and the broader market. These functions should be considered holistically.

Law 130/1999 provides an overview of securitized assets and the securitization process, the role of some of the parties involved in a securitization transaction, the transferee's operational limits, and the basic information to be included in the offering memorandum.

The risk profiles of this line of business are covered by a communication of the Bank of Italy on servicers in securitization transactions (only in Italian).

Are securitization special-purpose vehicles (SPVs) required to apply for licensing to the Bank of Italy?

Securitization special-purpose vehicles (SPVs) referred to in Article 3 of Law 130/1999 do not have to apply for licensing. However, they are required to register on a list maintained by the Bank of Italy pursuant to the Bank of Italy Measure of 7 June 2017, which covers disclosure requirements (including general and statistical information) for SPVs pursuant to Regulation (EU) 1075/2013.

The sole purpose of an SPV is to complete one or more loan securitization transactions and to provide a range of services in compliance with Law 130/1999.

For more information, see the dedicated section on our website.

Can a financial intermediary be the parent company of a financial group?

The parent company of a financial group may be a financial intermediary or a financial company that directly or indirectly controls the other group companies. A financial group consists of one or more financial intermediaries, non-EU banks, financial companies and ancillary subsidiaries, and is subject to consolidated supervision.

What is the supervisory regime for registered financial intermediaries under Article 106 of the TUB?

Like banks, registered financial intermediaries 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 conducts 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 their organizational and management arrangements.  On-site inspections are tailored to reflect the profile, size and complexity of each intermediary 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 and the organizational structure report.

What documents should be attached to the application?

The information and documents to be attached to licensing applications are listed in Bank of Italy Circular 285/2013. 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 number of shares held. 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 minimum extent required, 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 the interlocking rules laid down in Article 36 of Decree Law 201/2011;
  9. report on the investment and/or payment services to be provided, where applicable.

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 submission of the licensing application.

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

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

How does the Bank of Italy assess the ownership structure of an intermediary?

When assessing licensing applications from newly-incorporated entities, the Bank of Italy pays particular attention to the financial soundness and the quality of shareholders, in order to make sure that the intermediary 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 the 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 intermediary) 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 the holders of qualifying holdings; 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 the holders of qualifying holdings 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 intermediary's ownership structure will not result in a separate decision on qualifying holdings or follow the procedural aspects laid down in the relevant legislation, but will feed into the preliminary assessments for licensing purposes. 

This analysis 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 on 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.

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 the 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 285/2015. 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 intermediary's operations and its 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 the 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 financial intermediaries' business plans?

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

Shareholders may be required to commit to providing 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 internal 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 the 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 the 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 outsourcing corporate functions 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 recorded in the assessment report.

Can existing companies apply for registration under Article 106 of the TUB?

Existing companies wishing to start a lending business must adopt a resolution to change their corporate purpose and any other provisions in the articles of association, as required. The licensing application shall be submitted after the resolution to change the articles of association is approved and before this change is recorded in the Italian business register.

When does the Bank of Italy deregister an intermediary pursuant to Article 106 of the TUB?

The Bank of Italy shall remove a financial intermediary from the register in cases where 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 request 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 does a financial intermediary's licence lapse?

A licence will lapse if the financial intermediary:

  • expressly renounces it within 12 months of its issue;
  • has not started operations within 12 months of licensing.

A limited extension, normally not exceeding six months, may be granted for cause at the request of the intermediary, to be submitted at least 60 days before the 12-month time limit expires.

Once a licence has lapsed, the Bank of Italy shall deregister the intermediary. The intermediary will be required to change its corporate purpose.

Under what conditions is a licence withdrawn?

Without prejudice to the cases of licence withdrawal permitted by law, the Bank of Italy shall deregister a financial intermediary and withdraw its licence if it finds that the intermediary has not engaged in business for more than 18 consecutive months.

The licence shall be withdrawn in accordance with Article 113-ter of the TUB if the financial intermediary has assets from operations referred to in Article 106(1) of the TUB. In all other cases, the corporate purpose must be amended.