How to start a banking business in Italy

How can I start a banking business in Italy?

Anyone can take up the business of a credit institution 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 the applicable prudential requirements.

Foreign banks may also offer banking services in Italy:

1. through a branch;
2. without a permanent establishment.

1. A branch is an extension of the credit institution to which it is affiliated, i.e. it is not treated as a separate legal entity for regulatory purposes. The establishment in Italy of the first branch of a non-EU bank is authorized by the Bank of Italy, after consulting the Ministry of Foreign Affairs and International Cooperation and taking due account of the conditions of reciprocity between the home and host countries. The procedure is much smoother for EU-banks: operating in Italy through a branch does not require authorization by the Bank of Italy, just notification from the home competent authority.

2. The provision of services without any permanent establishment in Italy by non-EU banks is authorized by the Bank of Italy. The procedure is much smoother for EU-banks: operating in Italy under the freedom to provide services does not require authorization by the Bank of Italy, just notification from the home competent authority.

Which activities can I carry out?

As a bank you can:

• take deposits or other repayable funds from the public and grant credits for your own account;
• provide investment services, if you have requested and been authorized to do so;
• provide payment services;
• issue electronic money.

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 new banks 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. You can submit a request for a meeting to submitted to the Bank of Italy, Regulations and Macroprudential Analysis Directorate, New Banks and Financial Intermediaries Division.

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 bank belongs to a group, the Bank of Italy assesses the group structure, the location of the foreign group members, the adequacy of its supervision, group members and, where applicable, the ability of the Bank of Italy to perform adequate consolidated supervision.

Initial paid-up capital

Initial paid-up capital must be at least € 10 million for a stand-alone company (in the legal form of Società per azioni) or for a subsidiary. A shareholder can borrow the funds to make the initial capital subscription. However, the Bank of Italy may require a higher level of initial capital where the bank's own funds are insufficient in relation to the planned scale and scope of the business or if the capital adequacy ratios are likely to be breached in the future. In addition, under the current regulation, where the initial capital includes contributions in kind these may not exceed three-tenths of the total amount of capital.

The provenance of the funds is also verified.

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 144/1998 issued by the Minister of the Treasury. The reputation, experience and financial soundness criteria are defined and assessed on the basis of European guidelines.

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 bank 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 bank's management. The ownership structure must enable the exercise of effective supervision and ensure the sound and prudent management of the new bank.

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

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, to the volumes of business that the bank proposes to achieve, and to expected outturns. The Bank of Italy evaluates applicants' ability 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 accounts 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 financial commitments in order to safeguard the sound and prudent management of the bank. 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, it is consistent with the operations and the dimension of the new bank, it is clear in the allocation of tasks among different corporate bodies and in the relationships with shareholders.

The persons performing administrative, managerial or control functions - including board members and senior managers - must satisfy the fit and proper criteria:

• knowledge, skills and experience;
• reputation;
• conflicts of interest;
• time commitment;
• collective suitability of the board.

a) The experience and integrity requirements are detailed in Decree 161/1998 ¹ issued by the Minister of the Treasury. 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 must prove that they have specific experience in managerial roles, academic positions, professional or civil servant career posts.

b) The other requirements are assessed on the basis of ECB Guide on fit and proper assessment.

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

• copies of the instruments of incorporation and bylaws of the applicant;
• a business plan;
• governance arrangements and organizational structure reports;
• a list of the persons who directly or indirectly participate in the bank's capital, 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 bank satisfy the reputation requirements;
• a declaration by the depository bank certifying the existence and amount of the initial paid-up capital;
• information on the provenance of the funds;
• a map of the group the new bank will belong to after obtaining authorization;
• a copy of the minutes of the meeting in which the suitability of the managers was assessed by the board;
• a description of any investment services that the new bank intends to provide.

The Bank of Italy also takes account of other information in its possession - such as supervisory records and the Central Credit Register (CCR) - or held by other public authorities, such as the competent supervisory authorities of the foreign countries concerned.

With specific reference to the business plan, Part 1, Title 1 of Circular No. 285/2013 provides guidelines on its content. In particular, the plan must include the following:

• the bank's proposed sectors of activity, operations and services;
• its technical, organizational and geographical structure, its procedures for internal controls and the characteristics of its IT system;
• the budgets for the first three years of business operation.

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

• composition, role, functioning (also in terms of the allocation of powers) of the management bodies;
• composition and role of any Committees, if established;
• policy on conflicts of interest and remuneration;
• risk appetite framework (RAF); internal capital adequacy assessment process (ICAAP) and internal liquidity adequacy assessment process (ILAAP);
• credit and financing policies;
• 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 and risk management framework, 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;
• audit annual plan.

The IT infrastructure and business continuity plan shall include a description of the back-up facilities, the disaster recovery procedures and the IT structures; 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 the case of an application to open a branch?

In the case of an application for the establishment of a branch of a non-EU bank, the Bank of Italy assesses the existence of an endowment fund, the business plan and the suitability of the proposed managers of the branch. The application should contain the home competent authority's approval to undertake banking business 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 a Memorandum of Understanding with the home country competent authority and/or the ability of the Bank of Italy to exchange information with the home competent authority, and the existence of a condition of reciprocity.

Endowment fund

The endowment fund must be at least € 10 million for a branch of a non-EU bank. The Bank of Italy may require a higher level of initial capital where the bank's own funds are insufficient in relation to the planned scale and scope of business or if the capital adequacy ratios are likely to be breached in the future.

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, to the volumes of business that the bank proposes to achieve, and to expected outturns. Applicants are requested to provide a financial plan, including a forecast balance sheet and profit and loss accounts projections for the base case and worst case scenarios for at least the first three business years, with evidence of their funding profile.

The Bank of Italy also authorizes the provision of investment services, having consulted CONSOB (the supervisory authority for the Italian financial products market). To this end, the Bank of Italy assesses the adequacy of the organizational structure of the branch to ensure sound and prudent management and compliance with the applicable legal framework.

Branch managers

The proposed branch managers must prove that they meet the same requirements of the directors of an Italian bank.

Therefore, according to CRD IV, they must satisfy the fit and proper criteria:

• knowledge, skills and experience;
• reputation;
• conflicts of interest;
• time commitment;
• collective suitability of the board.

The experience and reputation requirements are detailed in Decree 161/1998² issued by the Minister of the Treasury. The reputation 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. Branch managers must prove that they have specific experience in managerial roles, academic positions, professional or civil servant career posts.

At present the other criteria are not detailed in a Decree; in the meantime the assessment is conducted on the basis of ECB Guide on fit and proper assessment.

According to Italian law, the assessment falls under the responsibility of the applicant's corporate bodies, which assess the suitability of the proposed managers of the branch: 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 suitability requirements have already been assessed by the home competent authority, the bank of Italy shall not carry out the assessment.

Organizational structure and internal control system

The Bank of Italy evaluates the consistency of the branch'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 permit the smooth functioning of its activities and satisfy the supervisory reporting requirements.

Branches 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 branch and the branch managers are ultimately responsible for the outsourced activities.

Branches should also ensure compliance with the anti-money laundering provisions adopted in line with the Italian regulation. Branches should respect the "know your customer" rule and the obligations to report suspicious transactions.

What information should I provide when submitting an application to establish a branch?

• instruments of incorporation and the bylaws of the bank wishing to establish a branch;
• a business plan of the branch, including a description of any investment services it intends to provide;
• last three financial statements of the bank, with a map of the branches and subsidiaries and a description of the activities carried out in different countries;
• a copy of the minutes of the meeting in which the suitability of the managers of the branch was assessed by the board;
• statement by the home authority about the financial soundness of the bank and its group and about the adequacy of its organizational structure;
• home authority's approval of the establishment of the branch;
• a declaration by the depository bank certifying the existence and amount of the initial paid-up capital of €10 million;
• name of the depositors guarantee scheme to which the branch will adhere.

What does the Bank of Italy assess in the case of an application for the provision of services without a permanent establishment?

The Bank of Italy takes into account its own 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 a Memorandum of Understanding with the home country competent authority and/or the ability of the Bank of Italy to exchange information with the home competent authority, and existence of a condition of reciprocity.

The application should contain the home competent authority's approval to undertake banking business in Italy, having regard to the adequacy of own funds and organizational structure. The activities to be provided in Italy should already be carried out in the home country.

The Bank of Italy may impose constraints on the collection of deposits from the public.

The Bank of Italy also authorizes the provision of investment services, having consulted CONSOB.

What information should I provide when submitting an application for the provision of services without a permanent establishment?

• a business plan, including a description of any investment services that the bank intends to provide;
• statement by the home authority about the financial soundness of the bank and its group and the adequacy of its organizational structure;
• home authority's approval of the business initiative.

What's life like as a new bank in Italy?

The ECB and the Bank of Italy are jointly responsible for maintaining financial stability in the banking sector, drawing on their powers and fulfilling their duties arising under EU and national law to oversee individual intermediaries and the financial system as a whole.

In essence, the ECB is responsible for supervising Italian banks and banking groups to varying degrees based on their importance. On a practical level, the ECB focuses on 'significant' Italian banking groups, identified according to specific criteria. 'Less significant' Italian banks and banking groups are supervised directly by the Bank of Italy, which provides harmonized supervision shaped by the general policies and instructions issued by the ECB. The Bank of Italy has retained full autonomy in the fields of: consumer protection, efforts to combat money laundering and terrorist financing, monitoring of payment services and markets in financial instruments, and the supervision of non-banking entities and the Italian branch offices of non-EU banks.

The controls applied take due regard of the entrepreneurial nature of the supervised entities, which autonomously establish their own strategies, organizational models and investment policies within the framework of a system of general prudential rules.

The Bank of Italy's supervisory activity includes analysis of the supervised entities and the adoption of measures designed to promptly uncover anomalies in technical and organizational structures with a view to advising on the appropriate corrective actions. These controls regard all aspects of their operations and focus on the coherence of organizational structures, the quality of management, risk control, capital adequacy with respect to any losses, and transparency and fairness towards customers.

To safeguard the integrity of the financial system and to prevent illegal practices, the Bank of Italy carries out specific controls in accordance with anti-money-laundering and usury regulations.

This is done through the evaluation of documents (based on the gathering, processing and systematic analysis of statistical, accounting and administrative data) and on-site inspections at intermediaries' offices to verify the quality and accuracy of the data submitted and to gain a better understanding of the bank's organization and operations. Inspections are tailored to the characteristics, size and complexity of the intermediary being monitored and focus on material risks, governance and internal controls.

How can I keep up to date with regulatory information?

The Bank of Italy's website includes the latest news and publications. In the specific section dedicated to Banking and Financial Supervision, you can find regulatory and policy publications, which you can search for by sector, year and type of publication. You can also subscribe to the Bank of Italy's newsletter to keep up to date on all the latest regulatory news and to be notified of new publications.

The Bank of Italy also informs all established banks in Italy of any developments of the legal framework that could have an impact on their daily operations.