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Italy: Updated Legislation on Credit Entities and on Strengthening of Bank of Italy

(July 17, 2015) On June 27, 2015, new legislation on the supervision of credit entities and on the strengthening of the country’s central bank, Decree-Law No. 72, entered into effect in Italy. (Decree-Law No. 72 of May 12, 2015, Implementation of EU Directive 2013/36, That Amends Directive 2002/87/CE and Repeals Directives 2006/48/CE and 2006/49/CE, Concerning Access to Activities of Credit Entities and the Prudential Supervision of Credit Entities and Investment Firms. Amendment to Legislative Decrees No. 385 of September 1, 1993, and No. 58 of February 24, 1998 [D.L. No. 72], GAZETTA UFFICIALE [G. U.] No. 134 (June 12, 2015), NORMATTIVA (in Italian).)

Compliance with EU Directives and Transparency

Decree-Law No. 72 extensively amends the existing regulations covering government supervision of credit entities. In particular, the new legislation grants powers to the existing government agencies that deal with lending institutions to ensure that those institutions comply with the applicable European Union legislation. (D.L. No. 72, art. 1(3).) The new Law charges the Italian central bank, the Bank of Italy, with the duty of publishing on its website all general and specific provisions and measures relevant to the regulated financial entities. (Id. art. 1(5).)

Criteria in Connection with Authorizing Acquisition of a Credit Entity

The new legislation spells out the criteria to be taken into consideration by the Bank of Italy before issuing authorization for the private ownership transfer of a credit entity. This process generally occurs when guarantees are given that a “healthy and prudent management” of the respective entity will be in place. (Id. art. 1(10)(a).) Specifically, D.L. No. 72 lists the following criteria that the Bank of Italy must consider:

• the reputation on the part of the entity’s proposed acquirer for being in a solid financial situation and having good management;

• the suitability of those who will perform managerial and control functions;

• the ability of the acquired bank to comply with the norms that will apply to it after the acquisition; and

• the suitability of the corporate structure of the potential acquirer to provide efficient performance of its oversight responsibilities. (Id.)

The authorization must be denied in cases in which the proposed new controller of an institution has a record of money laundering or terrorism financing. (Id.)

Shareholder-Related Requirements

The new legislation adds requirements of “honorability, competence, and fairness” for those individuals and corporate entities interested in acquiring shareholding positions with voting rights higher than 5% of the concerned bank’s capital and, independently of that limit, when the acquisition of shares involves the control of the bank involved. (Id. art. 1(12)(1).) The Ministry of the Economy and Finance is charged with establishing, via decree, the particular requirements to meet each of the criteria set by Decree-Law No. 72. (Id. art. 1(12)(2).) The legislation imposes the same ethical requirements on those who perform administrative and control functions at banking institutions. (Id. art. 1(13)(1) & (2).) The Minister may also determine the cases in which the requirements and criteria of suitability are applied to persons exercising crucial corporate roles in the larger banks of the country, regardless of whether they own 5% or more of the shares. (Id. art. 1(13)(4).)

Powers of Intervention and Supervision

The legislation establishes reinforced intervention powers for the Bank of Italy with regard to regulated financial institutions. These powers include:

• summoning administrators and other managers to investigative meetings;

• calling into session the collegiate organs of a bank;

• applying restrictions on banking activities or on the territorial structure of a bank (i.e., closing or opening branches, or modifying or consolidating the territorial scope of the existing branches of banks); and

• redistributing assets, among other measures aimed at maintaining the financial equilibrium of the respective bank. (Id. art. 1(13)(20).)

Other enhanced authorities include the right to hold inspections of banks or certain individuals with corporate responsibilities (id. art. 1(13)(21) & (29)) and the power to remove all of the members of a company’s board. (Id. art. 1(13)(30) & (33).) In addition, the Bank of Italy enjoys supervisory powers over the branches of European banks located within Italian territory and, in urgent cases, may adopt provisional measures to protect the rights of depositors, savers, or other banking customers. (Id. art. 1(13)(22) & (31).) The Decree-Law makes regulated financial entities subject to increased pecuniary penalties in cases of violation of its provisions. (Id. art. 1(13)(47).)

Finally, the Bank of Italy is designated as the Resolution Authority responsible for ensuring Italy’s compliance with Directive 2014/59/EU on the framework for recovery of financial institutions. (Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014, Establishing a Framework for the Recovery and Resolution of Credit Institutions and Investment Firms, EUR-LEX; D.L. No. 72, art. 3(1).) The Bank of Italy is therefore granted broad powers for the adoption of measures aimed at maintaining the stability of financial institutions within Italy; these powers include, among others, the power to remove corporate officers and the entire board of a corporation. (Id. art. 3(5), (10) & (19).)