Brexit: Law Decree Approved Bearing Urgent Measures To Guarantee Financial Stability And Market Integrity

Corporate Alert | April.09.2019

Italiano: Brexit: al via il decreto legge recante misure urgenti per garantire la stabilità finanziaria e l'integrità dei mercati

On 20 March 2019, the Italian Council of Ministers approved a legislative decree introducing urgent measures to guarantee financial stability and market integrity in the event of withdrawal of the United Kingdom of Great Britain and Northern Ireland ("United Kingdom" or "UK") from the European Union without a deal (i.e. no-deal Brexit or hard Brexit).

This bridging solution is aimed at protecting the interests of depositors, investors and policyholders should the United Kingdom fail to ratify withdrawal agreements with the European Union.

Law Decree 22 of 25 March 2019 was published on the Italian Official Gazette no. 71 of 25 March 2019, and entered into force on 26 March 2019 (the "Decree"). The Decree will be effective as from the date of withdrawal of the United Kingdom scheduled for next 12 April or 22 May, depending on the outcome of the vote that the English Parliament will once again be called upon to cast ("Withdrawal Date").

Starting from the Withdrawal Date, an 18-month transition period (the "Transition Period") - not 21 months as originally expected in line with the draft withdrawal agreement between the United Kingdom and the European Union - will begin so to allow UK and Italian operators to comply with the new market scenario.

In accordance with the European Commission's communication of 13 November 2018 - COM(2018) 880 final - and to the regulatory measures adopted by the same Commission last December, the Decree's objective is to ensure the operating continuity of financial operators in the event of a hard Brexit, laying down specific provisions based on the type of regulated business (banking, financial and insurance) aimed at regulating conditions so that British banking, financial and insurance intermediaries operating in Italy and Italian ones operating in the United Kingdom can continue to operate during the Transition Period. 

UK Intermediaries allowed to continue their operations in Italy during the Transition Period 

During the Transition Period, UK banks admitted to mutual banking recognition pursuant to Art. 1, para. 2, lett. f) of Law Decree 385, 1 September 1993 (Italian Consolidated Law on Banking - "TUB") that provide services in Italy (having established a branch or acting through a cross-border basis  - libera prestazione di servizi, "LPS"), may continue to do so in Italy subject to filing a prior notice with the Bank of Italy within three business days prior to the Withdrawal Date. 

In partial derogation to the foregoing, during the Transition Period, UK banks that provide savings collection services in Italy in LPS may continue their activity limited to the relationships existing before the Withdrawal Date; they may in no way, however, enter into new relationships or renew existing ones, and will need to file a prior notice with the Bank of Italy.

UK investment firms and UK banks providing investment services in Italy in LPS may, during the Transition Period, continue their activity solely vis-à-vis professional (private or public) clients and qualified counterparties, subject to filing a prior notice with the competent national authorities (i.e. Consob and Bank of Italy). However, in order to ensure continuity, during the Transition Period the same operators may continue - regardless of customer classification - managing transactions pertaining to OTC derivatives not subject to clearing, in place as of the Withdrawal Date. Also in this last case, operational activity is subject to filing a prior notice with the competent Italian supervisory authorities.

UK investment firms and UK banks providing investment services in Italy through an establishment (with branch) may continue their operations during the Transition Period vis-à-vis each customer category (retail, professional, qualified counterparty), subject to filing a prior notice with the competent national authorities (i.e. Consob and Bank of Italy).

UK investment firms and UK banks operating in Italy (both through establishment and in LPS) authorized, as of the date of the Decree's entry into force, to participate in government bond auctions, may continue to carry out banking and investment services for which they were authorized without the need to notify the Italian supervisory authorities. However, in the event the UK banks collect savings in Italy, they will need to notify the Bank of Italy.

E-money institutions of the United Kingdom which have already established a branch in Italy will be allowed to continue their activity during the Transition Period, subject to filing a prior notice with the Bank of Italy.

If UK operators - UK banks, UK investment firms operating in Italy through a branch or in LPS, and UK e-money institutions operating in Italy through a branch - intend to continue their respective activities in Italy after the Transition Period, they will need to apply within six months from the date of commencement of the Transition Period ("Term for the Application") for authorization to carry out their activities having established a branch or in LPS, according to the provisions currently applicable to third-country banks, third-country investment firms and third-country e-money institutions. As an alternative, they may also apply with the Italian supervisory authorities for the incorporation of an Italian intermediary no later than the Term for the Application.

If the UK banks, UK investment firms and the previously-mentioned UK e-money institutions fail to notify the competent Italian supervisory authorities - within three business days prior to the start date of the Transition Period – of their intention to continue operations during the Transition Period, they will proceed with the orderly termination of operations in Italy within a grace period that will end in the following six months commencing from the Withdrawal Date. Furthermore, if the same subjects do not start the authorization procedure as third-country operators or as Italian supervised intermediaries by the Term for the Application, they will have a grace period to cease activities in Italy within the six months following the expiry of the Term for the Application.

Both in the event of failure to notify or start the authorization procedure as a third-country operator or national within the terms stated above, the same UK operators will be required to communicate to their clients, to the other parties with whom they hold contractual relationships for the provision of services and to the competent authorities, what measures they have adopted for the orderly disposal of their activities.

However, UK banks or UK investment firms, even in the absence of the required notice to the Italian supervisory authorities to provide services during the Transition Period, will be able to manage transactions relating to OTC derivatives not subject to clearing, in place as of the Withdrawal Date, during the six months following the Withdrawal Date. Furthermore, if the same operators do not submit an application to regulate their activity within the Term for the Application, they may continue managing transactions relating to OTC derivatives in the grace period of six months following the expiry of the aforementioned Term for the Application.

Following is a summary of the activities allowed to the above-stated intermediaries during the Transition Period.
 

 

UNITED KINGDOM BANKS

UNITED KINGDOM INVESTMENT FIRMS

UNITED KINGDOM E-MONEY INSTITUTIONS

TYPE OF ACTIVITY

LPS ON WITHDRAWAL DATE

LPS ON WITHDRAWAL DATE

LPS ON WITHDRAWAL DATE

ESTABLISHMENT THROUGH BRANCH ON WITHDRAWAL DATE

LPS ON WITHDRAWAL DATE

ESTABLISHMENT THROUGH BRANCH ON WITHDRAWAL DATE

Activities admitted for mutual banking recognition (Art. 1, para. 2, lett. f) TUB))

They will be able to carry out the same activities, subject to filing a prior notice* with the Bank of Italy.

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Savings collection

They will be able to carry out savings collection limited to what is necessary for the management of the relationships established before the Withdrawal Date, and without the possibility of entering into new contracts, or (tacitly) renewing existing ones.

They will be able to carry out the same activities, subject to filing a prior notice* with the Bank of Italy.

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Investment services and activities with or without additional services

CAUTION
They will be able to continue their activities solely vis-à-vis qualified counterparties and professional clients.

They will be able to carry out the same activities, subject to filing a prior notice* with the Bank of Italy.

CAUTION
They will be able to continue their activities solely vis-à-vis qualified counterparties and professional clients.

They will be able to carry out the same activities, subject to filing a prior notice* with Consob.

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Issuing electronic money

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CAUTION

They will be able to carry out the same activities, subject to filing a prior notice* with the Bank of Italy.

*Notice to the competent authorities, Bank of Italy or Consob, is filed within the 3 business days preceding the scheduled date for withdrawal. Regulatory provisions were adopted by Consob (Consob notice no. 7 of 26 March 2019) and Bank of Italy (Bank of Italy notices of 27 March 2019) to implement the provisions of the Decree regarding the procedure to notify the competent supervisory authorities.

 
UK Intermediaries not allowed to continue their operations in Italy during the Transition Period

UK payment institutions operating in Italy through a branch or in LPS, UK fund managers and UK UCIs providing business in Italy through a branch or in LPS, e-money institutions providing business in Italy in LPS will be required to cease operations by the Withdrawal Date.

UK banks and UK investment firms operating in Italy in LPS will not be able to provide investment services to retail and/or professional (private or public) clients upon request starting from the Withdrawal Date. Within the six months following the Withdrawal Date, these operators will therefore terminate existing contractual relationships with their clients, without prejudice to the prohibition to enter into new relationships and renew existing ones. Within 15 days from the Decree's date of entry into force, the same UK operators will then communicate to their clients, to the other parties with whom they have contractual relationships for the provision of services and to the competent authorities, what measures they have adopted for the orderly termination of activities.

Finally, UK insurance companies operating in Italy having established a branch or in LPS, and insurance and reinsurance intermediaries that, as of the Withdrawal Date, operate having established a branch or in LPS will cease their activities and will be deleted from the relevant registers under Legislative Decree 209, 7 September 2005 ("CAP").

Following is a summary of this paragraph's provisions.
 

UNITED KINGDOM PAYMENT INSTITUTIONS

UNITED KINGDOM FUND MANAGERS

UNITED KINGDOM UCIS

UNITED KINGDOM BANKS WHICH LEND INVESTMENT SERVICES TO RETAIL CUSTOMERS AND PROFESSIONAL CUSTOMERS ON REQUEST IN LPS

UNITED KINGDOM INVESTMENT FIRMS WHICH LEND INVESTMENT SERVICES TO RETAIL CUSTOMERS AND PROFESSIONAL CUSTOMERS ON REQUEST IN LPS

UNITED KINGDOM E-MONEY INSTITUTIONS IN LPS

UNITED KINGDOM INSURANCE COMPANIES IN LPS OR WITH BRANCH

UNITED KINGDOM INSURANCE INTERMEDIARIES, ALSO ON AN ANCILLARY BASIS, OR REINSURANCE IN LPS OR WITH BRANCH

CAUTION
Termination of activities by the Withdrawal Date.

CAUTION
Cancellation from the register of EU companies under Art. 26 CAP as of the Withdrawal Date.

CAUTION
Cancellation from the register annexed to the Register of intermediaries under Art. 109, para. 2 CAP as of the Withdrawal Date.

Operations necessary for the orderly termination of existing relationships as soon as possible, and in any case no later than 6 months from the Withdrawal Date, go unprejudiced, with observance of the terms of notice for the termination of the contracts.

Within 6 months, the subjects continue the activity carried out before the Withdrawal Date, limited to the management of existing relationships as of the Withdrawal Date, without the possibility of entering into new contracts, or (tacitly) renewing existing ones.

Within 15 days from the Decree’s date of entry into force, the subjects notify the clients, the other parties with whom they have relations in the provision of the services and the competent authorities, the measures adopted to guarantee the orderly termination of activities.

Activities continue within the limits of the management of contracts and covers in progress as of the Withdrawal Date, without entering into new contracts, or (tacitly) renewing existing ones.

Operations necessary for the orderly termination of existing distribution relationships, as soon as possible, and in any case no later than 6 months from the Withdrawal Date go unprejudiced. During the aforementioned six-month term, such subjects may not initiate new distribution activities or (tacitly) renew existing relationships.

 
Italian Intermediaries allowed to continue their operations in the United Kingdom during the Transition Period 

Banks, investment firms, payment institutions, e-money institutions, asset management companies, SICAVs, SICAFs, EuVECA, EuSEF and ELTIF fund managers and financial intermediaries in the register under Art. 106 TUB with registered office in Italy which, as of the Withdrawal Date, operate in the United Kingdom through either a branch or in LPS may continue to carry out operations subject to notifying the Italian supervisory authorities in the three business days prior to the Withdrawal Date and in compliance with the law applicable in the United Kingdom.

If banks and investment firms, payment institutions, e-money institutions, asset management companies, SICAVs, SICAFs, EuVECA, EuSEF and ELTIF fund managers and the intermediaries under Art. 106 TUB with registered office in Italy intend to continue their activities in the United Kingdom after the Transition Period, they will be required to submit the request to the competent Italian supervisory authorities for authorization to carry out their activities within the 12 months prior to the end of the Transition Period. Also in this case, Italian operators will be required to observe the legislation applicable (to third-country companies) in the United Kingdom.

Following is a summary of the Italian operators that will be able to continue their activities in the United Kingdom during the Transition period.
 

IT BANKS

IT INVESTMENT FIRMS

IT PAYMENT INSTITUTIONS

IT E-MONEY INSTITUTIONS

IT SGR, SICAV AND SICAF, MANAGERS OF EUVECA, EUSEF AND ELTIF FUNDS

IT FINANCIAL INTERMEDIARIES PURSUANT TO ART. 106 TUB

They will be able to operate in the United Kingdom, subject to filing prior notice with the competent authorities.