In brief: banking regulatory framework in Italy (2024)

Regulatory framework

Key policies

What are the principal governmental and regulatory policies that govern the banking sector?

The main principles of the Italian system are to ensure the sound and prudent management of supervised entities, and the stability of the entire banking and financial system as well as its efficiency and competitiveness.

The general structure of the banking sector in Italy has, over the past three decades, been based on the obligation to comply with the principles and rules arising from Italy’s membership of the European Union.

In this context, the prudential supervisory rules established at the European level apply. These concern, inter alia, the capital adequacy of banks, the concentration of risks, the organisation of the institutions and their internal controls, and the equity investments that can be held by banks.

The Italian banking system complies with the mutual recognition of banking authorisation granted to EU member states.

With the establishment of the Single Supervisory Mechanism (SSM), pursuant to Regulation (EU) No. 468/2014, the exercise of banking activities in Italy by authorised ‘significant’ EU banks of EU member states that participate in the SSM (ie, the countries of the eurozone) requires:

• in relation to the freedom of establishment, a preliminary notice to the European Central Bank (ECB) from the competent supervisory authority in the bank’s home state – where no decision to the contrary is made by the ECB within two months of the receipt of such a notification, the branch may be established and start its activities, and the ECB shall communicate this information to the Bank of Italy; and
• in relation to the freedom to provide services, a preliminary notice to the ECB and the Bank of Italy from the competent supervisory authority in the bank’s home state.

With regard to the ‘less significant’ banks of the SSM countries, the exercise of banking activities in Italy requires (both in relation to the freedom of establishment and the freedom to provide services) a preliminary notice to the ECB and the Bank of Italy from the competent supervisory authority in the bank’s home state.

Regulated institutions

What are the defining characteristics of a bank to be caught by the banking laws and regulations? Is non-bank fintech regulated differently?

Legislative Decree No. 385/1993 (the Banking Act) defines a bank as a company authorised to carry out banking activities.

Article 10 of the Banking Act provides that ‘the collection of savings from the public and the granting of loans constitute banking activity’.

Therefore, the joint performance of the collection of savings (among the public) and the granting of loans is deemed to constitute the activity reserved for banks.

This definition does not require a functional connection between the collection of savings and the granting of loans: the coexistence of the two activities is sufficient, in the sense that not all the savings collected must be channelled into the granting of loans.

However, banking activity does not exhaust the activities that banks are authorised to carry out.

In fact, banks are legally entitled, in principle, to carry out other forms of financing, payment services, issuing of e-money and, pursuant to specific rules, the provision of investment services, as well as the performance of activities related and instrumental to all the activities that banks are authorised to carry out by law.

Non-bank fintech entities are regulated differently from a traditional bank, on the basis of the types of services provided and depending on whether the activity provided is deemed to be reserved or not pursuant to current legislation.

In fact, the fintech sector includes very heterogeneous entities in the types of services offered: only some actually offer financial intermediation services (exclusively or in addition to other types of activities), while other entities offer functional or instrumental services for financial intermediation.

As regards regulation, the fintech sector is of significant importance with specific reference to the possible application of the rules on investment services, payment systems and collection of savings.

Do the rules vary depending on the size or complexity of the banking institution?

Italian banks may be incorporated as companies limited by shares, or as cooperative banks in the alternative form of a mutual bank or a cooperative credit bank.

The rules for banks organised in the form of companies limited by shares are generally applied to cooperative banks even if there are several additional provisions, envisaged by primary legislation and regulations, to which such entities are subject.

Different rules provided especially for cooperative credit banks are due to the specific nature of these institutions: such banks provide financial services to their members and usually serve the needs of the local community (ie, natural persons and legal entities working or residing in the territory where the bank operates).

In 2016, cooperative banks were affected by an important law reform. Pursuant to Law No. 49/2016, it is now mandatory for all Italian cooperative banks to join a cooperative banking group, while keeping the distinctive features of local cooperative banks.

As regards size, significant banks are under the ECB’s direct supervision. The ECB can decide at any time to classify a bank as ‘significant’ to ensure that high supervisory standards are applied consistently.

To qualify as significant, banks must fulfil at least one of the criteria set by the ECB, including a size criterion: the total value of the assets must exceed €30 billion.

If a significant bank fails to meet the criteria for three consecutive years, it can be reclassified as less significant. Direct supervisory responsibility for it then returns to the relevant national authority.

Primary and secondary legislation

Summarise the primary statutes and regulations that govern the banking industry.

The banking industry in Italy is governed by two main legislative acts:

• the Banking Act; and
• Legislative Decree No. 58/1998 (the Financial Act).

In particular, the Banking Act regulates the banking business and other financial intermediaries, as well as other entities operating in the banking sector. This act is also the principal legislative source for the framework of the powers and responsibilities of the regulatory authorities in the Italian banking sector.

In Italy, an important regulatory role is played by the Bank of Italy. In carrying out this role, the Bank of Italy has adopted several regulations setting forth, inter alia:

• the requirements for pre-contractual transparency;
• the authorisation and supervision procedures for the supervised entities; and
• the organisation and effectiveness of the alternative dispute resolution system provided by the Banking Act.

Particularly important among these is Bank of Italy Circular No. 285/2013, which contains, inter alia, the supervisory instructions for banks. This circular also implemented the Capital Requirements Directive (CRD) IV Package, consisting of Directive 2013/36/EU (CRD IV) and Regulation (EU) No. 575/2013 (the Capital Requirements Regulation (CRR)), then amended by Directive 2019/878/EU (CRD V) and by Regulation (EU) No. 2019/876 (CRR II), which provides rules aimed at strengthening the capital requirements and prudential supervision of credit institutions and investment firms in the European Union.

Regulatory authorities

Which regulatory authorities are primarily responsible for overseeing banks?

With the establishment of the SSM, which is one pillar of the European Banking Union, all the typical supervisory functions over significant banks have been transferred from the Bank of Italy to the ECB (ie, prevention of risks, authorisation to new credit institutions, evaluation of qualifying holdings, assessment of minimum capital requirements and capital adequacy). The Bank of Italy has retained preliminary powers in relation to the filing of notifications or applications by the banks.

The Bank of Italy, pursuant to Regulation (EU) No. 1024/2013, maintains supervisory tasks not conferred on the ECB, such as those related to the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, consumer protection and payments services.

With regard to less significant banks, the ECB has the powers of authorisation for the exercise of banking activity and for the acquisition of significant holdings, while the Bank of Italy is primarily responsible for general supervisory activities. The latter exercises supervisory and regulatory functions through a range of administrative, regulatory and control powers.

The Bank of Italy is also in charge of the supervision of financial intermediaries entitled to provide financing, e-money institutions and payment institutions.

Government deposit insurance

Describe the extent to which deposits are insured by the government. Describe the extent to which the government has taken an ownership interest in the banking sector and intends to maintain, increase or decrease that interest.

According to the Banking Act, deposits are not insured by the government. Instead, they are protected through a mechanism that was originally set up on a voluntary and private basis, even though it performs a public function. The deposit protection schemes currently in force are:

• the Inter-Bank Fund for the Protection of Deposits, to which all Italian non-cooperative banks and, in some cases, Italian subsidiaries of banks operating outside the EU area must adhere; and
• the Insurance Deposit Fund for Cooperative Savings, which operates for cooperative banks.

In the case of insolvency of a banking institution that holds deposits, according to the Inter-Bank Fund for the Protection of Deposits, compensation is provided, currently limited to a maximum of €100,000. The Bank of Italy is entitled to modify this limit to reflect variations in the rate of inflation.

Some depositors (territorial entities, senior managers and directors of the same bank, banks and other credit institutions, etc) and some types of deposits and credits (credits resulting from bonds, promissory notes, share capital and reserves, etc) are excluded from the guarantee.

Although deposits are not insured by the government, the government has taken steps to protect the sector. For example, the Italian government set up a public guarantee system in support of banks in crisis. In light of increasing exposure from non-performing loans (NPLs), Decree-Law No. 18/2016 introduced a government guarantee to facilitate NPL transactions: the Guarantee on Securitisation of Non-Performing Loans (GACS), which is provided by the Minister of Economy and Finance to requesting banks. GACS aims to dismantle NPLs. Under GACS, the Italian government can guarantee only senior tranches of securitisations. The European Commission agreed that the measures under GACS do not contemplate state aid that would distort competition.

Decree-Law No. 22/2019 renewed GACS (with some changes) for 24 months, which can be extended for a further 12 months. As such, through the Decree of the Minister of Economy and Finance of 15 July 2021, the period of operation of GACS has been extended until 14 June 2022.

In addition, Italian banks may sometimes receive precautionary recapitalisation by the government, which consists of an injection of funds into a solvent bank by an EU member state when this is necessary to remedy a serious disturbance in the economy of the member state and preserve financial stability.

Transactions between affiliates

Which legal and regulatory limitations apply to transactions between a bank and its affiliates? What constitutes an ‘affiliate’ for this purpose? Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified.

The Bank of Italy provides the limits and conditions under which a bank may assume risks towards related parties.

The current legal framework, amended in June 2020, is contained in Bank of Italy Circular No. 285/2013 (the 2013 Circular).

This concept includes both related entities and entities connected to related entities.

Related entities are:

• persons who carry out direction and control duties within a bank, a financial parent company or a supervised intermediary;
• shareholders who, under the Banking Act, needed prior authorisation for the acquisition of their share capital;
• entities different from shareholders that may appoint, by virtue of agreements or of the articles of association, one or more members of the directing and controlling bodies; and
• companies over which the bank or a company of the banking group may directly or indirectly exercise a dominant influence.

The 2013 Circular defines the ‘non-financial related party‘ as a party that mainly exercises, directly or through subsidiaries, non-financial business activities.

Entities connected to related entities include:

• companies directly or indirectly controlled by a related entity;
• entities that control directly or indirectly a related entity; and
• close family members of a related party and the companies controlled by such family members.

The 2013 Circular defines ‘affiliated parties’ as the related party and all the entities connected to the latter.

Pursuant to the provisions of the Bank of Italy, the full amount of the risk assets of a bank or a banking group towards related parties and relevant affiliated parties cannot exceed certain thresholds (in any case, no more than 20 per cent) of the regulatory capital.

There are different limits depending on the types of related parties, in proportion to the intensity of the relations and the significance of the consequent risks for sound and prudent management. The 2013 Circular provides more stringent limits for risk activities towards related parties qualified as non-financial businesses, in consideration of the major risks inherent to conflicts of interest in bank-industry relations.

In addition to such prudential limits, the Banking Act provides that persons who carry out activities of direction and control within the bank or within a company of the same banking group is allowed to enter into obligations with the bank only with the prior authorisation of the board of directors.

Furthermore, according to the 2013 Circular:

• in the approval of transactions with related entities, the role of independent directors of the bank is particularly relevant as the bank must form an executive committee composed only of independent directors for the transaction of major significance who are requested to communicate their opinion with regard to the relevant transaction prior to the adoption of the resolution regarding the transaction by the competent body; and
• the bank must set internal procedures to regulate transactions with related entities.

Regulatory challenges

What are the principal regulatory challenges facing the banking industry?

One of the principal regulatory challenges in the banking industry in recent years is related to the implementation of Directive 2015/2366/EU (PSD2) on payment services and the development of a new business model based on the integration between traditional banking business and the fintech area. The implementation of PSD2 may start a process of disintermediation in the relations between the banks and their customers.

In this regard, banks have to equip themselves from a legal standpoint to operate in this new open banking context. Banks are trying to find a compromise between the need for innovative technologies and the need to pay attention to legal compliance and contractual relations with customers.

More generally, the greatest challenge as regards regulation will be the gradual and organic implementation into the internal legal framework of the reforms that have been conceived and approved at the EU level.

Consumer protection

Are banks subject to consumer protection rules?

Banks (as well as other financial intermediaries, payment institutions and e-money institutions) are subject to several consumer protection rules particularly in terms of transparency. A specific section of the Banking Act provides a general set of transparency and fairness rules applicable to the customers of a bank, who are consumers.

In particular, the main protections offered to consumers are the following:

• any banking contract shall be made in written form (or in similar form allowed by the law, such as an electronic signature on an electronic document);
• the banks must comply with several pre-contractual requirements such as informing the customer in writing, inter alia, of the interest rates applicable to any financing contract to be entered into and the effective global interest rates applied in Italy – prices that will be applied and other economic terms – and the customer’s right of withdrawal;
• in accordance with the original contract terms or upon unilateral amendment of the contractual conditions by the bank, the consumer may withdraw from the contract; and
• in the case of non-compliance by the bank, consumers have the right to file a complaint, without bearing any cost, with the Banking and Financial Arbitrator (ABF), which is the Italian institute established for the resolution of controversies on banking and finance matters.

More detailed rules for consumer protection are contained in the Bank of Italy’s Resolution of 29 July 2009, concerning ‘Provisions on transparency of transactions and banking and financial services. Correct conduct between intermediaries and customers’, which implemented initial provisions through a set of very detailed rules to ensure bank customers are informed in a fair, transparent and complete manner. This resolution is particularly focused on the duty of banks and intermediaries to comply with specific obligations with respect to consumer protection. The Bank of Italy Resolution of 29 July 2009 requires banks to provide a set of pre-contractual documents containing the main terms and conditions of the contract.

Furthermore, banks and intermediaries are also obliged to comply with the following:

• documentary standard forms relating to periodic communications;
• rules regulating unrequired marketing messages;
• disclosure duties with respect to the economic conditions of any kind of contract;
• implementation of internal procedures for receiving and managing customer complaints, etc.

The Bank of Italy’s Resolution of 29 July 2009 was amended in July 2019 to implement Directive 2014/92/EU (the Payment Account Directive) on the comparability of fees related to payment accounts, payment account switching and access to payment accounts.

In particular, the Payment Account Directive introduced new rules aimed to enhance customer protection and the comparability of fees related to payment accounts for consumers. The provisions of the Payment Account Directive apply to payment service providers (PSPs), including banks, in respect of the payment accounts they offer to consumers.

To improve transparency and comparability of fees, PSPs are obliged to make available the following documents:

• the glossary of terms, which defines the most representative services linked to a payment account in a standardised manner;
• the statement of fees, which shows an overview of fees charged and interest earned in a year; and
• the fee information document, which sets out pre-contractual fee information for payment account linked services and helps clients to compare these fees with those of other accounts.

The Bank of Italy’s Resolution of 29 July 2009 was amended in June 2021 to implement article 106 of the PSD2. This article requires PSPs to make available, on their respective websites and on paper, the European Commission’s brochure, which is published on the European Commission’s website and illustrates consumer rights in the context of payment systems in the European Union.

Further regulations are provided in a specific section of the Consumer Code (found in Legislative Decree No. 206/2005) where specific requirements are set forth in respect of distance marketing to customers of banks and financial services.

The Bank of Italy is responsible for the enforcement of such consumer protection rules in the banking sector, while the Italian Antitrust Authority is responsible for protecting consumers against all unfair commercial practices by banks.

Complaints may also be filed with the ABF, even though the decisions of the ABF have no direct binding effect on the banks.

A suspect practice that has received increased attention by the Italian Antitrust Authority in recent years is the incorrect advertising of banking products or services.

In this regard, the Italian Antitrust Authority has often sanctioned, inter alia:

• commercial communications that are formally complete but ambiguous and capable of generating incorrect beliefs in consumers;
• commercial communications that are aimed at involving consumers in activities they would not have undertaken otherwise; and
• practices aimed at exploiting the psychological weakness of people who need to resort to bank lending.

Future changes

In what ways do you anticipate the legal and regulatory policy changing over the next few years?

Over the next few years, some legal and regulatory interventions are expected in Italy and in the banking system as a whole, especially regarding the regulation and supervision of fintech players.

The very rapid technological evolution that has characterised the banking system in recent years has been completely unpredictable and it is reasonable to believe that there will be even greater technological development in the coming years.

In this context of sudden technological and financial evolution, the supervisory authorities – both national and EU – will have to carry out a careful analysis of the phenomena in progress to implement regulatory interventions that ensure an adequate balance between opportunities and risks of the innovation process. This could be a difficult process as banking and financial regulations are not always able to adapt quickly and with the necessary resilience to the continuous changes related to fintech.

In particular, as at February 2022, Italy is implementing EU legislation on lending crowdfunding service providers (Regulation (EU) No. 1503/2020).

Moreover, the banking industry will deepen its commitment to environmental, social and governance (ESG) goals in the years ahead, within what is called ‘sustainable finance’.

Sustainable finance is the application of the concept of sustainable development to financial activity. It aims at integrating ESG criteria into financial services and at supporting sustainable economic growth. It also aims at increasing financial actors’ awareness and transparency about the need to mitigate ESG risks via appropriate management and by considering, in particular, the longer-term nature of such risks and the uncertainty on their valuation and pricing.

Law stated date

Correct on

Give the date on which the information above is accurate.

1 February 2021.