[Newsflash n. 74]

On 31 December 2020 the Italian Government has issued Law Decree No. 183 (c.d. “Milleproroghe Decree”), which (under Section 22) sets out provisions governing the operation of British financial intermediaries and insurance companies after the expire of the transitional period on 31 December 2020 (“Transitional Period”) envisaged by the EU-UK Withdrawal Agreement (see Newsflash n.67).

With the exit of the United Kingdom from the European Union, intermediaries established in UK are considered as operating from a third country, and no longer under the mutual recognition regime, with all the consequent regulatory implications.

In order to continue their business with Italian customers, UK intermediaries are therefore required to either:

  • submit an application to operate in Italy as a non-EU country firm, or
  • set up an Italian investment firm to which transfer their Italian business operation.

Applicant Intermediaries

The Milleproroghe Decree introduces a “grace period” for intermediaries that applied for one of the above mentioned alternatives before 31 December 2020 and have not received the outcome of their application.

In particular, during the period of time from the 1st of January 2021 until the receipt/rejection of the authorization (and in any case no later than 30 June 2021) British financial intermediaries may continue to carry on the activities previously performed which the authorization is sought for, at least as to the management of the existing client relationships, according with Italian national regime applicable to the firms of non-EU countries and to the supervision of the competent Italian authorities.

On that period, firms are neither allowed to onboard new Italian clients nor modify the existing relationships, while they are entitled to perform the management of the so-called «life-cycle event» for OTC derivatives.

Those intermediaries that operate under the regime of the freedom to provide services are forbidden from providing their services to retail clients and to professional clients upon request, pursuant to the Italian Financial Act (Legislative Decree 58/1998).

Those financial intermediaries that operate in Italy through the establishment of branches remain enrolled with the Italian alternative dispute resolution systems (ABF or ACF) and are due to adhere to the Italian compensation system according to what provided for under the relative statute (Fondo Nazionale di Garanzia – FNG or Sistemi di garanzia dei depositi italiani – DGS). Intermediaries shall contact such guarantee schemes and finalize the acts required to obtain membership, so to provide customers with adequate information as soon as possible.

The grace period ends when the authorization to continue the activities in the Italian territory is granted or refused. In the latter case, British financial intermediaries are compelled to cease such non-authorized activities as soon as possible and, in any case, no later than three months after the communication of the refusal decision, according ways and times that are not detrimental to clients.

During the wind-down period, the British financial intermediaries continue to be subject to the Italian regime applicable to non-EU countries firms and to the supervision of the competent Italian authorities.

Intermediaries that must cease their operation

Intermediaries that are not eligible to be authorized to operate as third country entities (namely fund managers, electronic money institutions operating under the freedom to provide services or with points of contact or networks of agents, and payment institutions), intermediaries whose application for authorization is rejected or intermediaries that did not apply to receive an authorization before the 31 January 2020 shall cease their business activity in Italy. In particular, they shall refund the clients’ money, financial instruments and other assets, according to the instructions received by the latter.

With respect to loans, the termination of the business does not entail any change in the terms and condition of interest payments and repayment of principal by the client, without prejudice to the client’s right to early repayment.

Insurance companies

As from the end of the Transitional Period, British firms authorized to carry on insurance business in Italy are removed from the “Register of firms with registered offices in another Member State” held by Ivass and may continue their business only to manage the existing contracts and insurance covers in force at that time until the relevant expiry date or any other date highlighted by the firm in the exit plan to be submitted to IVASS (Insurance Italian Authority).

In particular, UK insurance firms shall:

  • within 15 days from the end of the Transitional Period, inform customers and other eligible persons of the applicable regime under which they operate;
  • within 90 days from the end of the Transitional Period, submit to IVASS a plan containing the measures pursuant to which they will swiftly and correctly implement the contracts and covers still in force;
  • send to IVASS, on an annual basis, a report on the state of implementation of the above plan.

Finally, it is important to bear in mind that from the expiry of the Transitional Period, customers may withdraw, at no additional cost, from contracts with a duration of more than one year, by giving written notice to the insurer, or exercise other forms of termination of the contractual obligation, while tacit renewal clauses will become no longer applicable. The withdrawal takes effect from the expiry of the first annuity following the date of exercise of the right of withdrawal.

Following the publication of the Milleproroghe Decree, the Italian supervisory authorities issued notices reminding the intermediaries under their supervision and the relevant clients of the provisions introduced by the Decree. In particular, Consob for the provisions dealing with financial intermediaries providing investment services and activities, Bank of Italy for those specifically dealing with the performance of banking activities and IVASS for those dealing with insurance activities and of the Ivass.

For any further clarification and/or for assistance on the topic of this Newsflash, please contact your reference contact in Legália.

Contacts:

Vito Vittore
Partner

Elena Pagnoni
Partner

Roberta Talone
Associate