[Newsflash n. 21]

Social lending has now been recognized as official financing tool.

On 8 November 2016, Bank of Italy published the long-awaited Provisions concerning Savings Collection by Non-Banks (“Provisions”), which will enter into force as of 1 January 2017. The Provisions (which technically are an update of the Bank of Italy Supervisory Provisions, Title IX, Chapter 2) contain a section dedicated to social lending, which is defined as the use of online platforms to collect repayable funds (bearing interests) from potential lenders for personal or business use. Social lending, as opposed to equity crowdfunding, is also referred to as “lending based crowdfunding”.

The approved version of the Provisions essentially reflects the text put under consultation in 2015 with only minor integrations: social lending is allowed as long as it complies with the requirements set out in connection with reserved activities, which include, for example and without limitation, banking activity, credit brokerage, payment services and savings collection.

With specific reference to savings collection, the Provisions expressly mention some exemptions:

I) Exclusion relating to on-line platforms’ managers (“gestori”):

  • The raising of funds to be employed for the provision of payment services or in connection with the issuance of electronic money is not considered as reserved activity of savings collection to the extent that the managers are authorized to carry out payment services or to issue electronic money;

II) Exclusion relating to borrowers (“prenditori”):

  • Fund raising obtained through individual negotiations (i.e. when borrowers and lenders are able to freely intervene on the contractual clauses and the platform’s manager only provides technical support to allow such negotiation) does not qualify as reserved activity of savings collection.
    The new version of the Provisions introduces the additional requirement to disclose to the public the circumstance that negotiation are carried out individually;
  • Borrowing from institutional clients does not fall under the definition of savings collection.

In the context of its ruling, Bank of Italy confirmed the need to set a limit to the maximum amount that can be raised through on-line platforms managed by non-bank managers (such limit does not apply to banks since they are not subject to quantitative limits within their banking activity, for which they are authorized). The Provisions, however, do not set out a specific amount since the Bank of Italy has stated to have no regulatory power on this topic and it rests with the market players to determine it. According to market practice, to date an indicative threshold is Euro 50,000.

Interested parties will have a transitional period until 30 June 2017 to adapt their operation to the new provisions.

The Provisions represent a significant step ahead towards the recognition of innovative financing channels. However, as specified by the Authority itself, to date their effect is limited to a clarification on the conditions and limits that market players shall observe in order to perform such lending activity without breaching the applicable regulation on savings collection. As a consequence, Bank of Italy stressed out that the Provisions do not address the requirements to comply with so to avoid the circumvention of other activities subject to authorization that may potentially come at stake in the performance of social lending.

Moreover, from a practical perspective, it should be noted that the positive impact of this development on the market is still weak and a tax incentive would certainly increase the appeal of this tool, similarly to the tax relief recently proposed for individual saving plans.

In conclusion, the market has welcomed the new Provisions as a first recognition by the Authority of a FinTech activity: an additional indication that FinTech is quickly rising up to be a reality rather than an ancillary phenomenon of the financial industry.

Please do not hesitate to contact us for any clarification you might require on the new Provisions.

The text of the Provisions is available, in Italian only, here.

Contacts:

Vito Vittore
Senior Partner

Marina Mirabella
Senior Partner

Elena Pagnoni
Of counsel

Greta Carriero
Associate