Since the summer of 2012, faced with the drying up of bank lending caused by the financial crisis, successive Italian governments (the Monti, Letta, and currently Renzi governments) have introduced several measures to favour the influx of non-bank debt into Italy, with a view to supporting the re-start of the real economy. The initial interventions consisted in the progressive lifting of the corporate and tax restrictions which had historically cut off Italian private companies from the capital markets, enabling them to issue so-called “minibonds”. Most recently, the focus of the reforms has moved to the erosion of the concept of lending as activity restricted to banks, Italian financial intermediaries and EU financial companies, by broadening it to include a number of other players.
Indeed, in June 2014, the Renzi Decree, by amending the tax provisions on withholding tax on interest payments and on the registration tax treatment of loans and collateral, opened the door to a number of alternative money providers, i.e., Italian and EU investment funds, Italian and EU insurance companies, and Italian securitisation vehicles, engaging in lending in Italy. Since then different pieces of legislation have filled the picture and brought the regulatory framework surrounding lending in Italy in line with the new tax framework.
Whilst provisions were soon enacted to govern lending by Italian insurance companies and Italian AIFs (“Italian Credit Funds”), and draft regulatory provisions regarding lending by Italian securitisation vehicles were published for consultation in March 2015, the long-awaited regulation of the Italian Ministry of Finance No. 53 of 2 April 2015 defining lending as a restricted activity was seen as a missed opportunity as it did not provide important pieces of the puzzle, i.e., the conditions under which the foreign players selected in the Renzi Decree (EU investment funds and EU insurance companies) would be allowed to lend into Italy, but rather insisted on the old requirements of full-blown Bank of Italy authorisation, permanent establishment in Italy, and minimum capitalisation for EU financial companies not controlled by EU banks wishing to engage in lending in Italy.
Finally, Italian Law Decree No. 18 of 14 February 2016 (the “Decree”) has filled the regulatory gap and clarified the conditions under which EU investment funds will be allowed to lend in Italy as detailed below.
The Decree has entered into force on 16 February 2016; however, being in the form of emergency legislation, it will need to be converted into law within 60 days from its publication, so amendments to its provisions are still possible. Further, the new provisions will require the issue of implementing regulations by the Bank of Italy. This process, while seemingly cumbersome, does offer market players a number of useful opportunities to reflect on the new provisions and feed in comments and requests for adjustments to the Italian law-maker and regulator.
Conditions for Lending by EU Investment Funds
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The Decree has led to a broader—though still not full—liberalisation of lending in Italy by EU investment funds. The measures introduced by the Decree are not entirely satisfactory and may at first sight disappoint market players based in jurisdictions where lending is not a restricted activity. However, against the background of the restrictions historically applicable to lending in Italy, these measures are undoubtedly innovative and offer yet another option in the toolkit for financing Italian corporates, alongside the mini-bonds, the innovative uses of Italian securitisation SPVs, and the participation of supervised professional investors in loans originated and fronted by Italian or EU banks. In parallel with similar developments in other EU countries such as Germany and Ireland, the clarification of the requirements for EU AIFs to lend in Italy may in our view allow investment managers which pursue a medium term EU-wide loan investment strategy to identify a minimum common denominator of structural requirements which would enable a single EU AIF to comply with the requirements applicable to lending by funds in multiple jurisdictions.