On March 8, 2016, after a public consultation process, the Bank of Italy published the implementing measures relating to the supervisory regulations for loans granted by securitization vehicles incorporated under the Italian securitization law (Law No. 130 of April 30, 1999).

The new provisions—introduced into Law 130 in 2014—allowed securitization vehicles to grant loans to entities other than individuals and microenterprises without the necessity of any further license, subject to implementing regulations to be issued by the Bank of Italy. 

Pursuant to the Italian securitization law, as now implemented by the new measures of the Bank of Italy, special purpose vehicles ("SPVs") may grant loans to a wider range of borrowers upon satisfaction of certain conditions, in particular:  

  • The borrower that receives the loan from the SPV must be selected and identified by a bank or financial intermediary;
  • The bank or financial intermediary that identified the borrowers of the relevant loans maintains a "net economic interest" in the transaction (i.e., "retention" or "skin in the game");
  • The bank or financial intermediary that identified the borrowers of the relevant loans provides the investors with the information related to the structure of the transaction, the underlying assets and cash flows, and compliance with the retention requirements;
  • The selection of the borrowers by the relevant bank or financial intermediary will be made on the basis of the same evaluation criteria and approval procedures adopted by the respective banks or financial intermediaries for the assumption of their own credit risk; and
  • The servicer of the SPV carries out monitoring and control activities to ensure compliance with the provisions under the points above.

Retention Requirements

The most debated aspect during the consultation process was compliance with the retention requirements in the context of transactions where SPVs grant loans to entities other than individuals and microenterprises.

In this respect, pursuant to the Bank of Italy regulation, the bank or the financial intermediary that identifies the borrower must retain, on an ongoing basis, a material net economic interest that, in any event, will not be less than 5 percent.

The bank or financial intermediary complying with the retention requirement must also satisfy certain conditions, in particular:  

  • The bank or financial intermediary maintaining the five percent risk in the transaction cannot invest in just this product but will need to have its own financial resources derived through additional activities; and
  • If the bank or financial intermediary maintaining the five percent risk also operates as a servicer in the context of the transaction, it must ensure that two separate and autonomous functions of the bank/financial intermediary are involved for the two different roles.

Notably, the retention requirement will have to be met even though such transactions do not qualify as securitizations pursuant to the CRR (EU Regulation No. 575/2013), and therefore they in principle do not fall within the scope of application of the CRR.

The retention requirement must complied with by applying one of the retention options provided for by article 405 of the CRR.

Considering the particular structure of the new transaction (and the relevant purpose), an additional form of retention could be the retention by the bank or the financial intermediary of five percent of the respective loan. This procedure could be more efficient for the banks and the financial intermediaries from a capital-requirements perspective. 

Care will need to be taken in structuring transactions to ensure that the retention structure complies with the new law, CRR (and, in the future, the new "securitization regulation" proposed by the European Commission that is expected to enter into force later this year), as well as any investor guidelines/restrictions.

The above-mentioned provisions are part of a comprehensive reform of the rules governing lending activity in Italy to be carried out by entities other than banks or financial intermediaries.

Securitization vehicles represent flexible instruments for the Italian lending market.