On 8 March 2016 the Bank of Italy updated the Supervisory Instructions for Banks (update no. 15) and the Supervisory Instructions for Financial Companies (update no. 1), in order to reflect the amendments to Law No. 130/1999 that were introduced by Legislative Decree No. 91/2014 (the so called “Competitiveness Decree”, converted into Law No. 116/2014) in respect of the granting of loans by securitization vehicles.
Pursuant to Article 1-ter of Law 130/1999, securitization vehicles may grant loans to entities other than individuals and micro-enterprises provided that the following conditions are met:
- the borrowers are identified by a bank or by a financial company (intermediario finanziario);
- the notes issued to fund the loans are addressed only to qualified investors;
- the bank or the financial company identifying the borrowers retains a material economic interest in the transaction, in accordance with the implementing provisions issued by the Bank of Italy.
Such implementing provisions entered into force on 9 March 2016 and specify the relevant obligations of banks and financial companies, as described below.
1) Retention of an economic interest by banks and financial companies identifying the borrowers
In this regard it is required that the relevant entity retains an economic interest in the transaction not lower than 5%, in accordance with the procedures established by Section Five (article 405) of the EU Regulation n. 575/2013 (the Capital Requirements Regulation, “CRR”), also if the transaction does not fall within the definition of securitization, as set out under article 4, No. 61, of the CRR.
2) Borrowers’ identification criteria
In this respect it is provided that the criteria of evaluation of the creditworthiness, the procedures for the approval of the loans and the risk control systems are those which banks and intermediaries must apply with respect to their ordinary lending activities.
3) Information to investors
Banks, holding companies and financial companies identifying the borrowers shall provide investors with adequate information on their commitment and shall ensure the accessibility to the relevant information in accordance with article 409 of the CRR and the respective implementing regulations.
4) Controls of the servicer in charge of checking that the transactions comply with the relevant law
Servicers must verify compliance with law in respect of the economic interest in the transaction retained by the entity that identifies the borrowers, the selection of borrowers and the information to investors. It is also provided that the entities involved in the transaction must be contractually bound to information duties, and that the compliance control activity cannot be delegated to third parties.
Furthermore, where the servicer is the same entity that selects the borrowers, it is required that the functions in charge for the credit investigation and credit granting are separate and independent from those in charge for the above mentioned controlling duties.
The above provisions are applicable also to EU banks and EU financial companies admitted to mutual recognition and carrying out in Italy the granting of loans, either through branches or on a cross border basis.