On 24 November 2015 the Italian Companies and Stock Exchange Commission (CONSOB) published communication No. 00904030 (the Communication) in order to provide banks and financial intermediaries with the measures to be adopted vis-à-vis clients in relation to the ‘bail-in’ risk characterising financial instruments issued by banks.

Following the implementation in Italy of Directive 2014/59/EU, the Banking Recovery and Resolution Directive (BRRD), which has been implemented in Italy by the Legislative Decrees No. 180 and 181 of 16 November 2015, provides certain guidelines for intermediaries to comply with the new legal framework of the Communication.

Overview

Within the framework of the above mentioned legislative measures aimed at allowing an organised management of banks’ and investment firms’ crisis by making recourse to private sector resources, according to the provisions of the Legislative Decree No. 180 of 16 November 2015, upon occurrence of the conditions for the beginning of the procedure for managing the crisis of the bank/intermediary the Bank of Italy will be allowed to adopt the following measures:

  • provide for the reduction or conversion of the shares, other financial holdings and capital instruments issued by the relevant bank/intermediary, provided that such measures allow to remedy the financial distress or the risk of financial distress;
  • provide for the adoption of the measures laid down by the relevant bank/intermediary for crisis resolution (including the bail-in starting from 1 January 2016) or the compulsory administrative liquidation in case the measures under the above statement are not sufficient. 

CONSOB communication on bail-in

The Communication provides certain guidelines for intermediaries to comply with the new legal framework. In particular, the Italian Regulator recommends banks/other intermediaries:

  • to duly evaluate the impact of the new legislative framework on their internal procedures, also in terms of appropriateness and taking into account the specific nature of the financial instruments;
  • to duly evaluate the consistency of the products with the investments objectives of the clients;
  • to duly inform investors (both retail and professional) about the limitations to public financial support introduced by the BRRD and of the fact that certain investment may be subject to bail-in;
  • to adopt appropriate procedures aimed at proving that all the above information are effectively received by the investors.

Next Steps

The above recommendations are addressed to EU and non-EU banks, financial firms and asset managers providing investment services in Italy, which are required to update their contracts and procedures to place financial instruments which may be subject to the bail-in.