The Italian Government has confirmed that a new law decree containing urgent measures in case of a "no-deal Brexit" has been approved during the Council of Ministries of 20 March 2019 (http://www.governo.it/articolo/comunicato-stampa-del-consiglio-dei-ministri-n-50/11172).
The text of the "draft decree" has been made available by various newspaper sources (e.g.: https://www.ilsole24ore.com/art/notizie/2019-03-19/nel-decreto-brexit-anche-tutele-i-correntisti-banche-inglesi--ecco-testo-121821.shtml?uuid=ABYjPmfB).
The final and official text of the decree is not yet available (according to certain sources the law decree will be published on the Official Gazette during the next weekend). This summary is based on the draft text of the law decree available so far.
Please note that after its enactment the law decree will be immediately valid and in force; however the Italian Parliament will be required to approve the law decree and transform it in a law within the following 60-days. Even though it is conceivable that the Parliament will approve the law decree, it could be possible that the Parliament will include amendments to the text of the law decree.
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Please find below a very preliminary bullet point summarizing the main aspects of the draft law decree (the "Brexit Decree") in relation to the impacts on the activities and licenses of UK Banks and financial intermediaries only.
- Brexit Date: the date when the "hard Brexit" will take place pursuant to Article 50 of the EU Treaty, so that in the absence of a specific agreement between UK and EU;
- Transitional Period: the period between the Brexit Date and the following 18 months;
A. UK banks that carry out banking activities in Italy as of the Brexit date:
- Allowed to continue to provide such banking activities during the Transitional Period (i.e. those activities falling within the "mutual recognition principle");
- Must file a "notification" with the Bank of Italy within a certain deadline (not very clear the deadline and the application, please see C. below);
- NOT ALLOWED IN ANY CASE to perform the "collection of savings" in Freedom of Service vis-à-vis Italian clients; they are only allowed to manage existing relationships;
- The UK Banks that are "participant" to the tender processes of the Italian public debt are in any case allowed to carry out the banking activities (with the exception of collection of savings) also without any need to file a notification;
- If such UK Banks would like to continue to carry out banking activities after the Transitional Period, such UK Banks must file a specific application to the Bank of Italy within 6 months from the starting of the Transitional Period (i.e. within 6 months from the Brexit Date) (the "Application Deadline").
B. UK banks and investment firms that carry out investment and financial services activities in Italy as of the Brexit date with a Freedom of Service license (without an Italian branch):
- Allowed to continue to provide such investment services and activities during the Transitional Period ONLY IN FAVOUR OF ELIGIBLE COUNTERPARTIES AND PER SE PROFESSIONAL CLIENTS;
- Must file a "notification" with the Bank of Italy within a certain deadline (not very clear the deadline and the application);
- Management of lifecycle events of derivatives transactions is expressly allowed;
- The UK Banks or financial intermediaries that are "participant" to the tender processes of the Italian public debt are in any case allowed to carry out the investment services activities (as clarified above) also without any need to file a notification;
- If such UK Banks would like to continue to carry out banking activities after the Transitional Period, such UK Banks must file a specific application to the Bank of Italy within the Application Deadline.
C. The "notification" requirement (A.2-B.2 above):
- It is not clear how the notification application (above mentioned) should be made (i.e. the format) and the relevant procedure to be followed with Bank of Italy/CONSOB. The draft Brexit Decree states that such notification should be made within 3 business days before the Brexit Date (please bear in mind that NO notification requirement will apply to those Banks/financial intermediaries that are participants to the Italian public debt tender processes, A.4-B.4 above).
- However, the Brexit Decree assumes that there will be clarity and certainty on the Brexit Date before such date.
- Practical problems: Bank of Italy/CONSOB/IVASS should make available as soon as possible a format for the notification; further technical and implementing rules are therefore necessary.
D. UK banks and investment firms, UK AIF managers, UK investment funds, etc. that carry out investment and financial services activities in Italy as of the Brexit date with a Freedom of Service license (without an Italian branch):
- NOT ALLOWED TO CONTINUE TO CARRY OUT ANY FINANCIAL SERVICES AND ACTIVITIES VIS-À-VIS RETAIL CLIENTS OR PROFESSIONAL CLIENTS UPON REQUEST IN ITALY STARTING FROM THE BREXIT DATE;
- However, during the 6-months period from the Brexit Date such entities and firms are allowed to continue to manage the relationship with the Italian clients without entering into new business transactions, just for the purposes of the closure of the relationship;
- Within 15 days from the Brexit Date those entities shall communicate to the Italian clients how they would manage the closure of the relationships.
E. Other ban and deadlines
THE SAME BAN TO PERFORM ANY SERVICES AND ACTIVITIES (as per D above) APPLY ALSO TO THOSE BANKS AND FINANCIAL FIRMS:
§ THAT HAVE NOT FILED THE NOTIFICATION REQUIRED WITH BANK OF ITALY (as mentioned above under A.2, B.2 and C), or
§ THAT HAVE NOT FILED THE APPLICATION TO CONTINUE TO PERFORM THE ACTIVITIES AFTER THE TRANSITIONAL PERIOD (as per A.5-B.5 above) (in this last case the 6-months period allowed to close the relationship will start after the elapsing of the Application Deadline);
F. As to derivatives transactions:
Generally speaking, the entering into a derivative entails the provision of a "financial service" (mainly: negotiation on its own account). Therefore the carrying out of services on derivatives by UK Banks/financial intermediaries vis-à-vis Italian clients should follow the same principles above mentioned.
However, notwithstanding the rules above, UK Banks and financial intermediaries are allowed to continue to perform the lifecycle events connected to derivatives in Italy and vis-à-vis the Italian clients, also if this would imply amendments of the transactions or the entering into new transactions within the following deadlines (and also if such Banks/financial intermediaries will not notify to continue to provide any financial services in Italy within the Transitional Period or beyond):
- IF SUCH BANKS AND FINANCIAL FIRMS HAVE NOT FILED THE NOTIFICATION TO BANK OF ITALY, AS CLARIFIED ABOVE only for 6 months after the Brexit Date, and just for the derivatives transactions in place as of the Brexit Date;
- IF SUCH BANKS AND FINANCIAL FIRMS HAVE NOT FILED THE APPLICATION TO CONTINUE TO CARRY OUT BANKING/FINANCIAL SERVICES AFTER THE TRANSITIONAL PERIOD only for further 6-months, after the elapsing of the Application Deadline; in this case the derivatives transactions in question will be those outstanding as of the date falling 6 months after the Brexit Date.
G. As to Italian pension funds:
For the entire Transitional Period the Italian Pension Funds (governed by Legislative Decree no. 252/2005) are authorized by the Brexit Decree to continue to apply the same rules on limits on investments as set out by Ministerial Decree no. 166 of 2014 also with respect to those investments in UCITS funds or AIF funds domiciled in UK that were part of the assets of the Pension Fund as of the Brexit Date. That means that during the Transitional Period only the UK UCITS funds or UK AIF funds will be considered and treated equally to "EU UCITS funds" or "EU AIF funds", but no new acquisition of UK funds should be treated as falling within the category of EU investment funds.