Private banking and wealth management

All questions Regulation

What are the main sources of law and regulation relevant for private banking?

The primary laws and regulations governing the Italian private banking industry are:

  • Legislative Decree No. 385/1993 (the Italian Consolidated Law on Banking (TUB)), which contains the main provisions regulating the carrying out of banking business in Italy;
  • Legislative Decree No. 58/1998 (the Italian Consolidated Law on Finance (TUF)), which contains the key principles regulating the provision of investment services in Italy; and
  • Consob Regulation No. 16190 of 29 October 2007, which sets out the TUF implementation rules for ‘intermediaries’ (ie, banks and any other intermediary, Italian investment firms (SIMs) included, which have been authorised to provide investment services in Italy).

Regulatory bodies

What are the main government, regulatory or self-regulatory bodies relevant for private banking and wealth management?

There are two main regulatory and supervisory bodies (ie, the Bank of Italy and the Commissione Nazionale per le Società e la Borsa (Consob)), whose objectives are common: the stability, efficiency and competitiveness of the financial system, the protection of savers and investors, and the observance of provisions on banking and financial matters.

The Bank of Italy is responsible for the sound and prudent management of banks and intermediaries, for their prudential supervision and risk management, as well as for the transparency and correctness of conduct in the provision of banking services. Consob is responsible for the transparency and correctness of conduct in the provision of investment services.

Pursuant to the implementation of the European Union (EU) Single Supervisory Mechanism (SSM), the Bank of Italy shares some of its tasks, and cooperates, with the European Central Bank (ECB) and other national competent authorities (NCAs) of euro area countries.

Private wealth services

How are private wealth services commonly provided in your jurisdiction?

In Italy, the provision of private banking and wealth management services is not subject to a specific licence. However, considering that very often the way in which such services are carried out amounts to a reserved activity (subject to a factual and case-by-case analysis), it is necessary to obtain a licence that allows the pursuit of such a reserved activity.

Broadly speaking, private banking and wealth management services are usually performed by way of portfolio management or investment advice services. According to TUF provisions, when such services concern financial instruments and are performed for the public on a professional basis, they then qualify as investment services, and therefore can only be carried out by banks, SIMs or Italian asset managers (SGRs). More precisely:

  • for banks, the application for the authorisation to provide (one or more) investment services must be submitted to the Bank of Italy, either along with the application originally submitted for carrying out banking activities (in such a case, the timings for granting the two authorisations are aligned; see question 8), or at a later time (in such a case, the authorisation is given within 90 days);
  • for SIMs, the authorisation to provide (one or more) investment services is granted by Consob; and
  • for SGRs, the authorisation to provide portfolio management or investment advice must be submitted to the Bank of Italy, either in the context of the initial application for the provision of asset management services, or at a later time.

In any case, the licence to provide investment services does not vary for the different types of investors for whom the services are carried out.

Banks, SIMs and SGRs may also carry out the promotion or placement of their investment services in a place other than their registered office or premises, by way of financial advisers engaging in ‘door-to-door selling’ and being listed on the single register of financial advisers. Moreover, investment advice services may also be carried out by natural (independent financial advisers) and legal (financial consulting companies) persons, both having to be listed on the single register of financial advisers.

Regarding foreign entities, see questions 25 and 26.

In light of the above, the main players in the Italian private banking market are:

  • Italian banks, either having an internal private banking division or specialising exclusively in private banking;
  • foreign banks (mainly through the establishment of a subsidiary or a branch); and
  • SGRs, SIMs and financial advisers.

Finally, it is also worth mentioning the existence of several family offices, whose authorisation differs according to the activities performed. In particular, family offices can be divided into three categories: single-family offices, offering their services to a single family, which also owns the entity; multi-family offices, offering their services to several families, which may or not be shareholders of the entity; and multi-client family offices, run by subjects unrelated to the families.

Definition of private banking

What is the definition of private banking or similar business in your jurisdiction?

Italian laws and regulations do not provide for specific definitions of ‘private banking’ or ‘wealth management’.

Licensing requirements

What are the main licensing requirements for a private bank?

As already outlined under question 3, the Italian legal framework does not set out specific licensing requirements for the provision of private banking and wealth management services. The relevant licensing requirements are those imposed on banks, SIMs and SGRs when they apply for their respective authorisation.

In general terms, banks, SIMs and SGRs shall comply with requirements and conditions that cover the following aspects: (i) their legal form; (ii) the location of their registered office; (iii) the amount of paid-up capital; (iv) the submission to the authorities of their articles of incorporation and bylaws, and of a programme of operations setting out the structure of the company’s organisation and the type of business that they envisage carrying out; (v) reputation and financial soundness requirements for significant shareholders; (vi) reputation, experience, skills, knowledge and independence requirements for corporate officers; and (vii) effective exercise of supervisory functions by the competent authorities. A licence will be granted if it is proven that the sound and prudent management of the bank, SIM or SGR, also with respect to the provision of investment services, will be ensured.

Finally, financial advisers are also subject to reputation, experience, independence and financial soundness requirements and need to be listed in the single register of financial advisers, provided they successfully complete an exam.

Licensing conditions

What are the main ongoing conditions of a licence for a private bank?

In general, during the course of business, licence holders must fulfil the conditions under which their authorisation was granted, and must comply with the prudential requirements set out in the applicable national and EU provisions.

Organisational forms

What are the most common forms of organisation of a private bank?

See question 3.

Licences

Obtaining a licence

How long does it take to obtain a licence for a private bank?

In Italy there is only a single licence for taking up and the pursuit of banking activities, regardless of whether the bank, in light of the banking activities actually provided, would qualify as being ‘private’ or not.

According to the SSM mechanism, the application for a banking licence must be submitted to the Bank of Italy, which will then propose to the ECB a draft decision on the application. The ECB must make its final decision within 180 days of the Bank of Italy’s receipt of the application and relevant documentation.

Licence withdrawal

What are the processes and conditions for closure or withdrawal of licences?

Under the Italian legal framework, in order not to have its licence revoked, a bank must not cease to engage in business for more than six months, must not fail to adhere to a deposit guarantee scheme (nor be excluded from it) and must not be subject to compulsory administrative liquidation. The licence would also be revoked if the authorisation has been obtained through false statements or if the conditions on the basis of which it was granted are no longer satisfied.

Pursuant to the SSM Mechanism, both the Bank of Italy and the ECB hold the right to propose the withdrawal of a banking licence, and should consult between themselves on this. The bank is entitled to represent its views on the matter and is given the right to be heard by the ECB, which is ultimately responsible for making the final decision.

Wealth management licensing

Is wealth management subject to supervision or licensing?

See question 3.

Requirements

What are the main licensing requirements for wealth management?

See question 5.

What are the main ongoing conditions of a wealth management licence?

See question 6.

Anti-money laundering and financial crime prevention

Requirements

What are the main anti-money laundering and financial crime prevention requirements for private banking and wealth management in your jurisdiction?

Legislative Decree No. 231 of 21 November 2007 (AML Decree) - which has been recently amended by Legislative Decree No. 90 of 25 May 2017 in order to implement Directive (EU) 2015/849 (IV AML Directive) - sets out the main AML obligations for banks and other intermediaries, which consist of the following:

  • customer due diligence (CDD) obligations, such as: (i) identifying the customer and the ‘executor’ (this being the person authorised to operate in the name and on behalf of the client); (ii) identifying, where applicable, the beneficial owner; (iii) verifying the identity of the customer and, where applicable, of the executor and of the beneficial owner, on the basis of documents, data or information obtained from a reliable and independent source; (iv) obtaining information on the purpose and intended nature of the business relationship; and (v) conducting ongoing monitoring of the business relationship;
  • record-retention obligations: a copy of the documents relating to the CDD obligations and the original or the copy of the records of the transactions are required to be retained for a period of 10 years after the date of the occasional transaction or the end of the business relationship. In this regard, banks and other intermediaries are required to maintain records in a standardised customer database, although the applicable provisions in this respect are currently subject to revision; and
  • reporting obligations: banks and other intermediaries must file a report with the competent authority (the Financial Intelligence Unit, UIF) of a ‘suspicious transaction’ whenever they know, suspect or have reason to suspect that money laundering or terrorist financing is being, or has been, carried out or attempted.

Politically exposed persons

What is the definition of a politically exposed person (PEP) in local law? Are there increased due diligence requirements for establishing a private banking relationship for a PEP?

Under the Italian legal framework, a politically exposed person means a natural person who is or has been entrusted with prominent public functions, as well as their immediate family members and the persons known to be their close associates; further clarifications are contained in article 1, paragraph 2 of the AML Decree. With respect to transactions or business relationships with PEP, banks and other intermediaries must: (i) obtain senior management approval before establishing business relationships or executing occasional transactions; (ii) take adequate measures to establish the source of assets and funds that are involved in the business relationship or transaction; and (iii) conduct enhanced ongoing monitoring of the business relationship.

Documentation requirements

What is the minimum identification documentation required for account opening? Describe the customary level of due diligence and information required to establish a private banking relationship in your jurisdiction.

When the customer is a natural person, identification is carried out through the acquisition of identification data (such as name, date and place of birth, residence, identification document details and, where assigned, fiscal code), upon provision of an identity card or another valid document for identification, such as passport, driving licence or any other identification document (with a photograph of the holder and a stamp) that has been issued by an Italian or other country public administration body.

When the customer is a legal person, the identification is carried out with respect to: (i) the customer, through the acquisition of its identification data (such as name, registered office and, where assigned, fiscal code); and (ii) the executor, through the acquisition of its identification data and its power of attorney. Attention must be paid to the purposes that the customer pursues and to the legal form adopted, especially where it shows particular elements of complexity or opacity that may prevent or hinder the identification of the beneficial owner or the actual business purpose. Further elements should be taken into account, such as any connection between the customer and entities residing in a non-EU country, any situation of financial or economic weakness that may expose the customer to the risk of criminal infiltration, any activity in economic sectors concerned by the provision of public funds.

The identification of the beneficial owner takes place on the basis of identification data supplied by the customer, or in another way, for example by making use of public registers, lists, records or documents publicly accessible. Legislative Decree No. 90 of 25 May 2017 has introduced the obligation, for entities and trusts, to report to the Companies’ Register accurate and up-to-date information on their beneficial ownership.

In any case, the intensity and scope of CDD has to be calibrated to the actual and factual risk of money laundering and terrorism financing associated with the individual case (pursuant to the risk-based approach).

Tax offence

Are tax offences predicate offences for money laundering? What is the definition and scope of the main predicate offences?

Preliminarily, it should be noted that the Italian legal framework contains two different definitions of money laundering. Pursuant to the definition of money laundering for criminal purposes (under article 648-bis of the Italian Criminal Code), a predicate offence is considered to be every offence that has been committed with a subjective element other than negligence (ie, any delitto non colposo). Pursuant to the definition of money laundering for purposes of prevention and contrast money laundering (under article 2 of the AML Decree), predicate offences are linked to the concept of criminal activity, which is nevertheless defined as the commission or the involvement in the commission of a delitto non colposo.

In line with international guidelines, the prevailing Italian case law has confirmed that tax offences also qualify as predicate offences for AML purposes. In this respect, it should be considered that tax offences may be triggered only in relation to income taxes and VAT, when the taxpayer has carried out specific violations (eg, the issuance of false invoices) or the relevant violation exceeds specific thresholds provided by the law (eg, the taxpayer has not paid income taxes for more than €150,000 and the omitted positive income is higher than the 10 per cent of the overall taxable income or, in any case, higher than €3 million).

Compliance verification

What is the minimum compliance verification required from financial intermediaries in connection to tax compliance of their clients?

Tax compliance verification does not fall within the scope of CDD obligations.

Liability

What is the liability for failing to comply with money laundering or financial crime rules?

The AML Decree has set up a twofold sanctioning system: violation of AML provisions may lead to the commission of offences having either a criminal or administrative nature.

Broadly speaking, criminal sanctions are provided for serious breaches of CDD and record-retention obligations (eg, committed through fraud or falsification of documents) and for informing the customer concerned or other third persons that a suspicious transaction has been reported to UIF. For those criminal offences committed by managers or employees in the interest or for the benefit of the bank or intermediary, the bank or intermediary itself can be held responsible when certain other conditions occur.

As to administrative sanctions, in some cases the bank or intermediary is the direct addressee of the sanction, while in other cases the person being fined is the individual committing the violation, but the bank or intermediary is held jointly and severally liable.

Finally, the client providing false information in the context of the CDD may also be sanctioned.

Client segmentation and protection

Types of client

Does your jurisdiction’s legal and regulatory framework distinguish between types of client for private banking purposes?

In accordance with Directive 2004/39/EC (MiFID) - now replaced by Directive (UE) 2014/65 (MiFID II) - the Italian legal framework identifies three types of customer for investment services purposes:

  • professional customers, which are further classified into public and private categories. Moreover, private professional customers are also classified into two categories: (i) private professional customers by law, such as banks, SIMs and large companies; and (ii) private professional customers on request, ie, customers that explicitly request to be treated as professional and that the intermediary can reasonably consider to be capable of making informed investment decisions on their own and to understand the risks that they are assuming;
  • eligible counterparties, ie, the customers identified pursuant to article 6, paragraph 2-quater, letter d) of TUF and Article 58 of Consob Regulation on intermediaries, and to whom are provided the following investment services: reception and transmission of orders in relation to one or more financial instruments; execution of orders on behalf of clients; and dealing on their own account. In summary, almost every private professional customer by law qualifies as an eligible counterparty; and
  • retail customers: any customer not included in the previous categories.

Client segmentation

What are the consequences of client segmentation?

Broadly speaking, the extent of the rules of conduct to be adopted by banks and other intermediaries in the provision of investment services differs according to the three types of customers: maximum care towards retail customers, lesser requirements towards professional customers, and almost no requirements towards eligible counterparties.

More specifically, the classification as a professional customer leads to the disapplication of some protective provisions, as well as to a partial exemption from the rules on the evaluation of suitability and appropriateness in articles 39-42 of the Consob Regulation on intermediaries; in particular, the knowledge and experience of professional customers is presumed. Finally, with regard to eligible counterparties, the bank and other intermediaries are not required, unless a different agreement with the client states otherwise, to comply with the obligations in articles 27-56 of the Consob Regulation on intermediaries.

Consumer protection

Is there consumer protection or similar legislation in your jurisdiction relevant to private banking and wealth management?

The Italian legal framework provides rules on transparency and correctness of conduct for both the provision of investment services and banking services:

  • as to investment services, the main obligations are set out in Consob Regulation on intermediaries. Specific protective provisions govern the door-to-door selling of investment services, although they do not apply when the customer is classified as professional; and
  • as to banking services, Title VI of TUB sets out the key principles, while more detailed provisions are contained in the Bank of Italy Regulation of 29 July 2009. Apart from some exceptions, these apply to all types of customers. TUB also contains specific rules on credit to consumers, which is the granting of financing to a consumer (ie, ‘a natural person acting for purposes outside his or her business, trade, craft or profession’). In addition to the above, a specific section of Legislative Decree No. 206/2005 (Consumer Code) provides certain requirements for distance marketing of banking service to consumers.

In general, high net worth individuals (HNWIs) may fall within the definition of consumer; however, the rules on credit to consumers would not apply to loans towards consumers for amounts higher than €75,000.

Exchange controls and withdrawals

Exchange controls and restrictions

Describe any exchange controls or restrictions on the movement of funds.

In general, there are no exchange controls or restrictions on the movement of funds in Italy, whose liberalised system is fully compliant with European directives on free movement of capital. Only certain restrictions apply:

  • in general, according to article 49, paragraph 1 of the AML Decree, transfers of cash or bearer instruments, in euros or in foreign currency, effected for whatever reason between different parties, must be carried out by means of banks or other financial institutions when the total amount of the value to be transferred is more than €3,000;
  • there is also no limit on the amount of cash that can be materially taken abroad. However, anyone entering or leaving the country and carrying cash of an amount equal to or greater than €10,000 must declare that sum to the Customs Agency; and
  • finally, for tax reporting requirements, see the response to question 31.

Withdrawal restrictions

Are there restrictions on cash withdrawals imposed by law or regulation? Do banks customarily impose restrictions on account withdrawals?

Italian law does not prescribe any limitation on the amount of cash withdrawals that may be carried out at a bank counter or ATM. In general, however, banks impose restrictions on cash withdrawals at ATMs, and these amounts may often be negotiated and agreed with the customer.

Are there any restrictions on other withdrawals from an account in your jurisdiction?

Italian law does not prescribe any such restrictions.

Confidentiality

Obligations

Describe the private banking confidentiality obligations.

The Italian legal system does not contain provisions that positively uphold a general obligation of bank confidentiality. Such confidentiality is, according to prevailing legal interpretations, more likely to be attributable to a custom. In any case, several exceptions apply to confidentiality, for example, under tax legislation, AML legislation or the TUB itself (which obliges banks to report to the Bank of Italy - which is held to professional secrecy - any data or document it requests). To date, banking confidentiality is enhanced by the legislation on the right to privacy, specifically governed by Legislative Decree No. 196 of 30 June 2003 (the Privacy Code).

The Privacy Code does not contain specific provisions on private banking. However, private banking activity could lead to the collection of information qualifying as personal data, sensitive data or judicial data. In particular, under the Privacy Code, personal data means ‘any information relating to natural persons that are or can be identified, even indirectly, by reference to any other information including a personal identification number’; sensitive data means, among other things, ‘personal data allowing the disclosure of …, membership of parties, trade unions, associations or organisations of a religious, philosophical, political or trade-unionist character’, and judicial data means ‘personal data disclosing the measures referred to in section 3(1), letters a) to o) and r) to u), of the Presidential Decree No. 313 of 14 November 2002 concerning the criminal record office, the register of offence-related administrative sanctions and the relevant current charges, or the status of being either defendant or the subject of investigations pursuant to sections 60 and 61 of the Criminal Procedure Code’. The principles set out in Privacy Code and in certain General Provisions adopted by the Italian Data Protection Authority apply to the private banking sector. In particular, reference should be made to the ‘Guidelines for the Processing of Customers’ Data in the Banking Sector’ (dated 25 October 2007), and to the general authorisations Nos. 5 and 7 with regard to, respectively, the processing of sensitive and judicial data.

Pursuant to such general principles, the collected information can only be processed for lawful purposes - for example, to fulfil contractual obligations or to meet legal requirements - and in compliance with all the provisions set out in the applicable legislation concerning personal data protection. In particular, the Privacy Code states that the data of ‘data subjects’ can be processed: (i) only by persons in charge of the processing (or the ‘data processors’, where appointed), within the limits of their appointment; (ii) in compliance with data minimisation and data quality principles as regards data accuracy and updating; (iii) by informing the data subjects appropriately beforehand; and (iv) by requesting the data subjects’ consent unless certain exemptions provided by the Privacy Code occur.

Scope

What information and documents are within the scope of confidentiality?

The principles mentioned above also apply to the processing of information obtained for the identification of customers establishing a contractual relationship or performing banking transactions. For the documentation required for AML purposes, see the response to question 15.

Expectations and limitations

What are the exceptions and limitations to the duty of confidentiality?

Pursuant to the Privacy Code, the personal data of the data subject may be collected and processed only with his or her prior consent unless certain exemptions provided by the Privacy Code occur. In particular, there is no need to obtain the client’s consent in order to perform private banking transactions, while it is necessary to inform clients (at least once and for all) when the data is processed pursuant to legal requirements or to fulfil contractual obligations or to comply with specific requests made by clients. Broadly speaking, the subject in charge of performing private banking transactions must keep confidential all the data; communicating a client’s personal data to third parties is allowed only with the client’s consent or if any of the conditions for processing the data (as per article 24 of the Privacy Code) are fulfilled.

Breach

What is the liability for breach of confidentiality?

Breach of the confidentiality obligations can be identified as an unlawful processing of personal data under the Privacy Code. In particular, unlawful processing of personal data is sanctioned according to articles 167 and 162, paragraph 2-bis of the Privacy Code, which provide for, respectively, a criminal sanction and administrative sanctions consisting of payment of a fine ranging from €10,000 to €120,000. In any case, the non-compliance with the relevant applicable law could result in the application of administrative fines, usually in the range of €6,000 to €180,000.

Cross-border services

Framework

What is the general framework dealing with cross-border private banking services into your jurisdiction?

Entities regulated abroad may perform private banking services in Italy subject to the compliance with certain licensing requirements (see question 26), which mostly change depending on whether the entity is based in an EU member state or in a third country.

In particular, while non-EU entities need to be authorised by the Italian authorities for carrying out private banking services in Italy, EU entities benefit from the principle of mutual recognition of authorisations; thus they would only need to complete a notification procedure between the authorities of their home member state and the Italian authorities (the passport procedure). Moreover, according to the home country control principle, an EU entity operating in Italy will be primarily supervised by its competent authorities, while the Italian authorities will mainly assume a complementary role (especially if the EU entity operates under the freedom to provide services regime).

Licensing requirements

Are there any licensing requirements for cross-border private banking services into your jurisdiction?

As mentioned above, EU banks may carry out private banking services in Italy simply by way of the passport procedure; such procedure changes according to whether the EU bank intends to establish a branch or to operate under the ‘freedom to provide services’ regime, to whether the EU bank is based or not in a member state participating in the SSM, and to whether the EU bank qualifies or not as a ‘significant’ credit institution under the SSM rules. More specifically:

  • a bank based in an EU member state participating in the SSM may establish a branch in Italy by simply submitting a notification to the NCA of its home member state, which would then pass that information to the ECB if the EU bank qualifies as significant; where no decision to the contrary is taken by - respectively - the NCA or the ECB within two months of receipt of the notification, the branch may be established in Italy and commence its banking activities. The NCA or ECB must communicate this information to the Bank of Italy; and
  • as to banks based in an EU member state not participating in the SSM, if they wish to establish a branch in Italy they have to notify their NCA, which, unless it has reason to doubt the adequacy of the administrative structure or the financial situation of the bank, within three months, must communicate that information to the Bank of Italy (which must immediately notify the ECB) and must inform the bank accordingly. Within two months, the branch in Italy may be established and commence its banking activities, while the Bank of Italy (or the ECB, if the branch qualifies as significant pursuant to SSM rules) may, if necessary, indicate the conditions under which, in the interests of the general good, the branch may carry out its activity in Italy;
  • under the freedom to provide services, any EU bank wishing to carry out its banking activities in Italy for the first time must notify its NCA of the banking activities that it intends to carry out. That NCA must, within one month, send that notification to the Bank of Italy and to the ECB. the The EU bank may commence its activities upon the Bank of Italy’s receipt of the notification.

In all of the aforementioned cases, the Bank of Italy must inform Consob if the EU bank also intends to perform investment services in Italy.

On the contrary, non-EU banks wishing to carry out banking activities in Italy need to be authorised by the Bank of Italy (not by the ECB, as the cross-border activities of credit institutions from third countries are not in the scope of the SSM), provided it has the prior consent of the authority supervising the non-EU bank, and subject to the condition of reciprocity. The establishment of the first branch is authorised within 120 days; in the context of such application, the non-EU bank may apply to the Bank of Italy for the provision of investment services, and in this case the timings for the authorisation are aligned; if the non-EU bank applies to the Bank of Italy to provide investment services once the establishment of the branch has already been approved, the procedure takes 90 days. Also, the pursuit of banking activities under the freedom to provide services is authorised by the Bank of Italy within 120 days (to which a further 30 days must be added for the issuance of Consob’s opinion).

Likewise, EU investment firms may carry out investment services in Italy, either with the establishment of a branch or under the freedom to provide services regime, simply by way of the passport procedure; in this case, Consob is the Italian authority that must be informed. In contrast, non-EU investment firms wishing to establish a branch in Italy or to operate under the freedom to provide services regime need to be authorised by Consob, which must grant its approval within 120 days of receipt of the application (and to which a further 30 days must be added for the issuance of the Bank of Italy’s opinion).

Regulation

What forms of cross-border services are regulated and how?

Both banking services and investment services (in particular, portfolio management and investment advice), may be provided cross-border, provided there is compliance with the procedure and requirements set out in question 26.

Employee travel

May employees of foreign private banking institutions travel to meet clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?

According to the Italian authorities, an investment service is deemed to be provided in Italy if the initial contact with the investor is derived from the carrying out on Italian territory, by any means, of activities such as promotion of that service, canvassing, customer research, description and conclusion of contracts. Therefore, in order not to be accused of performing a reserved activity, the private banking institution would first need to carry out the passport procedure or to obtain the relevant authorisation, in accordance with the licensing requirements described in question 26. The Italian authorities have quite a restrictive approach in this respect.

Exchanging documents

May foreign private banking institutions send documents to clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?

See question 28.

Tax disclosure and reporting

Taxpayer requirements

What are the main requirements on individual taxpayers in your jurisdiction to disclose or establish tax-compliant status of private banking accounts to the authorities in your jurisdiction? Does the requirement differ for domestic and foreign private banking accounts?

The requirements on individual taxpayers, under Italian tax law, to disclose or establish a tax-compliant status are different for domestic and foreign private banking accounts.

As a general rule, non-resident individual taxpayers are not subject to any tax obligations in Italy with reference to foreign private banking accounts.

Requirements for domestic private banking accounts

Private banking accounts held in Italy by both resident and non-resident individual taxpayers are not subject to any specific tax disclosure requirements.

Income arising from domestic private banking accounts must be reported in the relevant income tax return, unless a final withholding tax or a substitutive tax (generally at 26 per cent) has been applied. Under Italian tax law, certain financial income realised by non-resident individual taxpayers, (eg, interest on bank and postal accounts and capital gains realised on shares traded in a regulated market), are not subject to tax in Italy.

Domestic private banking accounts are subject to an annual stamp duty ranging from €32.40 to 0.20 per cent of the value of the assets held and which is withheld by the Italian depositary intermediary.

Requirements for foreign private banking accounts

For foreign private banking accounts, the main reporting requirements on individual resident taxpayers to disclose or establish a tax compliant status are the following:

  • to report in the relevant income tax return the nature and the value of the foreign private banking accounts according to the Italian foreign assets reporting duties (cash deposits and bank accounts are not subject to reporting duties if their overall maximum value during the relevant calendar year has been lower than €15,000);
  • to determine and pay the wealth tax on financial assets held abroad (IVAFE) whose amount ranges from €32.40 to 0.20 per cent of the value of the assets held abroad; and
  • to report in the relevant income tax return all income arising from the foreign private banking accounts, unless a final withholding tax or a substitutive tax (generally at 26 per cent) has been applied by an Italian financial intermediary.

Reporting requirements

Are there any reporting requirements imposed on the private banks or financial intermediaries in your jurisdiction in respect to their domestic and international clients?

Under Italian tax law, Italian financial intermediaries are subject, among other things, to the following reporting requirements:

  • on a monthly basis, they must communicate to the Italian tax authorities the opening and the termination of any financial relationship with a client;
  • on an annual basis, they must communicate to the Italian tax authorities, among other things, the following information related to each financial relationship: identification data (eg, the unique code); the initial, the final and the average balance of the relevant year; and information regarding overall deposits and withdrawals;
  • they must collect and transmit to the Italian tax authorities any data regarding transfers of funds and other financial assets exceeding €15,000 involving foreign countries carried out on behalf or in favour of both resident and non-resident individual taxpayers; and
  • they must act as a withholding agent, if applicable in relation to income paid to their clients, and file a withholding agent tax return for withholding and substitutive taxes applied.

Client consent on reporting

Is client consent required to permit reporting by the private bank or financial intermediary? Can such consent be revoked? What is the consequence of consent not being given or being revoked?

Irrespective of clients’ consent, Italian financial intermediaries are required by law (i) to report monitoring data to the Italian tax authorities; (ii) to apply, if due, withholding and substitutive taxes on income paid to their clients; and (iii) to report these taxes in their withholding tax agent return.

Structures

Asset-holding structures

What is the most common legal structure for holding private assets in your jurisdiction? Describe the benefits, risks and costs of the most common structures.

The most common legal structures that an individual can use for holding private assets in Italy are trusts, insurance policies and fiduciary agreements as well as simple partnerships. Italian foundations are not legal structures capable of holding private assets, since Italian foundations may be used for social purposes only.

Trusts

Trusts are recognised in Italy by virtue of the Hague Convention of 1 July 1985 on the Law Applicable to Trust and on their recognition, ratified in Italy pursuant to Italian Law No. 364 of 16 October 1989.

Trusts may be used for succession planning, for the generational shift in family enterprises or for family estate purposes, for pursuing of public aims, and for planning the maintenance and care of disabled persons.

In any case, the trust deed provisions must not violate any domestic mandatory provisions, as specified in Article 15 of the Hague Convention of 1 July 1985. Therefore, trust deed provisions should comply with the domestic provisions on succession rights and, in particular, the reserved shares of spouses, children and relatives, or the domestic provisions on creditors rights.

The main costs related to such a legal structure are: (i) the fees paid for the establishment of the trust (ie, notary public and legal assistance, usually in the range of €10,000 and €30,000); (ii) the fee paid to the trustee (usually in the range of €10,000 and €20,000 per annum plus a set-up fee); and (iii) the taxes to be paid upon the transfer of the assets to be held on trust.

Under Italian tax law, non-commercial resident trusts are taxable persons for corporate income tax purposes (IRES, which applies at 24 per cent rate). In more detail, the relevant taxable income is determined according to the same rules provided for individual taxpayers, save for certain exceptions, and then subjected to the IRES tax rate.

However, trusts with identified beneficiaries (ie, beneficiaries who have a current unconditional right to claim the income generated by the trust fund), are subject to a look-through tax regime. Accordingly, the income realised by the trust is allocated to the identified beneficiaries as income from capital and is subject to progressive individual income tax rates (equal to 43 per cent for taxable income higher than €75,000).

In this respect, the following should also be considered:

  • revocable trusts may be disregarded for income tax purposes where they are actually managed by the settlor or the beneficiaries; in such a scenario, income realised by the trust may be directly allocated to the settlor or the beneficiaries and taxed accordingly; and
  • Italian inheritance and gift tax applies to the contribution of assets to the trust fund; the applicable rate and possible exemptions are determined depending on the relationship between the settlor and the beneficiaries.

Insurance policies

Insurance policies may be used by individuals to invest their assets and obtain yields to provide the insured party’s family a considerable amount.

The owner of the insurance policy has no influence on its administration, and its subject matter tends to be limited only to certain kinds of assets, such as sums of money or financial products.

The main costs related to such a legal structure are: (i) fees to be paid to the insurance company for the administration of the assets (which is usually a percentage over the invested amounts); and (ii) penalties for early termination of the insurance policy (if any).

Trust and insurance policies may also be used on a combined basis to ensure that the insured assets are used to achieve a specific purpose intended by the insured party upon the termination of the insurance policy.

As a general rule, income arising from an insurance policy is subject, as income from capital, to a 26 per cent substitutive tax. The relevant income is determined by the difference between the amount received (eg, the redemption amount) and the insurance premiums paid.

According to the particular tax exemption regime, the amount received, mortis causa, by the beneficiaries of an insurance policy, if related to the mortality risk only, is not subject to tax.

Fiduciary agreements

Fiduciary agreements may be used for the attainment of different purposes, such as ensure the confidentiality of the beneficial ownership of transferred assets, to grant the coordination of the management of shareholdings held in several companies, or to allow the generational shift of the family assets, ensuring the continuity of management.

The owner must continue to manage its assets by giving instructions to the fiduciary company, which acts as an agent only. The fiduciary agreement is binding only with respect to the relations between its parties and it is not enforceable against third parties.

The main costs related to such a legal structure are the fees to be paid to the fiduciary company (usually in the range of €6,000 to €10,000).

Fiduciary agreements are not relevant for income tax purposes. Therefore, income arising from assets held through a fiduciary agreement is directly attributed to the relevant owner. However, individual Italian taxpayers are not subject to tax reporting duties in relation to foreign assets held through a fiduciary agreement.

Simple partnerships

Simple partnerships are the basic type of partnership provided for under the Italian Civil Code. In particular, Italian law does not require special formalities for the incorporation of simple partnerships, since they may be used for non-commercial purposes only and for holding private assets. Therefore, simple partnerships are not required to keep books and accounts.

In addition to the above, the regime provided for under Italian law in relation to simple partnerships is quite flexible and may be derogated from with the consent of all the partners.

Simple partnerships may be used for wealth planning purposes and are a useful legal structure for managing family assets (ie, shares in the family holding, securities and real estate).

The main costs related to such a legal structure are the fees to be paid for the registration of the simple partnership in a special section of the Company Register (usually not more than €5,000).

Simple partnerships are subject to a look-through tax regime. Accordingly, the income realised by a simple partnership is allocated to its quota holders and taxed based on its specific nature (eg, income from capital, capital gains, professional income or real estate income).

Know-your-customer

What is the customary level of know-your-customer (KYC) and other information required to establish a private banking relationship where assets are held in the name of a legal structure?

Broadly speaking, private banking relationships require a thorough assessment of the client’s profile for AML purposes, given that they imply the personalised management of large amounts of assets (see question 15). The CDD obligations must also be conducted if the customer is a trust or a fiduciary company, including the identification of the subject on whose behalf such structures operate. With particular respect to trusts, following the implementation of the IV AML Directive, the beneficial owners should now be regarded as: (i) the settlor; (ii) the trustee or trustees; (iii) the protector, if any; (iv) the beneficiaries, or where the individuals benefiting from the legal arrangement or entity have yet to be determined, the class of persons in whose main interest the legal arrangement or entity is set up or operates; or (v) any other natural person exercising ultimate control over the trust by means of direct or indirect ownership or by other means.

Moreover, pursuant to the MiFID legal framework, banks and other intermediaries, before carrying out the services of portfolio management or investment advice, must obtain from their clients or potential clients the necessary information regarding their knowledge and experience of the financial markets, their financial situation and their investment objectives. However, should the client qualify as a professional customer for MiFID purposes, banks and other intermediaries may presume that they have the knowledge and experience necessary to understand any risk related to the transaction to which the investment service refers.

Controlling person

What is the definition of controlling person in your jurisdiction?

The Italian legal framework provides for several definitions of control. The most general one is that in article 2359 of the Italian Civil Code, pursuant to which a company is deemed to be ‘controlled’ when another entity either has the majority of the voting rights exercisable at its shareholders’ meeting, has sufficient voting rights to exercise a dominant influence at its shareholders’ meeting or is able to exercise a dominant influence on the company by virtue of contractual constraints between the two. Different definitions of control apply in specific fields (eg, for acquisitions of shareholdings in banks or in SIMs, where reference is made to the notion of control provided by article 23 TUB, or for takeover bids, where reference is made to the notion of control provided by article 93 TUF).

Obstacles

Are there any regulatory or tax obstacles to the use of structures to hold private assets?

If a trust is set up with the purpose of sheltering funds and other assets from the payment of income taxes and VAT amounting at least to €50,000, the taxpayer may commit the crime of fraudulent misappropriation of taxes.

It should be noted that this tax crime:

  • may be triggered even if:
  • the relevant tax violations have not been assessed at the time of the contribution to the trust fund;
  • the taxpayer is able to pay the relevant taxes; and
  • the embezzled value is lower than €50,000 should this conduct affect the collection of taxes assessed for an amount higher than €50,000; and
  • may be punished by imprisonment for a period from six months up to six years.

Contract provisions

Types of contract

Describe the various types of private banking and wealth management contracts and their main features.

As described in question 3, the main private banking contracts are those governing the provision of portfolio management, the provision of investment advice or a combination of the two.

Pursuant to article 1, paragraph 5-quinquies, TUF, portfolio management is the management, on a discretional and individual basis, of portfolio investments including one or more financial instruments, according to a mandate conferred by the customer; pursuant to article 1, paragraph 5-septies, TUF, investment advice is the provision of customised recommendations to a customer, upon its request or on the initiative of the intermediary, in relation to one or more transactions concerning one financial instrument.

TUF and the Consob Regulation on intermediaries impose specific obligations for the provision of the above-mentioned investment services. In particular, the following rules apply to portfolio management:

  • the customer may issue binding instructions with regard to transactions to be performed;
  • the customer may withdraw from the contract at any time; and
  • the power to exercise voting rights in relation to financial instruments under management may be conferred upon the intermediary by means of a proxy granted in writing for each shareholder’s meeting.

Moreover, following the implementation in Italy of MiFID II, before providing investment advice, the intermediary must inform the client:

  • whether or not the advice is provided on an independent basis;
  • whether the advice is based on a broad or on a more restricted analysis of different types of financial instruments; and
  • whether the intermediary will provide the client with a periodic assessment of the suitability of the financial instruments recommended to that client.

Finally, pursuant to the general principles of private international law, the governing law of these contracts can be varied by the parties.

Liability standard

What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?

Pursuant to article 23 TUF, in actions for damages brought by the customer against the intermediary, the burden of proof of having acted with the necessary due diligence is placed on the intermediary, which must demonstrate that it has complied with the technical rules governing the provision of investment services. In particular, the intermediary must refrain from conducting investment transactions that are inadequate - by type, subject, frequency or size - to the actual needs of the customer.

As to the contractual provisions that intervene of such liability framework, if the investor qualifies as a consumer, they might be regarded as unfair terms, and thus they may potentially be null and void.

Mandatory legal provisions

Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?

TUF and the Consob Regulation on intermediaries provide for specific requirements with which the contracts for the provision of investment services must comply. As a general rule, apart from investment advice contracts, they all need to be executed in writing and a copy must be given to the investor. Additional conditions apply to contracts for the provision of portfolio management. To date, most of the requirements relating to the disclosure, form and content of the contracts do not apply with respect to professional customers. However, following the implementation of MiFID II, both the contracts for the provision of portfolio management and investment advice, even when entered into with professional customers, must be in written form (unless the investment advice is provided without a periodic assessment of the suitability).

Limitation period

What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?

Generally speaking, the intermediary’s liability for damages arising from the breach of the rules of conduct placed upon him or her is of a contractual nature, and is therefore subject to the ordinary (in the Italian legal framework) limitation period of 10 years. Since the limitation period is provided by law under general provisions, the parties cannot renounce it or alter its terms in advance; the limitation period may be waived only after it has elapsed.

Disputes

Competent authorities

What are the local competent authorities for dispute resolution in the private banking industry?

Under the Italian legal framework, competence to rule on disputes relating to banking and financial services is granted to the ordinary courts. However, before referring the matter to court it is mandatory to have first attempted a mediation procedure or, alternatively, to have referred the matter to:

  • the Arbitro Bancario Finanziario (ABF), which is the body responsible for disputes relating to banking services, regulated by the Bank of Italy; or
  • the Arbitro per le Controversie Finanziarie (ACF), which is the body responsible for disputes relating to the provision of investment and asset management services, regulated by Consob.

For both these alternative dispute resolution bodies:

  • only the customer has the right to access the services of each body, after having lodged a complaint without success with the bank or intermediary;
  • only certain types of customers are admitted. In particular, only investors qualifying as retail may refer the matter to ACF, while access to ABF is prevented to subjects carrying out activities on a professional basis in the banking, financial and insurance sector, unless they act for purposes that are outside their profession; and
  • the decisions of these bodies are not binding but their enforcement is guaranteed through reputational sanctions.

Disclosure

Are private banking disputes subject to disclosure to the local regulator? Can a client lodge a complaint with the local regulator? How are complaints investigated?

Without prejudice to the supervision performed by the Bank of Italy and Consob, there is no general obligation to disclosure to such authorities of the outcome of private banking disputes.

The Bank of Italy and Consob may receive petitions by which customers and investors may report facts or misconduct occurring in the relationship with banks and other intermediaries. The authorities cannot provide immediate and direct protection to the rights of the individuals, but may carry out inspections aimed at verifying what has been reported, in the general interest of the protection of savings.