On 25 March 2019, the Law Decree no. 22 (the “Decree”) on urgent measures to guarantee the continuity of the markets in case of no-deal Brexit applicable was published in the Italian Official Journal (Gazzetta Ufficiale).
The said measures will take effects on the date of withdrawal of the United Kingdom from the European Union (“Withdrawal Date”) which will occur either on 12 April 2019 or on 22 May 2019 (depending on the decision by the House of Commons on the approval of the Withdrawal Agreement).
The Decree is aimed at preserving the overall stability of the Italian economic, banking, financial and insurance system, and thus ensuring the market integrity and the protection of both investors and customers in case of Hard Brexit, by ruling on the activity of the market operators for the duration of 18 months starting from the Withdrawal Date (the “Interim Period”).
The Decree provides that UK operators will have to cease carrying out some banking and financial services on the Withdrawal Date, whilst other services may be carried out after this date upon notification to the competent authority (Bank of Italy or CONSOB).
The Decree enters into force in March 26th, 2019 but it must be converted into law within 60 days from its publication in the Italian Official Journal in order to become final.
In order to implement the measures of the Decree, on 26 March 2019 CONSOB issued Communication no. 7 (“CONSOB Communication”) and on 27 March 2019 the Bank of Italy issued its Communication (“Bank of Italy Communication”) containing the instructions for UK banks and UK intermediaries in the event of a no-deal Brexit
1. Services automatically terminated starting from the withdrawal date
1.1. Termination of the services rendered in favour of retail clients and opt-up professional clients
UK Payment Institutions (PIs), Fund Managers, Undertakings for Collective Investment based in the United Kingdom, Electronic Money Institutions (EMIs) providing services in Italy under the Freedom of Services regime (“FoS”), and UK banks and investment firms providing investment services under the FoS regime vis-à-vis retail clients and opt-up professional clients must stop their activities starting from the Withdrawal Date.
The only activity which may be carried out by said entities is the management of the contracts aimed at completing all necessary actions in order to orderly terminate any existing agreements in the shortest possible time and, in any case, within 6 (six) months from the Withdrawal Date.
During the Interim Period they are also prevented from executing new contracts and renewing any existing contracts (also by virtue of clauses providing for tacit renewal).
The discontinuance of lending activity cannot prejudice the clients’ position in respect of repayment of interest and principal.
1.2. Termination of the services due to lack of notification to CONSOB
UK banks and investment firms which (i) have not notified to CONSOB/the Bank of Italy their intention to continue the business in Italy during the Interim Period or (ii) have not applied for the authorization to render the services beyond the Interim Period within 6 months from the Withdrawal Date, must stop providing the relevant services according to paragraphs 3 e 4 below.
According to the Decree and the CONSOB Communication, within 15 days following the Withdrawal Date, the entities whose activity is going to be terminated, are requested to
- Send to CONSOB a notice outlining the initiatives taken to ensure the orderly termination of activity with separated evidence of any event which may have a significant impact on the orderly termination of the provision of investment services or clients’ rights.
- Send to CONSOB the details of existing relations with Italian clients according to the form attached to CONSOB Communication.
According to the Decree and the Bank of Italy Communication:
- financial institutions that have already informed their customers of their intention to cease the Italian operations, pursuant to the Bank of Italy’s communication of 19 February 2019 shall not provide further notice; nonetheless, within 15 days of the entry into force of the Decree, these financial institutions shall liaise with their clients and inform them of any foreseen consequences stemming from their decision to cease operations in Italy;
- within 15 days of the entry into force of Decree, financial institutions other than those referred to above shall send their Italian customers detailed information about the impact of Brexit and the measures the institution will take to ensure the orderly termination of activities.
All communications shall be written in clear and plain language. Addressees shall also be given contact details for further information and assistance and up-to-date information about the competent complaints office when deemed relevant.
According to the Decree, the relevant entities must inform their clients of any actions taken to ensure a proper termination of the activities by sending a notice within 15 days following the entry into force of the Decree (i.e. from 26 March 2019)
2. Continuation of the activity during the interim period
2.1. Banking activities carried out by UK banks
Starting form Withdrawal Date, UK banks may continue to carry out the services subject to mutual recognition upon notification to the Bank of Italy.
The collection of savings, which falls among the services subject to mutual recognition, may be continued by UK banks acting in Italy under FoS regime only in relation to any relationship set up prior to the Withdrawal Date and without the possibility to both execute new contracts and to tacitly renew the existing ones and, in any case, following to the notification to the Bank of Italy.
Banks authorized to participate in the Italian public debt tender processes may continue to carry out, without any notification obligation, any services and activities subject to mutual recognition, save for the taking of deposits activity and other repayable funds’ activities.
2.2. Investment services carried out by UK banks and UK investment firms
2.2.1. Investment services carried out under FoS regime
UK banks and UK investment firms may carry out investment services, with or without ancillary services, in FoS regime exclusively vis-à-vis eligible counterparties and professional clients as defined under Italian Financial Consolidated Act (Italian Legislative Decree 58/1998) until the adoption of a decision of the European Commission in accordance with article 47, paragraph 1 of Regulation (EU) no. 600/2014, and in any case not beyond the Interim Period and subject to the notification to CONSOB.
2.2.2. Investment Services carried out under the Freedom of Establishment regime (“FoE”)
During the Interim Period, UK investment firms which carry out investment services in Italy under FoE regime, may continue to carry out in Italy such activities subject to notification to CONSOB.
2.2.3. Provision of investment services without notification
Alike UK banks, also UK investment firms authorized to participate in the Italian public debt tender processes may continue to carry out, without any notification obligation, any services and activities subject to mutual recognition, save for the taking of deposits activity and other repayable funds’ activities.
2.3. EMIs under the FoE regime
During the Interim Period, EMIs may continue to carry out their activities after notifying the Bank of Italy thereof.
The above notifications must be filed within 3 business days before the Withdrawal Date, pursuant to the instructions provided for by the competent authorities.
3. Authorization requirement to operate after the interim period
UK entities intending to keep carrying out their regulated activities in Italy after the Interim Period, within 6 months from the initial date of the Interim Period must submit to the competent authority an application to be authorised to carry out their activities or to establish an Italian regulated entity.
All entities allowed to carry out their activities during the Interim Period that have not filed either the notification or the authorization application, must stop their activities in Italy (see paragraph 1.2 above).
The Law Decree also regulates the effects of Brexit in relation to:
- Derivative contracts
- Activities carried out by Italian and UK trading venues managers
- Rules applicable to out of courts dispute resolution during the Interim Period
- Protection of both depositors and investors
- Limitations to investments by pension funds.
Our Brexit team is at your disposal for any further information.