Recent amendments to the Italian regulatory framework have had a significant impact on the rules concerning the provision of financing activities and the entities to which such activities are reserved in Italy.
In Italy, the provision of financing activities to the public (i.e. towards third parties, on a professional basis) are generally reserved to banks and other authorised entities (i.e. financial intermediaries).
Financing activities include, inter alia, the activity of credit purchasing.
Non-Italian banks and financial intermediaries are entitled to carry out financing activities in Italy, including credit purchasing, subject to specific passporting, licensing and enrollment procedures.
As anticipated, the legislature has introduced certain new rules potentially affecting the above considerations.
In particular, the ‘Competitiveness Decree’ (Decreto competitività) (i.e. Law Decree no. 91 of 2014, as converted into Law no. 116 of 2014), which contains a number of measures aimed at addressing the various needs of the Italian economy, includes certain provisions aimed at facilitating access to new sources of financing for Italian companies.
According to these rules, the categories of entities entitled to carry out financing activities in Italy have been enlarged so as to include, subject to specific modalities and conditions, insurance companies and securitization vehicles. These entities are admitted to lend to companies to the extent that:
- the borrower is identified by a bank or a duly enrolled financial intermediary; and
- the bank or the financial intermediary identifying the borrower retains a “significant interest” in the financing transaction. For loans made by insurance companies, “significant interest” means an interest equal to at least five percent of the loan granted by the relevant insurance company. Banks and financial intermediaries will keep the significant interest for the entire life of the loan; unless they choose transfer the significant interest to other banks or financial intermediaries during the lifetime of the loan. Conversely, the law does not state which is the threshold for loans made by securitisation vehicles.
In the case of securitisation vehicles, the notes issued to fund financing granted by the securitization vehicle must be addressed to “qualified investors” only.
In the case of Italian insurance companies, such entities must also (i) have an adequate internal control and risk management systems; and (ii) be adequately capitalised.
To further support lending by insurance companies, the Decree has provided that financing granted by insurance companies falls within the assets that insurance companies may hold as investments for the purpose of complying with their technical provisions (riserve tecniche) requirements.
The Bank of Italy and IVASS (the Italian authority supervising the insurance market) must each issue implementing regulations setting forth the operational limits and the other details applicable to lending by, respectively, securitization vehicles and Italian insurance companies. In this sense, IVASS has already updated the Regulation no. 36 concerning the investments covering technical provisions (reserve tecniche) of the insurance companies.
In the same perspective, also the definition of undertakings for collective investments (“UCIs“) contained in the Legislative Decree No. 58 of 24 February 1998 has been amended. In particular, according to this amendment, UCIs, including non-Italian UCIs (irrespective of any passport/authorisation), may invest in receivables, including those arising from financing granted by the same fund.
Separate to the provisions concerning financing activities of insurance companies and securitisation vehicles, which expressly qualify as lenders and specify the modalities and conditions according to which they are entitled to grant loans, the above mentioned amendment of the Legislative Decree No. 58/1998 concerning the UCI’s definition is less clear and focuses on the investment activities undertaken.
It has been interpreted as seeking to allow UCIs’ financing activity, but secondary rules finalised to clarify and describe the modalities and conditions of this activity are still missing.
In addition, the aforesaid banking rules concerning the reservation of financing activities have not been amended or derogated. This implies, inter alia, that non-Italian banks and financial intermediaries are still subject to specific passporting, licensing and enrollment procedures in order to carry out financing activities with the public in Italy.
In light of the absence of any details on financing activity of UCIs, and the discrepancy between the above mentioned laws, it is reasonable to assume that a non-Italian UCI is entitled to purchase credits (vis-à-vis Italian borrowers) from an Italian bank, subject to specific limits and conditions.
In particular, the following structures may be considered.
A sub-participation structure involving Italian banks or financial intermediaries could be implemented, according to which (i) the UCI would enter into a relationship exclusively with Italian bank or intermediary selling the credit, without having any contact with the Italian borrowers and (ii) the UCI would have the right to obtain a reimbursement for the credit provided exclusively from the Italian bank or intermediary.
Alternatively, non-Italian UCIs may enter into a trilateral agreement with the Italian bank or intermediary selling the credits and the Italian borrowers according to which Italian borrowers would reimburse the credits directly in favor of the UCI, but the latter would not be entitled to manage the relationship for them (for example, it would be not entitled to carry out actions to force the Italian borrowers to pay, etc.).
These structures would appear to allow the purchase of Italian borrowers’ credit by non-Italian UCIs and to trigger the above described Italian regulatory scenario.
It is understood that secondary rules clarifying the scope and the application of the new rules enabling UCIs to lend to companies are needed in order to remove the uncertainties connected with it.