The Situation: As of the close of the Brexit transition period ending on December 31, 2020 ("Withdrawal Date"), UK banks, UK investment firms, and UK electronic money institutions ("UK Financial Institutions") can no longer operate in Italy under the principle of mutual recognition.
The Action: Article 22 of Italian Law Decree No. 183 of December 31, 2020 ("Milleproroghe Decree")—as further explained by the press releases issued by Bank of Italy and Consob on January 2, 2021—provides for a "grace period" until June 30, 2021, for UK Financial Institutions, provided that a request to operate in Italy had been submitted to the relevant Italian competent authority by the Withdrawal Date.
Looking Ahead: UK Financial Institutions are required to inform Italy-based clients of the effects of the United Kingdom's withdrawal from the European Union.
Article 22 introduced measures applicable to UK Financial Institutions regulating the transition from the regime based on the principle of mutual recognition at European Union level to that applicable to third-country intermediaries.
Grace Period Provided for UK Financial Institutions Under Article 22 and the Press Releases
The measures provided for by Article 22 enable UK Financial Institutions to continue to operate in Italy subject to the following:
- An application, submitted by the Withdrawal Date, for authorization to carry out the activities as intermediaries of third countries or for the establishment of an Italian intermediary to which the activity is to be transferred;
- Up to a maximum six-month grace period, expiring on June 30, 2021;
- Only in relation to the activities for which the authorization has been requested to the Italian competent authority and only with respect to the management of existing relationships (i.e., acquisition of new clients and amendment of existing agreements are not permitted); and
- The provisions applicable to third-country intermediaries pursuant to the Italian Legislative Decree No. 385 of September 1, 1993, and to the Italian Legislative Decree No. 58 of February 24, 1998.
If an authorization is refused after the Withdrawal Date, the activities for which the authorization has not been obtained must be terminated in a way and within a time frame that do not prejudice the UK Financial Institutions' Italy-based clients. The orderly termination of the existing agreements should not be compromised, but it should be done by no later than three months from the date the Italian competent authority communicated its denial of authorization.
However, as a general principle, if a UK Financial Institution did not file its application before the Withdrawal Date or had its application denied before the Withdrawal Date ("Non-Authorized UK Financial Institutions"), it may no longer carry out reserved financial activities in Italy as of the Withdrawal Date.
Entry into Force of the Milleproroghe Decree
The Milleproroghe Decree was published in the Italian Official Gazette and entered into force on December 31, 2020. It may be subject to amendments by the Italian Parliament during its conversion into law, provided that if any provision does not become law within 60 calendar days from the Milleproroghe Decree's publication in the Italian Official Gazette (i.e., by March 1, 2021), then it will be deemed to have had no force or effect at all.