Circular No. 288/2015 Supervisory Provisions for Financial Intermediaries - Reconfiguration of Administrative Proceedings

Circular No. 288/2015 "Supervisory Provisions for Financial Intermediaries" - Reconfiguration of Administrative Proceedings.

Financial intermediaries registered in the register referred to in Article 106 of the TUB (Banking Law) are subject to a prudential regime analogous to that of banks, appropriately adapted to take into account their specific characteristics. Regarding aspects related to the measurement and control of risks, Circular No. 288/2015 "Supervisory Provisions for Financial Intermediaries" explicitly refers to the provisions of Regulation (EU) No 575/2013 (Capital Requirements Regulation - CRR).

The CRR discipline, as referenced by Circular No. 288, contemplates numerous types of authorizations, which require operators to request a prior ruling from the supervisory authority for the completion of specific operations.

From the experience gained in the first months of application of the new discipline, the need to simplify this framework has emerged, while maintaining the necessity of ensuring coordination between the CRR provisions that provide for the exercise of authorizing powers and Articles 108 and 109 of the TUB that define the powers of the Bank of Italy over intermediaries and financial groups. With this measure, the approach of certain administrative proceedings is therefore modified, according to the lines set out below.

The prohibition proceedings indicated in the Annex replace the respective authorization proceedings provided for by Circular No. 288.

According to the new configuration, intermediaries communicate to the Bank of Italy, at least 30 days in advance, their intention to proceed with specific operations (1). The communication must be accompanied by all information necessary to allow the Bank of Italy to conduct a comprehensive examination of the operations.

The Bank of Italy reserves the right to evaluate the information received, together with other available data and news, for the purpose of potentially initiating ex officio proceedings, where the conditions are met, which may conclude with a prohibition measure (2).

After 30 days from the receipt of the complete communication containing all necessary information, intermediaries may proceed with the proposed operations.

This intervention achieves a procedural simplification for intermediaries, who can also carry out operations within a term generally shorter than that provided for the issuance of an authorization measure. Furthermore, with the reduction of authorization-type controls, the autonomy of intermediaries in risk management is enhanced, in line with the principle of proportionality.

This regulatory modification integrates Circular No. 288 and will be incorporated into it at the first opportunity.

The obligations for prior communication of relevant operations provided for in Title V, Chapter 3 of Circular No. 288 remain unchanged.

For financial intermediaries belonging to banking groups or otherwise included within the scope of consolidated supervision pursuant to the CRR, the application at the consolidated level of CRR provisions providing for specific authorizations remains in force.

1 For an exhaustive list of the cases subject to prior communication, reference is made to the Annex. 2 Cf. Article 108, paragraph 3, letter d) of the TUB, referenced by Article 109 of the TUB for financial groups.

In these cases, intermediaries generally proceed with the proposed operation only after the issuance of the required authorization at the consolidated level. Intermediaries ensure the necessary coordination with their group parent companies.

Annex Reconfigured Proceedings

1. Own Funds – Title IV Chapter 3 Section I

• prohibition to classify capital instruments as Core Tier 1 capital instruments, in the cases provided for in Article 26, paragraph 3 CRR (term 90 days);
• prohibition to qualify as Core Tier 1 capital instruments, Additional Tier 1 instruments or Tier 2 instruments, capital instruments for which the decision to pay distributions in a form other than cash or a own funds instrument is left to the exclusive discretion of the intermediary, in the cases provided for in Article 73, paragraph 1 CRR (term: 90 days);
• prohibition to reduce, repay or repurchase Core Tier 1 capital instruments issued by the intermediary in the cases provided for in Articles 77, paragraph 1, letter a), and 78 CRR (term: 90 days);
• prohibition to exercise the call, effect the repayment, refinancing or repurchase of Additional Tier 1 instruments or Tier 2 instruments, as appropriate, before their contractual maturity in the cases provided for in Articles 77, paragraph 1, letter b), and 78 CRR (term: 90 days);
• prohibition to repay Additional Tier 1 instruments or Tier 2 instruments before five years from the date of issuance in the cases provided for in Article 78, paragraph 4 CRR (term: 90 days);
• prohibition to derogate from the provisions on the deduction of capital instruments or subordinated loans – which qualify as Core Tier 1 capital instruments, Additional Tier 1 instruments or Tier 2 instruments – temporarily held in a financial sector entity for the purpose of a financial assistance operation intended for the reorganization and rescue of the entity, in the cases provided for in Article 79, paragraph 1 CRR (term: 90 days).

2. Capital Requirements – Title IV Chapter 4 Section I

• prohibition to modify the calculation methods of the floor in the cases provided for in Article 500, paragraph 2 CRR (term 90 days).

3. Securitization Operations – Title IV Chapter 8 Section I

• prohibition to use a conversion factor in derogation within the scope of revolving securitizations in the cases provided for in Article 256, paragraph 7 CRR (term: 120 days).

4. Operational Risk – Title IV Chapter 10 Section I

• prohibition to adopt the Alternative Standardised Approach for the determination of the relevant indicator for the "retail banking services" and "commercial banking services" activity lines in the cases provided for in Article 312, paragraph 1 CRR (term: 120 days);
• prohibition to switch from the Standardised Approach to the Basic Indicator Approach, for the determination of the capital requirement for operational risk in the cases provided for in Article 313, paragraph 3 CRR (term: 120 days);
• prohibition to use the Standardised Approach and the Basic Indicator Approach in combination for the determination of the capital requirement for operational risk in the cases provided for in Article 314, paragraphs 1 and 4 CRR (term: 180 days);
• prohibition to make changes to the calculation methods of the relevant indicator provided for by the Basic Indicator Approach and the Standardised Approach following the merger, acquisition or disposal of entities or assets in the cases provided for in Article 315, paragraph 3 and Article 317, paragraph 4 CRR (term: 120 days).

5. Market Risk and Settlement Risk – Title IV Chapter 11 Section I

• prohibition of intra-group netting of positions in the calculation of market risk on a consolidated basis in the cases provided for in Article 325, paragraph 2 CRR (term: 120 days).

6. Transitional Provisions on Own Funds – Title IV Chapter 15 Section I

• prohibition not to deduct holdings in insurance undertakings, reinsurance undertakings or insurance holding companies if the conditions provided for in Article 471 CRR are met (term: 120 days).