CICR Deliberation No. 1057 of 19 July 2005 on Shareholdings, Control in Banks, and Related-Party Lending

Interministerial Committee for Credit and Savings Secretariat

1057

DELIBERATION OF 19 July 2005 Regulation of shareholdings and control in banks and other intermediaries, as well as bank lending to related parties.

THE INTERMINISTERIAL COMMITTEE FOR CREDIT AND SAVINGS

HAVING REGARD to Article 1, paragraph 2, letter h-quater), of Legislative Decree No. 385 of 1 September 1993, and subsequent amendments (TUB), which defines shareholdings as shares, quotas, and other financial instruments that confer administrative rights or, in any case, the rights provided for in the last paragraph of Article 2351 of the Civil Code;

HAVING REGARD to paragraph 2, letter h-quinquies), of the same article, which defines as significant those shareholdings that entail control of the intermediary and those shareholdings identified by the Bank of Italy, in conformity with the deliberations of the CICR, with regard to the different regulated cases, taking into account voting rights and other rights that allow influencing the company;

HAVING REGARD to Article 19 of the TUB, which provides for authorization obligations for those who hold significant shareholdings in a bank or otherwise control it;

HAVING REGARD to Article 20 of the TUB, which provides for communication obligations for those who hold significant shareholdings in a bank;

HAVING REGARD to Article 19, paragraph 9, of the TUB, which provides that the Bank of Italy, in conformity with the deliberations of the CICR, issues implementing provisions of the same article;

HAVING REGARD to Article 25 of the TUB, which provides that holders of significant shareholdings must possess the requirements of honorability determined by regulation by the Minister of Economy and Finance, after consulting the Bank of Italy;

HAVING REGARD to Article 53 of the TUB and, in particular, paragraph 1, letters b) and c), pursuant to which the Bank of Italy, in conformity with the deliberations of the CICR, issues

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provisions of a general nature aimed at containing risk in its various configurations as well as administrative and accounting organization and internal controls, and paragraph 4, pursuant to which: i) the Bank of Italy, in conformity with the deliberations of the CICR, determines the limits that banks must respect, for the granting of credit to subjects connected to them or who hold a significant shareholding in them, with exclusive reference to the bank's equity and the shareholding held in it by the subject requesting the credit; ii) the CICR regulates conflicts of interest between banks and their significant shareholders, relating to other banking activities;

HAVING REGARD to Article 108 of the TUB, which provides that holders of significant shareholdings in financial intermediaries must possess the requirements of honorability determined by regulation by the Minister of Economy and Finance, after consulting the Bank of Italy and the UIC;

HAVING REGARD to Article 110 of the TUB, which provides for communication obligations for those who hold significant shareholdings in a financial intermediary;

HAVING REGARD to Article 114-quater of the TUB, which provides that provisions contained in Article 19, except for paragraphs 6 and 7, Article 20, and Article 25 of the TUB apply, insofar as compatible, to electronic money institutions (IMEL);

HAVING REGARD to Articles 1, paragraph 1, no. 10, 7, 16, and 48, paragraph 4, of Directive 2000/12/EC concerning the taking up and pursuit of the business of credit institutions;

ON PROPOSAL formulated by the Bank of Italy;

D E L I B E R A

CHAPTER I (Shareholdings and control in banks)

Article 1 (Scope of application)

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. This Chapter applies to shares and other financial instruments, referred to in Article 1, paragraph 2, letter h-quater), of the TUB, issued by banks in conformity with statutory provisions, as well as to contracts and statutory clauses referred to in Article 19, paragraph 8-bis, of the TUB, without prejudice to the powers attributed to the Bank of Italy by Articles 14 and 56 of the TUB.

Article 2 (Shareholdings)

Pursuant to Article 19, paragraph 1, of the TUB, the acquisition of shares by anyone, when it entails, taking into account shares already held, a shareholding exceeding 5 percent of the bank's capital represented by shares with voting rights, is subject in any case to prior authorization by the Bank of Italy. For the calculation of the amount of shares already held, the bank takes into account: in the numerator, all shares with voting rights already held and to be acquired; in the denominator, all shares with voting rights. All shares that confer the right to vote are considered to have voting rights, even if limited to particular topics or subject to the occurrence of conditions. For the same purposes, it is irrelevant that the voting right is limited to a maximum measure or that there are tiered arrangements.

Article 3 (Significant shareholdings: shares)

Pursuant to Article 19, paragraph 1, of the TUB, the acquisition by any means of significant shareholdings in a bank is subject to prior authorization by the Bank of Italy.

2. A significant shareholding is considered to be: a) the holding by any means of shares, even without voting rights, for an amount not less than 10 percent of the share capital; b) the holding of a shareholding exceeding 5 percent of shares that confer voting rights, even conditional, on one or more topics relating to the following matters:

• amendments to the articles of association;
• approval of financial statements;
• appointment, removal, or liability of members of administrative, supervisory, audit bodies, or the audit firm;

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• any authorizations required by the articles of association for acts of the directors;
• distribution of profits.

For the purpose of calculating the shareholding referred to in this letter, all shares to be acquired, together with those already held, that confer voting rights, even conditional, on one or more of the indicated topics are taken into account in the numerator, and all shares having voting rights, even conditional, on the same topic are taken into account in the denominator. In the presence of shares with voting rights subject to the occurrence of a condition, the calculation of the significant shareholding for unconditioned shares is carried out by placing only the shares conferring unconditioned voting rights in both the numerator and the denominator.

Article 4 (Changes in shareholdings)

1. Changes in shareholdings referred to in Articles 2 and 3 must be authorized when they entail, alone or together with previous changes, an increase in shareholdings such as to exceed the thresholds of 15, 20, 33, and 50 percent.
2. The Bank of Italy, pursuant to Article 19, paragraph 2, of the TUB, may establish further thresholds.

Article 5 (Significant shareholdings: financial instruments)

1. The holding of financial instruments issued by a bank constitutes a significant shareholding, for the purposes of Article 19, paragraph 1, of the TUB, when it results in the power to appoint members of the bank's corporate bodies or to condition organizational or managerial choices of a strategic nature. The Bank of Italy indicates the criteria for identifying the aforementioned cases.
2. In cases where the powers referred to in paragraph 1 are attributed collectively to holders of financial instruments of the same type, the Bank of Italy identifies the significant percentage for the purposes of Article 19, paragraph 1, of the TUB and the related calculation methods, taking into account the content of the rights conferred.
3. The Bank of Italy, pursuant to Article 19, paragraph 2, of the TUB, identifies the cases in which the change in the shareholding referred to in paragraph 2 must be authorized.

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Article 6 (Powers of the Bank of Italy)

1. Taking into account the nature of the shareholding and the type of influence it allows on the management of the company, the Bank of Italy may, generally or in relation to the particular financial structure of the bank, identify further cases of significant shareholding, also with reference to shares or financial instruments that confer rights different from those indicated in Articles 3 and 5, taking into consideration: the manner of exercising the voting right; cases in which the voting right is limited to a maximum measure or there are tiered arrangements; particular rights connected to the shareholdings themselves as well as the effects of the joint holding of shares and financial instruments or of financial instruments of different types.
2. The Bank of Italy may issue provisions regarding the publicity of the authorization regime to which significant shareholdings are subject, also providing for the mandatory indication in the articles of association, on the title, and in the related registers.

Article 7 (Control)

. Operations from which control over a bank ensues pursuant to Article 23 of the TUB are subject to prior authorization by the Bank of Italy.

Article 8 (Non-authorized acquisitions)

1. With regard to the provision of Article 19, paragraph 6, of the TUB, the Bank of Italy does not grant authorization for acquisitions that result in a shareholding exceeding 15 percent of voting rights or to which, in any case, control of the bank ensues, when the requesting subjects carry out, to a significant extent, also through controlled companies, business activities in sectors other than banking and financial.
2. The calculation of the shareholding for the purposes of paragraph 1 is carried out in accordance with what is provided for in Article 2 and Article 3, paragraph 2, letter b). The prohibition referred to in paragraph 1 also applies to the cases provided for in Article 10.
3. For the purposes of Article 19, paragraph 6, of the TUB, the Bank of Italy may, generally or taking into account the particular financial structure of the bank:

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include in the calculation referred to in the previous paragraph shares endowed with voting rights on topics other than those indicated in Article 3, paragraph 2, letter b); establish the methods for calculating the shareholding in cases where the articles of association limit the voting right to a maximum measure or provide for tiered arrangements; identify relevant rights, connected to shares or financial instruments, taking into account the influence they allow on the company. 4. The Bank of Italy does not grant authorization for the acquisition, directly or indirectly, of control deriving from a contract with the bank or from a clause of its articles of association if the requesting subject is a subject referred to in paragraph 1. 5. The Bank of Italy sets the criteria according to which the requesting subject is to be considered operating in the non-banking and non-financial field, in relation to the activity carried out, sectors of interest, and investments made, on its own behalf or on behalf of third parties, also through other subjects or controlled companies. The prohibition referred to in paragraph 1 does not apply if the requesting subject proves that the activities, other than credit or financial ones, do not exceed 15 percent of the total assets. 6. Insurance activity is assimilated to financial activity.

Article 9 (Indirect shareholdings by subjects that control banks and banking groups)

1. Subjects that control - also through controlled companies, fiduciary companies, or a nominee - banks or parent financial companies of banking groups are not required to request authorization in cases where the controlled bank or the parent financial company intends to acquire or increase its shareholding in a bank.

Article 10 (Separation between ownership and voting rights)

1. In cases of separation between the ownership of shares or financial instruments and the exercise of the rights connected to them, both the owner and the subject who exercises, also through fiduciary companies or a nominee, the connected rights and who controls him, are required to request authorization.

Article 11 (Criteria and conditions for the granting of authorizations)

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8. For the evaluation of authorization requests, the Bank of Italy takes into account the quality of the requesting subjects, also regarding the transparency of the ownership and governance structures of such subjects and of any group of which they are part, the reliability and solidity of their financial situation, and the correctness of behavior in business relations. The quality of the applicants is also evaluated in relation to the governance structure and the economic-financial situation of the bank concerned as well as to the nature of the relationships that such subjects may establish with the bank.

9. The requesting subjects, in addition to proving the possession of the requirements of honorability, are required to provide information in the cases and according to the methods indicated by the Bank of Italy.

10. For the purposes of authorization, the Bank of Italy takes into consideration - also to identify the subjects required to request the same authorization - any links of any nature, including family and associative ones, between the applicant and other subjects, even non-shareholders, and evaluates any other element suitable to affect the sound and prudent management of the bank as well as the exercise of effective supervisory action.

Article 12 (Criteria for the revocation and suspension of authorizations)

1. The authorization is revoked if the premises and conditions necessary to guarantee a sound and prudent management of the bank cease or change.
2. Among the reasons for revocation, the following are also included: behaviors aimed at evading the legislation; the violation of commitments possibly assumed towards the Bank of Italy for the purposes of granting the authorization; the transmission to the Bank of Italy of information and data not corresponding to the truth.
3. The suspension of the authorization may be ordered by the Bank of Italy when the temporary non-existence of one or more of the requirements or conditions necessary for the authorization is ascertained.

Article 13 (Communication obligations and procedure)

1. The Bank of Italy identifies the cases in which the shareholding in a bank as well as its changes are significant for the purposes of the communication obligations provided for in Article 20 of the TUB.

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9. The Bank of Italy evaluates the agreements communicated pursuant to Article 20, paragraph 2, of the TUB, taking into account the criteria indicated in Article 11 and, in particular, the participation in the agreement by subjects who carry out to a significant extent business activities in sectors other than banking and financial pursuant to Article 8 as well as the existence of converging interests attributable, directly or indirectly, to such subjects.

10. The Bank of Italy regulates the forms and terms of the procedures as well as the methods for fulfilling the communication obligations.

CHAPTER II (IMEL and financial intermediaries)

Article 14 (IMEL)

1. The provisions of Chapter I apply to IMEL, based on an evaluation of compatibility with the nature and regulation of such intermediaries, carried out by the Bank of Italy.

Article 15 (Financial intermediaries)

1. The provisions contained in Article 3, paragraph 2, letter b), Article 5, paragraphs 1 and 2, and Article 6, paragraph 1 of Chapter I apply, insofar as compatible, to the financial intermediaries provided for in Title V of the TUB.

CHAPTER III (Risk activities towards holders of significant shareholdings and other related parties)

Article 16 (Definitions)

1. For the purposes of this Chapter, the following are intended:

1. related party: a) the holder of a significant shareholding pursuant to Chapter I in the bank or in the parent company or who exercises the rights inherent to it, as well as whoever otherwise controls the bank; the Bank of Italy may establish quantitative thresholds lower than those provided for pursuant to the same Chapter I;

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b) those who perform administrative, managerial, and supervisory functions in the bank or in the parent company; c) subjects who are able to appoint, also based on agreements, one or more members of the administrative or supervisory bodies of the bank or the parent company; d) subjects who exercise significant influence on the bank, according to the criteria identified by the Bank of Italy;

2. subjects connected to a related party: a) the legally unmarried spouse, relatives within the third degree, and, in the presence of a legally unmarried spouse, relatives by marriage within the second degree of a related party who is a natural person; b) companies and entities controlled by a related party or by the persons referred to in letter a); c) companies and entities at which related parties who are natural persons or the persons referred to in letter a) perform administrative, managerial, or supervisory functions; d) subjects who control a related party or who are subject to common control with the latter; e) other subjects who maintain with a related party the relationships that give rise to legal or economic connection identified by the Bank of Italy pursuant to Article 2 of the Ministerial Decree of 22 June 1993 concerning "Control of large credits".

Article 17 (Limits on risk activities towards related parties)

1. The Bank of Italy determines the limits of risk activities towards a related party who carries out to a significant extent activities in non-banking, financial, or insurance sectors according to what is established pursuant to Article 8, paragraphs 5 and 6, in conformity with the following criteria: a) for subjects defined as related parties in relation to the ownership of shares of the bank, the limit is fixed at a percentage of the regulatory capital ratioed to the share of share capital held;

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Interministerial Committee for Credit and Savings Secretariat

b) for related parties other than those referred to in letter a), the limit refers to a percentage of the bank's regulatory capital; c) the limits referred to in letters a) and b) are in any case not higher than 10 percent of the bank's regulatory capital and may vary depending on the nature of the relationships between the related party and the bank; d) the overall risk activities of a bank towards a related party and the set of subjects connected to it must be lower than a percentage of the regulatory capital fixed by the Bank of Italy, in any case not exceeding 10 percent; e) the overall exposure of the companies of a banking group towards a related party and the set of subjects connected to it must be lower than a percentage of the regulatory capital fixed by the Bank of Italy, in any case not exceeding 10 percent. Without prejudice to the respect of this limit, the Bank of Italy may provide for limits different from those referred to in letters a), b), c), and d) for the individual banks belonging to the group; f) the Bank of Italy may apply limits different from the general ones to the risk activities of cooperative banks in favor of members and those who perform administrative, managerial, and supervisory functions; g) the Bank of Italy may not apply the limits to risk activities towards other companies belonging to the same banking group and to risk activities towards subjects connected to related parties who carry out to a significant extent activities in banking, financial, or insurance sectors.

Article 18 (Implementing and transitional measures)

1. The Bank of Italy issues implementing provisions of this Chapter, also regulating: the asset aggregate on which to base the measurement of limits; the system for weighting risk activities, taking into account Community legislation on capital requirements; methods of granting financing aimed at guaranteeing the objectivity of evaluations; the reasoning of deliberations with regard to the compliance of the economic conditions practiced with market criteria; the procedures to be followed in cases where there are other conflicts of interest and controls on the progress of relationships.
2. The provisions of the Ministerial Decree of 22 June 1993 concerning "Control of large credits" remain in force, insofar as not regulated by this Chapter.

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Interministerial Committee for Credit and Savings Secretariat

The Bank of Italy may establish, according to criteria of gradualness, methods and terms for the repayment of financing that exceed the limits referred to in Article 17.

This deliberation is published in the Official Gazette of the Italian Republic. Rome, 19 July 2005

THE PRESIDENT [Signature]