INSTRUCTIONS OF BANCA D'ITALIA, COVIP, IVASS AND MEF FOR THE EXERCISE OF ENHANCED CONTROLS ON THE OPERATIONS OF AUTHORIZED INTERMEDIARIES TO COUNTER THE FINANCING OF COMPANIES PRODUCING ANTI-PERSONAL MINES, AMMUNITION AND CLUSTER MUNITIONS

BANCA D'ITALIA, COVIP, IVASS AND MEF

HAVING REGARD to Law No. 220 of 9 December 2021, containing measures to counter the financing of companies producing anti-personnel mines, ammunition and cluster munitions (hereinafter "Law");

HAVING REGARD to Article 2, paragraph 1, letter f), of the Law, which identifies as supervisory bodies Banca d'Italia, the Institute for Supervision on Insurance (IVASS), the Commission for Supervision on Pension Funds (COVIP) and any other subjects to whom supervision over the operations of authorized intermediaries referred to in Article 2, paragraph 1, letter a), of the Law is attributed by virtue of current legislation;

HAVING REGARD to Article 3, paragraph 1, of the Law, pursuant to which the supervisory bodies issue, jointly, specific instructions for the exercise of enhanced controls on the operations of authorized intermediaries in order to counter the financing of the production, use, assembly, repair, promotion, sale, distribution, import, export, storage, possession or transport of anti-personnel mines, ammunition and cluster munitions and their individual components (hereinafter "Instructions");

HAVING EVALUATED the observations received in response to the consultation document on the draft Instructions published on 28 April 2023;

ISSUE

the attached Instructions for the exercise of enhanced controls on the operations of authorized intermediaries to counter the financing of companies producing anti-personnel mines, ammunition and cluster munitions.

This measure is published in the Official Gazette of the Italian Republic and enters into force the day following its publication; it is also published on the websites of Banca d'Italia, COVIP, IVASS and MEF. Authorized intermediaries shall comply with the content of the Instructions within six months from the date of their entry into force.

FOR BANCA D'ITALIA Paolo Angelini
FOR COVIP Francesca Balzani
FOR IVASS Riccardo Cesari
FOR MEF Marcello Sala

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INSTRUCTIONS OF BANCA D'ITALIA, COVIP, IVASS AND MEF FOR THE EXERCISE OF ENHANCED CONTROLS ON THE OPERATIONS OF AUTHORIZED INTERMEDIARIES TO COUNTER THE FINANCING OF COMPANIES PRODUCING ANTI-PERSONAL MINES, AMMUNITION AND CLUSTER MUNITIONS, IN IMPLEMENTATION OF ARTICLE 3, PARAGRAPH 1, OF LAW NO. 220 OF 9 DECEMBER 2021

Preamble

Law No. 220 of 9 December 2021 (hereinafter "Law") – amended by Article 33 of Decree-Law No. 73 of 21 June 2022, in the text resulting from the Law of conversion No. 122 of 4 August 2022 – falls within the broader commitments assumed by Italy in international forums through adherence to the Ottawa Convention of 3 December 1997 on the prohibition of use, stockpiling, production and transfer of anti-personnel mines and on their destruction (ratified and made enforceable pursuant to Law No. 106 of 26 March 1999), and to the Oslo Convention of 30 May 2008 on the banning of cluster munitions (ratified and made enforceable pursuant to Law No. 95 of 14 June 2011).

The Law introduced, in the Italian legal system, effective from 23 December 2021, the prohibition for "authorized financing intermediaries" (1) of financing Italian and foreign companies that, directly or through controlled or affiliated companies pursuant to Article 2359 of the Civil Code, carry out activities of production or sale of anti-personnel mines, ammunition and cluster munitions, of any nature or composition, or parts thereof, as well as the other activities listed in Article 1, paragraph 1, of the Law, save for what is provided for in paragraph 2. The same Law clarifies, in Article 1, paragraph 4, that foundations and pension funds are prohibited from investing their assets in companies carrying out the aforementioned activities.

This measure implements what is provided for in Article 3, paragraph 1, of the Law regarding the task of the supervisory bodies to adopt, jointly, specific instructions for the exercise of enhanced controls on the operations of authorized intermediaries supervised by them.

1. Legal Sources

The matter is regulated by the Law, containing measures to counter the financing of companies producing anti-personnel mines, ammunition and cluster munitions.

The following are also relevant:

• The Convention on the prohibition of use, stockpiling, production and transfer of anti-personnel mines and on their destruction, signed in Ottawa on 3 December 1997, ratified and made enforceable pursuant to Law No. 106 of 26 March 1999;

(1) Reference is made to the notion of financing as defined by Article 2, paragraph 1, letter b), of the Law.

• The Oslo Convention on the banning of cluster munitions, made in Dublin on 30 May 2008, ratified and made enforceable pursuant to Law No. 95 of 14 June 2011.

2. Definitions

For the purposes of these Instructions, the definitions contained in Article 2 of the Law apply.

3. Scope of Application

These Instructions apply to the authorized intermediaries referred to in Article 2, paragraph 1, letter a), of the Law (hereinafter "authorized intermediaries"), namely:

• Italian securities intermediation companies (SIM);
• Italian banks;
• Italian managers;
• Italian electronic money institutions;
• Italian payment institutions;
• Subjects registered in the list referred to in Article 111 of the consolidated text of Legislative Decree No. 385 of 1 September 1993;
• Financial intermediaries registered in the register referred to in Article 106 of the same consolidated text, including credit guarantee consortia (confidi);
• Poste Italiane S.p.A. for the Bancoposta activity;
• Cassa Depositi e Prestiti S.p.A.;
• Branches established in Italy of SIMs, managers, banks, electronic money institutions and payment institutions having their legal seat in another EU country or a third country (hereinafter, "Italian branches of foreign authorized intermediaries");
• Insurance companies, reinsurance companies and secondary establishments established in Italy of insurance and reinsurance companies having their legal seat and central administration in another EU country or a third country;
• Italian stockbrokers;
• Italian banking foundations;
• Italian pension funds.

4. Procedural Safeguards for Authorized Intermediaries

Authorized intermediaries adopt suitable procedural safeguards – potentially adapting or integrating the existing risk management system – according to a risk-based approach and based on the principle of proportionality, due to the type of activity carried out, size and operational complexity, appropriately formalized in internal regulations and aimed at ensuring compliance with the financing prohibition of the companies indicated in Article 1, paragraph 1, of the Law. These safeguards are defined in coherence with the provisions on the system of governance, organization and internal controls contained in the sectoral regulations applicable to each authorized intermediary.

The safeguards are defined taking into account the operations of the authorized intermediary and the companies controlled by it.

They include at least:

• The obligation to consult "publicly available lists of companies producing anti-personnel mines and ammunition and cluster munitions" (see Article 4 of the Law) before effecting financing. To this end, authorized intermediaries establish control procedures capable of determining the correspondence between the identification data of the company receiving the financing, having its seat in Italy or abroad, and its controlled or affiliated companies, with those contained in the aforementioned lists. Authorized intermediaries may also use, where available, the identification data acquired within the framework of customer due diligence activities for the prevention of money laundering and terrorist financing. Correspondence checks are carried out before effecting the financing and subsequently, in the event of updates to the aforementioned lists. Save for the obligation to consult publicly available lists, authorized intermediaries are left free to use additional information sources (such as, for example, lists of companies producing anti-personnel mines and ammunition and cluster munitions provided by data providers) that are reliable and up-to-date. In the event that the consulted sources contain conflicting information, authorized intermediaries document, possibly in the periodic reports referred to in the last paragraph of this section, the reasons underlying the choice of the source used among those consulted;
• Procedures to assess the risk of involvement of the financing recipient in the activities referred to in Article 1, paragraph 1, of the Law, in light of, for example, the activity carried out, the legal seat, the place of operation of the recipient. In the case of financing in favor of subjects that the authorized intermediary considers to be high risk, enhanced control measures are adopted to verify the activities carried out by the subjects themselves, which also take into account any changes in their operations. To this end, authorized intermediaries use the information elements deemed most appropriate, such as, by way of example, non-financial statements (NFS) published pursuant to Article 2 of Legislative Decree No. 254 of 30 December 2016, or equivalent declarations, appropriately documented interactions or questionnaires addressed to the financing recipient.

Authorized intermediaries establish adequate information flows aimed at ensuring that governing bodies have full knowledge and manageability of the organizational safeguards adopted to verify compliance with the financing prohibition, as well as the timely knowledge of any violations of the prohibition. In Italian branches of foreign authorized intermediaries, adequate information flows directed to the legal representative and the involved structures must be ensured. The information flows are prepared with the assistance of the competent corporate control functions, where provided for or established (e.g., compliance function and risk management function), potentially integrating the information flows provided for by sectoral regulations and ensuring effective monitoring of compliance with the prohibition by the authorized intermediary and its subsidiaries.

In the case of banking groups, financial groups, SIM groups and insurance groups, safeguards may be defined at the group level by the parent companies. In this case, the latter ensure consistency between the safeguards and the operations, complexity and size of the group. The primary responsibility of the corporate bodies of the controlled companies for the correct implementation of the procedural safeguards defined at the group level remains unaffected. Banking foundations define the safeguards in compliance with the methods provided for in this paragraph, providing for their adoption also by the entities and instrumental companies controlled by them, without prejudice to the limits of sectoral legislation for the latter.

In cases where authorized intermediaries entrust, by agreement, the financial management of resources to third parties, including foreign ones, they are required to give prior adequate instructions to the third-party managers, identifying the terms and methods of monitoring the activity carried out by them. The responsibility of authorized intermediaries regarding compliance with the prohibition and the implementation of the suitable procedural safeguards referred to in this paragraph, as well as the adoption of the measures referred to in the following paragraph 5, remains unaffected.

Punctual indication of the activity carried out for the purposes of compliance with the financing prohibition and these Instructions is provided within the periodic reports drawn up by corporate control functions (e.g., by the compliance function and the risk management function), which authorized intermediaries are required to draw up pursuant to the sectoral regulations applicable to them. In the absence of such prescriptions, such indication is provided within specific documents drawn up by the governing bodies at least annually.

5. Adoption of Adequate Measures to Ensure Compliance with the Prohibition

If, as a result of the control procedures carried out by authorized intermediaries, it emerges that potential recipients of financing are involved in the activities referred to in Article 1, paragraph 1, of the Law, authorized intermediaries adopt the necessary measures to ensure compliance with the prohibition (e.g., denial of the granting of financing) if appropriate, after appropriate discussion with the interested beneficiaries.

In the event that violations of the prohibition are found in relation to the financing provided, authorized intermediaries ensure the timely communication of the results of the controls and the consequent measures adopted to remedy them to their respective supervisory bodies, proceeding according to the competences established by sectoral legislation.

6. Tasks and Powers of the Supervisory Bodies

Without prejudice to what is established by Article 5 of the Law, the control of compliance with the prohibition and these provisions may be carried out by the supervisory bodies also through inspections carried out within the ordinary supervision activity according to their respective competences.

In the exercise of supervision over authorized intermediaries, the supervisory bodies exercise the powers attributed to them by their respective sectoral legislation. In this context, they also evaluate the effectiveness and adequacy of the activities carried out by the governing bodies and corporate control functions, where provided for or established, of authorized intermediaries (e.g., by the compliance function and the risk management function) with reference to the checks carried out, the results emerged, the weakness profiles possibly detected and the corrective interventions adopted.

If, as a result of the checks carried out by the supervisory bodies on authorized intermediaries, it emerges that financing has been carried out in favor of companies involved in the activities referred to in Article 1, paragraph 1, of the Law, the supervisory bodies communicate this to the authorized intermediaries so that they adopt the necessary measures to remedy it.

The supervisory bodies also receive communications from authorized intermediaries, as provided for in the second period of paragraph 5, evaluate the measures adopted by the intermediaries themselves and, if necessary, require the adoption of further interventions.

The sanctioning powers attributed to the supervisory bodies by Article 6 of the Law remain unaffected, to be exercised according to their respective procedures. For sanctions within their own competence, the Ministry of Economy and Finance determines, by motivated decree, the sum due for the violation and orders its payment according to what is provided for by Law No. 689 of 24 November 1981.

7. Final Provisions

These Instructions are published in the Official Gazette of the Italian Republic and enter into force the day following publication.

Authorized intermediaries shall comply with the content of these Instructions within six months from their entry into force.