As decided by the European Council on March 21st, if the British Parliament will approve by March 29th the agreement of withdrawal agreed by the UK government with the European Union, the exit of the United Kingdom from the Union will be postponed until May 22nd and will be followed by a transitional period providing for the participation of the United Kingdom in the Single Market until December 31st, 2020.
Otherwise, the United Kingdom Government will have to indicate to the European Council, by April 12th, how it intends to proceed. In this latter case, it is not excluded that an exit without an agreement (no-deal Brexit) may occur, which would result in the absence of any transitional period and a clear break in bilateral relations between the UK and the EU, including the termination of the current regime of mutual recognition of authorizations and the supervisory system.
To this regard, on March 25th, Law Decree no. 22 was published in the Italian Official Gazette no. 71. It encloses "Urgent measures to ensure security, financial stability and integrity of the markets, as well as protection of the health and freedom of residence of Italian citizens and those of the United Kingdom, in case of withdrawal of the latter from the European Union" (so-called "Brexit Decree").
Consequently, on March 27th, 2019, Bank of Italy's published two communications, addressed to Italian and UK financial institutions respectively operating in the United Kingdom and in Italy, by providing operational provisions for the fulfilments of the Brexit Decree.
Fulfillment of the requirements for UK and Italian financial institutions
The provisions set forth by the Brexit Decree are differentiated according to the type of intermediary involved, taking into account the applicable European and national laws and regulations.
A) UK financial institutions
UK banks and UK electronic money institutions operating in Italy through a branch which intend to continue operations in Italy after Brexit must formally notify the Bank of Italy; UK investment firms intending to continue operating must notify Consob. UK payment institutions, electronic money institutions operating either under the free provision of services or through a network of agents, and asset management companies are required to cease operating in Italy as of the date of withdrawal and will have six months for the orderly closure of their activities.
UK banks and branching electronic money institutions may also choose to terminate their operations in Italy.
In particular, the Brexit Decree provides for different transitional provisions for:
1) UK banks and branching electronic money institutions that intend to continue operating in Italy.
UK banks and branching electronic money institutions which intend to continue operating in Italy after the date of withdrawal, in relation to all or part of the activities previously carried out, shall notify the Bank of Italy at least three business days prior to the date of withdrawal.
The banks and branching electronic money institutions that have notified their intention to continue operating in Italy will be allowed to continue carrying out only the activities indicated in their notification, with the exception of deposit taking on a cross-border basis which will be restricted during the transition period to the activities necessary to manage pre-existing contracts for their duration.
No later than six months after the start of the transition period, the banks and branching electronic money institutions that have notified their intention to continue operating in Italy may apply for a license to operate as third-country banks or third-country electronic money institutions if they intend to operate beyond the transition period of 18 months. Failure to submit such application shall trigger a run-off period of six months, by the end of which the financial institution will have ceased to operate in Italy.
2) UK banks and branching electronic money institutions that intend to cease operations, and UK payment institutions, non-branching electronic money institutions and asset management companies that are required to cease operations.
Within 15 days of the entry into force of the Brexit Decree, UK banks and branching electronic money institutions that intend to cease operations in Italy after the date of withdrawal shall notify the Bank of Italy of how they plan to ensure the orderly termination of their activities. The same requirement shall apply to payment institutions, non-branching electronic money institutions and asset management companies. The intention to cease operations must also be communicated to the relevant UK supervisory authorities.
The above-mentioned plans for the orderly termination of activities in Italy shall also be disclosed to the Italian customers and to the relevant business counterparties of the financial institution. To this end, the banks and branching electronic money institutions that intend to cease operations, and payment institutions, non-branching electronic money institutions and asset management companies shall act as follows:
- Financial institutions that have already informed their customers of their intention to cease operations shall not provide further notice; nonetheless, within 15 days of the entry into force of the Brexit Decree, these financial institutions shall liaise with their relevant business counterparties and inform them of any foreseen consequences stemming from their decision to cease operations in Italy;
- Within 15 days of the entry into force of the Brexit Decree, financial institutions other than those referred to above shall send their Italian customers detailed information about the impact of Brexit and the measures the institution will take to ensure the orderly termination of activities. In particular, these financial institutions shall provide at a minimum specific information on: i) the expected effects on existing contracts caused by the termination of activities, with particular regard to the effects on current lending facilities; ii) the consequences of any potential corporate restructuring related to Brexit, with particular regard to any planned transfer and/or sale of businesses in whole or in part; iii) the possibility of making recourse to an alternative dispute resolution mechanism; and, iv) where appropriate, the effects relating to deposit insurance guarantee schemes.
The above disclosure to customers and business counterparties shall also be provided by UK banks and branching electronic money institutions that do not apply for a license as third-country banks or third-country electronic money institutions. Provided that the six-month termination period starts upon the expiry of the term for submitting an application as a third-country institution, the disclosure to customers shall be sent at least 15 days prior to the expiration of such term.
B) Italian financial institutions
Italian banks, investment firms, payment institutions and other financial institutions will be able to provide their services in UK during the transition period, after notification to the competent authorities within 3 working days before the date of withdrawal.
In addition, the intermediaries referred to above may continue to operate in UK within the 12 months preceding the end of the transition period and submit to the competent authorities the intended application for authorization to carry out the relevant activities the competent authorities of the Member State in which they are established.
Should you have any questions about the above, please do not hesitate to contact one of the members of the Bird & Bird global payments team.