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The Law Decree No. 183 of 31 December 2020

A last-minute Italian urgency measure was been issued in order to avoid that British financial intermediaries (the “UK Intermediaries”) which applied for an Italian authorization – for cross-border services, branch or local MiFID subsidiary (“SIM”) – and were not still authorized as of December 31, were obliged to interrupt their services in Italy due to the end of the transitional period that allowed the UK Intermediaries to continue their operations in the EU until December 31, 2020 by
using the EU passport, as provided for by the EU-UK Withdrawal Agreement (the “Transitional Period”).

The relevant provision is Article 22 of the Law Decree No. 183 of 31 December 2020 (www.gazzettaufficiale.it/eli/id/2020/12/31/20G00206/sg) (“DL 183”); an Italian Law Decree is an urgency act issued by the Government that has to be ratified by the Parliament within two months; if it is not ratified, a Law Decree becomes void, or the Government may re-iterate it at certain conditions.

Article 22 of DL 183 recast some provisions contained in Law Decree No. 22 of 25 March 2019 (the addressed the “hard Brexit” – for a coverage of Law Decree 22/2019 see our Newsletters 2019-03 and 2019-04), in order to facilitate the correct and orderly transition from the EU passport regime to the national regime for non-EU intermediaries, in order to protect the clients’ interest.

In particular, provided that they applied before 31 December 2020 for a new Italian authorisation to operate either as a non-EU country firm (on a cross-border basis or through a local branch) or with an Italian investment firm (“SIM”) to which hand over the business previously carried out by the UK passported entity, Article 22 of DL 183 provides that the UK Intermediaries may continue to carry out the activities performed before the end of the Transitional Period until the Italian authorisation is either granted or refused, and in any case no later than 30 June 2021.

A list of the twenty-six UK Intermediaries that applied for authorization within December 31, 2020 for which authorization is pending is publicly available. During such additional grace period pending authorization, only the services for which such Italian authorization has been requested can be carried out, and only to the existing clients.

Under Article 22 of DL 183, the UK Intermediaries that are allowed to continue their operation as referred to above are subject to the Italian rules applicable to the firms of non-EU countries: this is still an academic provision so long as there aren’t, as of today, non-EU entities authorized to operate in Italy. In any case, the general principle is that non-EU entities abide by the rules applicable to the Italian intermediaries so long they are both subject to “authorization”, as opposed to the “mutual recognition” granted to the foreign EU entities.

One of the main Italian rules applicable to the firms of non-EU countries is that no investment services can be rendered to Italian retail clients nor “elective” professional clients unless a branch is established and authorized; in other words, the provision of services to Italian clients on a cross border basis is only allowed for “per se” professional clients and eligible counterparties; for the avoidance of doubt, no authorization can be granted for servicing Italian retail clients nor “elective”
professional clients on a cross-border basis from the UK.

In addition, the UK Intermediaries that operate in Italy through the establishment of branches must remain registered with the Italian alternative dispute resolution system (“Arbitro per le Controversie Finanziarie”) and, if applicable, to the local investors compensation schemes (“FNG”): within 30 days from the expire of the Transitional Period, the UK British financial intermediaries have to contact the FNG in connection to their participation thereto and the payment of the financial contribution.

It is important to point out that the UK Intermediaries eligible for the additional grace period are required to provide the clients with the information on the continuation of 3 their services and the provisions applicable thereto as soon as possible and no later than forty days from 1 January 2021, i.e., by February 10, 2021. The information to the clients have to be provided in a clear and simple language and will include the details for the contact person for obtaining additional information or clarifications.

Should the authorisation to continue the activities in the Italian territory be refused, the UK Intermediaries must discontinue the relevant services as soon as practicable and, in any case, no later than three months after the communication of the refusal decision; the discontinuation should not adversely affect the clients’ interest.

With regard to the UK Intermediaries that have to discontinue their services because they didn’t apply for an authorization by December 31, 2020 or because their application was rejected, DL 183 provides that they will have to refund the clients’
cash, financial instruments and other assets, according to the instructions received by the clients.

For completeness, DL 183 also addresses banking and insurance activities, not covered by this Regulatory Report.