The Italian Treasury has officially confirmed that temporary measures are ready in the event of a hard Brexit.
Following rumours reported by the press over the past weeks, the Italian Treasury officially confirmed, in an announcement issued at 8:00am CET on Thursday 24 January (Announcement), that temporary measures are ready, and will be adopted through an emergency decree (Decree) in the event of a hard Brexit (and only once it is official that no “Plan B” to avoid a hard Brexit is viable).
The temporary measures would apply not only to financial institutions, but also to MiFID firms, other financial intermediaries, insurance companies and pension funds, which will be permitted to continue operating in Italy for a transitional period. Although management companies are not explicitly mentioned, we would expect, as a matter of equal treatment, and consistently with the intention of the Decree, that asset management companies will be included among the beneficiaries of the measures. This would also be consistent with reference made by the Announcement to the possibility for Italian pension funds to maintain their investments in collective investment schemes domiciled in the UK, otherwise no longer permitted as per restrictions set forth under COVIP regulation to investments in funds domiciled in third countries.
The measures will also include permits enabling current market participants to continue acting in their roles. The measure will apply both ways - in other words, to UK companies operating in Italy and to Italian regulated entities carrying on business in the UK (subject to the corresponding temporary permissions regime applicable there).
It is very good news that the Italian Government will not have to wait for the lengthy process which a Parliamentary discussion would have entailed and that the scope of the temporary measures announced will go beyond just financial institutions.
However, there is still a caveat in the announcement regarding the existing contractual arrangements between a relevant intermediary and its clients. The announcement says it is not within the scope of these exceptional measures overriding those contractual provisions. This is something that will require investigation in further detail once the text of the Decree is available.
It is also unclear whether the temporary permissions regime will enable onboarding new clients.
Below is a courtesy English translation of the Announcement, the Italian version of which can be found here.
“The Ministry of Economy and Finance has prepared measures to ensure full business continuity for markets and intermediaries if the United Kingdom leaves the European Union (EU) with no deal being reached.
If this potential scenario becomes reality, on 30 March 2019 the United Kingdom will for all intents and purposes become a Third Country, with all the resulting consequences to its bilateral relationships with the EU.
The measures - drafted in close collaboration with the supervisory authorities after having consulted with the trade associations - will be formally adopted only if the UK’s exit from the EU is formalised without an agreement having been reached. In this case, and if required as a matter of urgency, the measures will be adopted through a law decree.
The measures aim to ensure the financial stability, integrity and continuity of the markets and for intermediaries, as well as protect investors, depositors, and customers generally. They would introduce a transitional period in which the various parties would continue operating, with this period being aligned to the one envisaged under the transitional arrangements being discussed between the UK and the EU (31 December 2020).
During this transitional period, banks, financial and insurance institutions, and pension funds will be permitted to continue carrying on their business as per current regulations. This possibility will apply both ways: to UK operators acting in Italy and to Italian operators acting in the UK. During this period the continuity of investors’ and depositors’ protection will be granted.
The measures will be differentiated in accordance to the specific regulated business carried on by the various type of operators, taking into account the applicable EU and domestic provisions. They will also provide a framework and requirements with a view to the end of the transitional period and in the new institutional and operational context that will be created.
The measures also envisage similar provisions regarding the markets, specifically concerning trading venues and operators’ access to those venues. Also in this case, the transitional period - in which operations can continue in accordance with current EU applicable rules - will apply both to UK operators of trading venues that operate in Italy as well as to Italian operators in the UK.
As far as investments currently detained by Italian pension funds in Collective Investment Schemes domiciled in the UK are concerned, the measures will allow maintaining them throughout the transitional period.
It is worth noting that the sole purpose of these extraordinary measures is that of ensuring business continuity with respect to activities subject to the rules of law at national level, in compliance with relevant EU rules on harmonisation. It follows that these measures - consistently with the position set out by the European Commission in its communication of 13 November 2018 - do not address other potential issues concerning bilateral relationships between intermediaries and clients, which go beyond the scope of applicable harmonisation rules and are instead governed by the general contractual civil law framework.
The date the measures will be adopted depends on future developments and on the resulting decisions to be adopted by the UK in relation to its withdrawal from the EU. In any case, they will be adopted in sufficient time to allow the continuity of normal business dealings and to give operators a clear framework even in a “no-deal” scenario.
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