7 novembre 2024A&O Shearman, 1 Bishops Square, London, E1 6AD
Riccardo Sallusti…
By Legislative Decree No. 207 of 7 December 2023 (“Legislative Decree 207/2023”), published in Official Gazette No. 300 of 27 December 2023, Italian lawmakers intended to follow up on the Recommendation of the European Systemic Risk Board (ESRB) dated 22 December 2011 (“Recommendation ESRB/2011/3”).
By means of said working paper, the ESRB - then chaired by Mario Draghi - drew up a series of recommendations aimed at enhancing the effectiveness of national macro-prudential policies with a view to fully improving financial stability within the European Union.
Indeed, the ESRB, despite providing that “the responsibility for the adoption of the measures necessary to maintain financial stability lies first within national frameworks”, has at the same time acknowledged that the activity of national macro-prudential authorities (usually central banks or financial supervisory authorities) must be coordinated through the issuance of common guiding principles such as to ensure “balancing the need for consistency among national approaches with the flexibility to accommodate national specificities”[1].
Recommendation ESRB/2011/3 pursues the objective of doing such coordination work, while still leaving to Member States the responsibility to take the necessary measures to maintain financial stability in the EU through the implementation, in the respective national regulatory frameworks, of the individual macro-prudential mandates.
In Italy, the principles laid down in said European legislation were recently accepted and implemented through the enactment of Legislative Decree 207/2023. Among the novelties introduced by Italian law-makers is, first of all, the establishment of an independent authority designated to conduct EU macro-prudential policies within the national territory: the Committee for Macro-prudential Policies (“Committee”).
The Committee includes the Governor of the Bank of Italy, as a chairman, the President of Consob, the President of Ivass and the President of Covip, representing their respective authorities and, in accordance with the provisions of the EU Recommendation concerning the transparency and accountability obligations of national macro-prudential authorities, is required to submit an annual report on its activities to the government and the Houses of Parliament by March 31 of the year following the year in question[2].
The implementation of the national macro-prudential mandate under Legislative Decree 207/2023 also has significant effects on insurance, banking and financial sector regulations, by introducing and/or amending certain provisions contained, respectively, in Legislative Decree No. 209 of 7 September 2005 (Private Insurance Code, CAP), Legislative Decree No. 385 of 1 September 1993 (Consolidated Law on Banking, TUB) and Legislative Decree No. 58 of 24 February 1998 (Consolidated Law on Finance, TUF).
As far as the changes to the Consolidated Law on Banking are in particular concerned, such changes provide, in accordance with the provisions of Regulation (EU) 2016/1011 (“Benchmark Regulation”), specific indications as to the possibility that a financial benchmark applied to contracts entered into by banks and financial intermediaries with clients be substantially changed or fully ceased[3].
Let’s proceed in order. The Benchmark Regulation places on administrators and users of benchmarks the obligation to monitor the risk that their change and/or cessation may cause damage to clients and, more generally, pose a threat to financial stability.
In particular, administrators of financial indices are required to prepare suitable procedures setting out the actions to be taken if a benchmark deviates radically from the reference values and/or has to be discontinued, and to update such procedures whenever there are material changes to the indices (or families of indices) to which the procedure refers[4].
In addition, supervised entities (other than administrators) that use financial benchmarks in their contracts are required to adopt, according to the procedures prepared by the administrators, robust written plans (so-called replacement plans) specifying the operational procedure to be implemented in the event that a benchmark materially changes or ceases to be provided. Such plans, if appropriate in the case at hand, shall also nominate one or several alternative benchmarks that could be referenced to substitute the benchmarks no longer provided, indicating why such benchmarks would be suitable alternatives.
Finally, the obligated parties are required to provide, upon request, the Authority with the procedures and replacement plans adopted and any updates thereof, without undue delay, and to reflect them in their contractual relationship with their clients.
In the wake of the provisions of the Benchmark Regulation, Legislative Decree 207/2023 introduces an ad hoc provision in the Consolidated Law on Banking laying down the obligations that banks and non-banking financial institutions are required to comply with in the event of a material change or cessation of a benchmark used in their respective contracts.
Such provisions, summarised in new Article 118-bis of the Consolidated Law on Banking, must be complied with by the obligated parties for the entire duration of the contractual relationship with the client, and the rules included therein will apply to all contracts concerning transactions and services governed by Title VI of the Consolidated Law on Banking (i.e. banking and financial transactions and services, consumer credit and payment services), on the transparency of contractual terms and conditions and customer relations, even where different from the financial contracts referred to in Article 3(1)(18) of the Benchmark Regulation[5].
Banks and intermediaries, in particular, must publish on their website the replacement plans adopted pursuant to the Benchmark Regulation and bring them (and their updates) to the attention of clients at least once a year, or at the earliest opportunity, in the manner provided for periodic reporting during the course of a relationship (see Article 119 of the Consolidated Law on Banking).
It is also necessary that contractual clauses concerning interest rates be drafted in such a way as to identify changes in the benchmark or substitute index that will be used in the event that the benchmark originally provided for in the contract is ceased or materially changed.
Obligated parties must necessarily notify the client within thirty days of the occurrence of a material change or cessation of the benchmark of the changes they intend to make to the index or the replacement index that will be used. The (unilateral) change proposal concerning the financial benchmark is to be considered as approved by the client if the latter does not withdraw, without charge, from the contract within two months of receipt of the communication.
If, following the aforesaid communication, the client expresses, within two months, its intention to withdraw from the relationship, the banks and financial intermediaries, on termination, shall have to apply the contractual terms previously established, taking into account, with regard to the interest rate, the last available value of the benchmark.
Finally, new Article 118-bis of the Consolidated Law on Banking Law confirms the ineffectiveness of benchmark changes and/or replacement adopted without complying with the procedure described in such provision.
Banks and financial intermediaries are required to comply with the above requirements within one year of the date of entry into force of Legislative Decree 207/2023 (i.e. by 10 January 2025):
Hence, the amendments made to the Consolidated Law on Banking by Legislative Decree No. 207/2023 have a significant impact on banks and financial intermediaries, which will have to plan and implement the initiatives necessary to achieve the timely implementation of the safeguards imposed by new Article 118-bis of the Consolidated Law on Banking also on contracts relating to existing relationships.
The content of this document is for information purposes only and is not and cannot be intended as legal advice on the topics dealt with. For further information please contact Danilo Quattrocchi, Eugenio Siragusa e Giuseppe Buono.
[1] See Recital 4 of Recommendation ESRB /2011/3.
[2] See Article 1, paragraph 9, of Legislative Decree 207/2023. In this regard, Recommendation ESRB/2011/3 recommends to Member States to make the macro-prudential authority ultimately accountable to the national parliament. Again as regards the transparency and accountability provided for national committees for macro-prudential policies, it is provided that Member States ensure that macro-prudential policy decisions and their motivations are made public in a timely manner, unless there are risks to financial stability in doing so, and that the macroprudential policy strategies are set out and published by the macro-prudential authority. Furthermore, Recommendation ESRB/2011/3 entrusts the macro-prudential authority with the power to make public and private statements on systemic risk and ensures legal protection for the macro-prudential authority and its staff when they act in good faith.
[3] As regards the changes made by Legislative Decree 207/2023 to the Consolidated Law on Finance, new paragraph 5-bis of Article 4-septies.1, merely specifies that the Committee is the competent authority to assess whether “a reserve clause of a specific type of agreement originally agreed upon no longer reflects, or reflects with significant differences, the market or the economic reality that the benchmark being discontinued was intended to measure, and whether the application of such clause may pose a threat to financial stability”, in addition to requiring the Committee to make public the elements considered at the basis of the mentioned assessment referred to in the first sentence.
[4] See Article 28(1) of the Benchmark Regulation.
[5] I.e. any “financial contract” within the meaning of EU consumer credit regulations.
