By means of Legislative Decree no. 72 of 12 May 2015 (the "Decree"), Italy implemented Directive 2013/36/EU (Capital Requirements Directive; "CRD IV"), which reformed, inter alia, banks' and investment firms' corporate officers "fit and proper" criteria for better governance purposes.

To this end, the Decree modified Article 26 of Legislative Decree no. 385 of 1 September 1993 (the "Consolidated Banking Law"), thereby requiring corporate officers of banks supervised by the Bank of Italy ("BoI") (i.e., the less significant ones) to meet the above mentioned criteria in order to be appointed.

The underlying rationale being to ensure such banks' sound and prudent management, while strengthening the integrity of the banking and financial system as a whole and the investors' protection.

On the implementing "fit and proper" rules recently introduced by means of a Ministerial Decree

After five years and a half from the entry into force of the Decree, the Minister of Economy and Finance issued Decree no. 169 of 23 November 2020, entered into force on 30 December 2020 (the "Regulation"), which established that only candidates who are, among other, "fit and proper" can be appointed as corporate officers, thus being deemed suitable to perform their management and control functions.

Save made for the rules on the suitable composition of the Board, as well as on time commitment and limits on the number of offices that can be held by candidate corporate officers, which apply only to Italian banks, the Regulation apply also to the corporate officers of financial intermediaries, credit consortia, electronic money and payment institutions, as well as depositor guarantee schemes (hereinafter, jointly referred to as the "Intermediaries") whose appointment takes place after 30 December 2020.

Requirements and criteria

The Regulation distinguishes among requirements (i.e. reputation, professionalism and independence) and criteria (i.e. experience and fairness), setting forth that, while the former must be assessed "ex ante" by the Board, the latter are to be evaluated "ex post".

In other words, while requirements are mandatory and do not leave room to interpretation, criteria are left to the discretion of who must apply them, on the basis of a "case-by-case" approach.

Moreover, among the requirements, it is professionalism that has been object of the deepest changes. In light of the proportionality principle, such requirement applies to directors of all types of bank (i.e. small ones, as well as those characterised by a greater operational complexity), yet having different scope according to whether the potential candidate in question is a director with or without executive powers.  In the latter case, in order to be suitable a candidate must have either performed management and control functions or gained a professional experience (including an academic one) in the banking, financial or insurance sectors, beforehand.

New assessment profiles

Furthermore, the Regulation has introduced the following assessment profiles:

  1. independence of judgement, that is the corporate officer's duty to report any obstacle(s) to his/her own independence;
  2. adequate composition of the Board, both in terms of quantity and quality (taking into account age, gender, office duration and overall skills of each member thereof);
  3. time commitment, which must be sufficient and adequate to each function to be held; and
  4. maximum limits (only for large banks) on the number of offices that can be held by each candidate at other banks or companies, yet distinguishing between executive and non-executive ones.

The suitability assessment

Corporate officers' suitability must be assessed by the Board, based on the information provided by the candidate, after the appointment if he/she has been proposed by the shareholders' meeting, otherwise beforehand.

In the event of a lack of suitability or a breach of the afore-said limits, the Board will be called upon to resolve the corporate officer's disqualification from the office.

By relying on the Board's documented and reasoned assessment, the BoI may carry out a further evaluation, according to timing and modalities decided by the same.

In this respect, it is worth mentioning that the BoI has recently submitted to a public consultation, which is going to end on 19 February 2021, its draft provisions on the procedural aspects of the above mentioned assessment and the related Intermediaries' fulfillments.

Conclusive remarks

The Regulation aims at professionalise Intermediaries' corporate officers, thereby enhancing the corporate governance of the same.

Accordingly, Intermediaries must submit to review their corporate officers' "fit and proper" assessment process, while reinforcing existing policies on suitability requirements to be met by such officers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.