Consob Warning Notice n. 3/20 of March 26, 2020

Brexit with the withdrawal agreement - Measures for UK intermediaries providing investment services and activities in Italy

With the approval – on January 30, 2020 – by the Council of the European Union (EU), the agreement defining the procedures for the withdrawal of the United Kingdom of Great Britain and Northern Ireland ("United Kingdom") from the European Union, pursuant to Article 50 of the Treaty on European Union, was ratified. On February 1, 2020, therefore, the United Kingdom ceased to be a Member State of the Union and is no longer represented in the European institutions.

The transitional rules set out in Decree-Law No. 22 of March 25, 2019[1] with the aim of ensuring business continuity in Italy for UK entities in the event of a no-deal Brexit are thus no longer applicable. Therefore, Consob Communications no. 8 of March 29, 2019 and no. 10 of August 1, 2019, as well as Warning Notice no. 5 of October 17, 2019, are outdated. Equally, the notifications sent by UK investment firms to Consob under these Communications are no longer valid.

Under the terms of the aforementioned withdrawal agreement, a "transition period" has begun, which will last until December 31, 2020 (unless extended), during which European legislation, including financial services one, will continue to apply as if the United Kingdom were still a Member State. At the end of the transition period, British entities operating in the territory of the European Union will be subject to the rules laid down for third country[2] entities.

The framework for future relations between the European Union and the United Kingdom is set out in the political declaration accompanying the withdrawal agreement in which, as far as financial services are concerned (Section IV), the parties agreed to start to assess the mutual equivalence of regulatory and supervisory regimes promptly, and to work towards concluding these assessments by the end of June 2020.

With regard to the provision of investment services, in the light of MiFID II/MiFIR, how UK intermediaries access the EU market will depend primarily on the type of clients served(retail/elective professional or per se professional/eligible counterparties).

By virtue of the MiFIR regulation (Articles 46 and 47), third country firms may operate under the freedom to provide services (fps) only to eligible counterparties or per se professional clients, provided that:

(i) the European Commission (EC) has adopted an equivalence decision on the requirements in force in the third country[3];

(ii) the intermediary is authorised in the country of origin, and

(iii) appropriate cooperation agreements have been established with the Authority of the home country[4].

In the absence of an equivalence decision by the EC (or if this decision is no longer in force), each Member State is entitled to allow the non-EU firm to operate in its territory, even without the establishment of branches[5].

The Italian Consolidated Law on Finance (Article 28, paragraph 6) has afforded to third-country firms other than banks[6] the possibility of operating through the freedom to provide services, subject to authorisation by Consob, after consulting the Bank of Italy, when the conditions set out therein are met and exclusively with per se professional clients and qualified counterparties. The quoted Italian legislative act, exercising the option provided for in Article 39 of MiFID II, has prescribed the establishment of a branch for the provision of services to retail and elective professional clients, subject to authorisation by Consob, after consulting the Bank of Italy (Article 28, paragraph 3, Consolidated Law on Finance)[7].

In the light of the European law, should the EC issue the equivalence decision before the end of the transition period, UK intermediaries operating under the freedom to provide services to professional clients per se and/or eligible counterparties will be subject to the operating (and supervisory) regime provided by the MiFIR Regulation (i.e. inclusion under the ESMA register when certain conditions are met and possibility of operating throughout the EU, also in Italy, under the supervision of the competent home country authority). However, UK investment firms (other than banks, authorised by the Bank of Italy) will have to request a specific authorisation from Consob if operating with retail and elective professional clients.

Differently, should the EC fail to issue the equivalence decision, UK intermediaries, including those operating under the freedom to provide services, will be required to comply with national regulations. UK investment firms (other than banks) will have to apply to Consob for a specific authorisation to operate in Italy.

In the absence of the required authorisations/registrations, UK intermediaries will not be able to continue to provide investment services and activities in Italy at the end of the transition period.

The attention of UK operators is therefore drawn to the need, having regard to the regulatory and supervisory regimes applicable to them, to take all measures to ensure continuity in the provision of investment services and activities to Italian customers and to plan and carry out, if necessary, an orderly exit from the Italian market, where they are determined to cease activity in Italy.

In this context, UK investment firms are invited to promptly notify Consob of their interest in continuing to operate in Italy or their intention to cease operations once the transition period will have ended.

With specific reference to the OTC derivative contracts possibly in place with Italian counterparties, it is recalled that - should the UK intermediaries not have been licensed to operate as third country firms by the end of the transition period (and should the OTC derivative contracts with Italian counterparties not have been transferred to an EU-27 entity) – the possible qualification of some of their servicing activities as abusive provision of investment services could have also an impact on the contracts themselves and, in particular, on their possible early termination.

The attention of UK intermediaries[8] is also drawn to providing Italian clients with up-to-date information on the consequences of the changed operating conditions resulting from Brexit, also with reference to the specific implications for the OTC contracts in place.

Finally, please note that any requests or communications to Consob must be sent at the following certified e-mail address:

Paolo Savona

[1] The decree was converted, with amendments, by Law no. 41 of May 20, 2019.

[2] Similarly, EU entities operating in the UK will be subject to the rules governing non-EU activities.

[3] The purpose of the equivalence decision is to certify that the legal and supervisory regime of the third country ensures that undertakings authorised in that country comply with prudential and conduct of business requirements equivalent to those laid down in MiFID II/MiFIR and CRD IV. Recently, through Regulation (EU) 2019/2033 as well as Directive (EU) 2019/2034, some amendments were made to the MiFID II/MiFIR regime, including amendments regarding third-country firms. Such amendments, which will apply from June 26, 2021, strengthen the conditions for the adoption by the EC of an equivalence decision with regard to requirements in third countries, in particular in the case of firms that are systemically important.

[4] The freedom to provide services can only apply after the intermediary is registered with ESMA, which is required to establish and maintain a register of all non-EU companies operating in the European Union. Non-EU firms remain subject only to the home country supervision and are required to inform European clients of such a circumstance, in accordance with the standardsset by ESMA to this purpose.

[5] In this case, however, the benefit of the European passport is not available, i.e. the investment services/activities cannot be provided to eligible counterparties and per se professional investors established in other EU countries only by virtue of the authorisation granted.

[6] The law applicable to third country banks is set out in Article 29-ter of the TUF.

[7] An intermediary authorised in this way cannot benefit from European passporting and, consequently, can operate through its own branch on Italian territory only.

[8] Banks providing investment services and activities should also consult the following website: