The historical evolution of the Confidi (mutual credit guarantee consortia), in both economic and legal terms, has affected a significant and predominant sector of the Italian economy: small and medium-sized enterprises. It is within this system, in fact, that the Confidi have found their main place, making their contribution to the development and promotion of the entrepreneurial fabric.
Legislative Decree no. 141/2010, reforming Title V of the Consolidated Banking Act (TUB), intervened to regulate this socio-economic context. The legislator wished to regulate the activities of non-bank financial intermediaries. These are, in particular, operators which, although they obtain funding from the banking sector, fall outside the controls to which the latter is subject and are considered a potential cause of systemic crises (the so-called “shadow banking system”).
The Confidi, in particular, were excluded from any form of control by the Supervisory Authority until the comprehensive reform of their regulation in 2003, which created a first distinction, based on a size criterion, between larger Confidi (entered in the special register under Article 107 TUB) and smaller Confidi (entered in the general register under Article 106 TUB), subjecting the former to the same prudential supervisory rules as Financial Intermediaries, while prescribing for the latter a registration procedure in the general register.
The reform of Title V (Legislative Decree no. 141/2010 and subsequent implementing decrees) has aligned the regime for larger Confidi even more closely with that for Financial Intermediaries, subject to marginal differences linked to organisational and operational structure, in terms of subjection to the control of the Supervisory Authority (inspection, regulatory and reporting supervision), requiring their entry in the register under Article 106 TUB as amended by Legislative Decree 141/2010. A special regime has been maintained for smaller Confidi, introducing a supervisory system, albeit less stringent than for larger Confidi in terms of controls, regulatory requirements and reporting, and entrusting the supervision of these operators to a body set up for the purpose (under Article 112-bis TUB).
Also significant is the legislative change to the size criterion that determines classification in the category of “smaller Confidi”. Specifically, smaller Confidi, which are required to be entered in the register under Article 112(1) TUB, are operators with financial assets of less than EUR 150 million (previously this threshold was EUR 75 million), as defined by Ministry of Economy and Finance Decree no. 53 of 2 April 2015, issued in implementation of the reform of Title V TUB. Entry in this register also delimits the scope of operations of smaller Confidi, which remain restricted solely to the collective guarantee of credit and the related and instrumental services. Larger Confidi, by contrast, may carry out collective credit guarantee activity as their main activity together with the other activities specified in Article 112(5) and (6) TUB.
In the light of the foregoing introductory analysis, and also considering the rationale underlying the enactment of Legislative Decree no. 141/2010, the reform of Title V, while effectively introducing a first form of inspection and reporting supervision (not regulatory) for “smaller Confidi”, has in fact limited the number of Confidi required to submit to control and supervisory measures similar to those provided for Financial Intermediaries, reducing the number of operators required to strengthen their governance structure and risk safeguards.
The aforementioned legislative choice:
– has recognised that the Confidi system has provided, especially in the aftermath of the 2009 financial crisis and the resulting difficulty of access to bank credit, valuable support for the development of the economy of Italian small and medium-sized enterprises;
– nevertheless sets limits on the operations of smaller Confidi, linked to their low capitalisation and simplified governance and control structure, which are restricted solely to the collective guarantee of credit and the related and instrumental services.
There nevertheless remains in the background the belief that the legislator wished to strengthen the safeguards of a sector that has shown some difficulty in managing efficiently, and with solid control structures, the public benefits and incentive measures of which it has been a recipient.
In any event, not being subject to forms of prudential supervision may prove in the long term to be a weakness for smaller operators. On the one hand, they would find themselves with weak bargaining power towards the lending institutions, as they do not benefit from any form of Credit Risk Mitigation (see below), and on the other hand they would be deprived of a form of product diversification to offer to customers, as they are bound to the exclusive issuance of mutual guarantees. A competitive dynamic is therefore expected for the “smaller Confidi” which, in the long term, could lead to the substantial exit from the market of some of these operators.
1. The evolution of the regulation of the Confidi.
1.1 The 1990s
The collective credit guarantee consortia, so-called “Confidi”, are bodies set up mainly by small and medium-sized enterprises in order to increase their bargaining power towards the financial and banking system, facilitating access to sources of finance through a form of collective mutual guarantee offered to members.
It was at the beginning of the 1990s that an orderly process of legal classification of the Confidi in the Italian legal system began. The legal nature of this type of operator, however, had been known among banking-sector players since the 1950s. In those years, in fact, associations of small entrepreneurs had been formed with the aim of overcoming the difficulty of access to credit, by issuing guarantees[1] covering the loans granted by the banking system to individual members. The real rise of these entities took place in the 1970s, when the oil crisis generally pushed credit institutions towards stricter assessment measures for access to credit.
The first interventions by the legislator in the 1990s made access to public benefits conditional on entities having certain organisational, size and operational characteristics. One thinks, for example, of Law no. 317 of 5 October 1991, on measures for the innovation and development of small enterprises, or Law no. 108 of 7 March 1996, containing provisions on usury, or again Law no. 266 of 7 August 1997, which carried out a general rationalisation of public funds within the national guarantee system. Associations of entrepreneurs had therefore begun to acquire common characteristics on the basis of the shared aim of obtaining the requirements needed to access the incentive and support measures promoted by the legislator, thus indirectly outlining the main characteristics of the economic operators that we now identify as “Confidi”. In other words, the measures referred to, aimed at regulating the growth, development and protection of the sector of Italian small and medium-sized enterprises, and not strictly intended to regulate in a uniform way the associations of entrepreneurs set up with the aim of providing collective credit guarantees, made it possible to delimit and outline the characteristic requirements of the economic operator “Confidi”. The latter, in fact, in order to be eligible for public contributions and funding, by virtue of their substantial role in supporting the Italian productive fabric, had to adapt their size, capital and organisational structure.
In the 1990s, however, the legislator also intervened directly, aiming to lay down substantive, albeit sporadic, rules on Confidi. This refers to the Consolidated Banking Act (Legislative Decree no. 385 of 1 September 1993 – TUB). In particular, Article 155 TUB, in its previous wording[2], provided for the entry of Confidi in a dedicated section of the register provided for by Article 106(1) TUB, treating these operators as outside any form of control by the Supervisory Authority.
The historical and economic evolution of the Confidi led these operators to broaden their range of activities and services, no longer limited solely to the provision of mutual guarantees. In particular, Confidi began to provide members with additional services such as consultancy and assistance:
in choosing the technical forms of financing;
in applications for access to public incentives;
in the control and management of financial costs;
in assessing the riskiness of the business, closely linked to the acceptance of the business/entrepreneur into the consortium.
In this way, the role of the Confidi became increasingly complex, comparable to that of a Financial Intermediary, but lacking adequate organisational and control safeguards.
1.2 The 2003 reform
Around the turn of the millennium, the conviction began to mature in many quarters (Supervisory Authorities and Legislator) that it was necessary to encourage the consolidation of the Confidi, with the aim of achieving greater capital adequacy and higher governance efficiency for the operators. To this was added a further assessment, arising from the impetus of the internal work of the Basel Committee on Banking Supervision (during the revision of the 1988 Capital Accord[3]), which proposed a change to the system for calculating bank asset risk weightings, recognising among the types of guarantor also rated companies. The capital strength and the reputation connected with acquiring the status of “financial intermediary”, in fact, would have allowed the Confidi to obtain more favourable consideration from rating agencies or banks, by virtue of a risk-weighted assessment potentially mitigated by those factors[4].
In light of this scenario, the legislator issued a comprehensive and rationalised regime for the Confidi with Decree-Law no. 269 of 30 September 2003, converted with amendments into Law no. 326 of 24 November 2003 (the so-called 2004 Finance Act).
The 2003 regime introduced a substantial reform of these economic operators, providing in particular for:
the activity that may be carried out;
the circumstances for acquiring the status of supervised entities (intermediaries under Article 107 TUB);
a reservation of the name “Confidi” for some of the typified categories;
the minimum amount of the consortium fund or share capital.
The reform, moreover:
redefined the meaning of the term Confidi, specifying that these are “consortia with external activity, as well as those for the collective guarantee of credit among independent professionals, cooperative companies, consortium companies limited by shares, with limited liability or cooperative, which carry out the activity of collective credit guarantee”;
clarified the definition of “collective credit guarantee activity”, that is “the use of resources originating wholly or in part from the member or shareholder companies for the mutual and entrepreneurial provision of guarantees aimed at facilitating their financing by banks and other entities operating in the financial sector”.
Confidi were also prohibited from distributing operating surpluses of any kind and in any form to member or shareholder companies, even in the event of the dissolution of the consortium, cooperative or consortium company, or of withdrawal, forfeiture, exclusion or death of the member or shareholder (substantially classifying these operators among not-for-profit entities).
The key element, in any event, was the attribution to operators with certain size characteristics[5] of the status of Financial Intermediary, with the consequent obligation to be entered in the register under Article 107 TUB (on the basis of the introduction of Article 155(4-bis) TUB). The reformulation of Article 155(4) TUB, by contrast, provided for smaller Confidi that the previous regime would be maintained: an obligation to be entered in the general register under Article 106 TUB and exclusion from the application of Title V TUB.
In summary, the Decree-Law of 2003, as converted with amendments, identified three types of Confidi:
a) Confidi entered in the section of the general register under Article 106 TUB, which carried out exclusively collective credit guarantee activity and the related or instrumental services. Entry in the section did not authorise them to carry out the other transactions reserved to financial intermediaries. Title V of the TUB did not, in fact, apply to them;
b) Confidi entered in the special register under Article 107 TUB, subject to a prudential supervisory regime substantially equivalent to that of banks. This depended on the volume of financial activity and the capital resources available. These entities were permitted greater operational scope than the other Confidi;
c) Collective credit guarantee banks (Banche di garanzia collettiva dei fidi), set up in the form of cooperative companies with limited liability, subject to the rules of the TUB and the secondary regulation of the Bank of Italy[6].
2. The Reform of Title V and the implementing measures.
The reform of Title V of the TUB, by Legislative Decree no. 141 of 13 August 2010 as subsequently amended, intervenes again in the matter of Confidi, better differentiating the characteristics that lead larger operators to enter the new register under Article 106 TUB. The regulatory scenario, in fact, provides for a situation opposite to the previous dual one (general register under Article 106 and special register under Article 107 TUB), overcoming the distinction between intermediaries entered in the special register under Article 107 TUB, already subject to the supervision of the Bank of Italy, and the other intermediaries entered in a dedicated section of the register under Article 106 TUB. Today a single register is provided for financial intermediaries: the register under Article 106 TUB.
It should be noted that Legislative Decree no. 141/2010 does not repeal the comprehensive reform of the Confidi (Decree-Law no. 269/2003), nor the subsequent legislative measure on capitalisation[7]. The 2003 Decree-Law therefore continues to be one of the legislative sources of the regime for Confidi, together with the reworded Articles 112 and 112-bis TUB. Article 155 TUB, which provided for the possibility of dual registration, has instead been repealed.
The regulatory framework of the reform of Title V TUB is completed by the recent entry into force of the implementing secondary rules: Decree no. 53 of 2 April 2015 of the Ministry of Economy and Finance (MEF) (hereinafter also simply the “MEF Decree”) and Bank of Italy Circular no. 288 of 3 April 2015[8]. As far as relevant to the subject matter under discussion, it should be noted that the framework of the secondary legislation still needs to be completed, lastly, by the entry into force of the regulation of the Ministry of Economy and Finance setting out the powers and operating procedures of the Body referred to in Article 112-bis TUB (i.e. the supervisory body for the so-called smaller Confidi).
The secondary rules referred to above expressly repeal the MEF Decree of 9 November 2007 and MEF Decree no. 29 of 17 February 2009.
2.1 The main contents of the Reform and supervisory activity.
Having described the regulatory framework in force, the discussion turns to the principal contents of the reform of Title V of the TUB, as detailed and completed by the implementing provisions.
It should be stressed at the outset that the amended Article 112 TUB brings significant changes to the regime for Confidi. A clear separation is in fact introduced between:
the register of the so-called “smaller Confidi” (under Article 112(1) TUB), in which second-level Confidi may also be entered[9];
the register of financial intermediaries (under Article 106 TUB), in which the so-called “larger Confidi” are entered, which also carry out other activities for their member companies and are characterised by more complex operations.
The MEF Decree referred to identifies and specifies the criterion distinguishing “larger Confidi” from “smaller Confidi”, making clear that operators with a volume of financial activity equal to or exceeding EUR 150 million (the previous figure was EUR 75 million) are required to apply to the Bank of Italy for authorisation for entry in the register under Article 106 TUB[10]. By contrast, for “smaller Confidi”, with a volume of financial activity below EUR 150 million, the law requires entry in the register kept by the Body provided for in Article 112-bis TUB.
As anticipated, as regards supervisory activity, before the reform of Title V, operators considered smaller Confidi, entered in the general register referred to in Article 106 TUB, were without any real control exercised by the competent Authority; in particular, that Authority had no power:
to regulate or intervene;
to verify the information provided;
to proceed with removal from the register.
Today these operators are subject to the control exercised by the Body referred to in Article 112-bis[11] TUB, which manages the register under Article 112(1) and has autonomous powers of verification and intervention. The Body appears to adopt the same organisational and operational structure as the Body of Agents and Mediators (Organismo degli Agenti e Mediatori, OAM)[12]. It is in fact vested with information-gathering and inspection supervisory powers. No power is instead conferred in regulatory terms, which remains with the Bank of Italy. The Body, among other things, manages the register (applications for authorisation and for removal) and verifies compliance by registrants with the provisions governing their activity, as well as monitoring that they continue to meet the requirements needed to maintain registration. The Body nevertheless remains subject to the control of the Bank of Italy, which is required to verify the adequacy of the procedures and measures put in place for the performance of its activity. The Ministry of Economy and Finance, on the other hand, is given the power to dissolve the Body’s management and control bodies, on a proposal from the Bank of Italy, where there are serious irregularities or serious breaches in administration.
Larger Confidi, required to enter the new register under Article 106 TUB (whereas previously entry in the special register under Article 107 was required), remain subject to the supervisory activity (information, regulatory and inspection) of the Bank of Italy. For these operators there is no obligation to enter also in the register kept by the Body under Article 112-bis.
It should be added that, by way of derogation from the exhaustive list of corporate forms prescribed for the entry of Financial Intermediaries in the register under Article 106 TUB, larger Confidi may also adopt the form of a consortium company or limited liability company, with the anti-money-laundering obligations also remaining applicable[13].
3. The requirements for authorisation.
The procedures for entry in the register under Article 112(1) TUB and in the register under Article 106 TUB, for smaller and larger Confidi respectively, differ because their management is assigned to different bodies, namely the Body under Article 112-bis and the Bank of Italy respectively.
The obligations of smaller Confidi entered in the register, the procedures for entry and removal, as well as the sanctioning measures, are governed in part by the Decree of the Ministry of Economy and Finance (not yet in force) and, as stated, entrusted to the management of the Body under Article 112-bis TUB. In particular, the document put out for consultation[14] specifies that the application, accompanied by payment of the processing fee, is submitted following entry in the companies register:
of the newly incorporated company; or
of the amendments to the articles of association for companies already incorporated; or
of the contract for Confidi incorporated in the legal form of a consortium.
The Body, pursuant to Article 112(2) TUB, verifies that the conditions identified by Article 13 of Decree-Law no. 269/2003 (converted, with amendments, by Law no. 326/2003) are met. In particular, the requirements of:
legal form;
share capital or consortium fund;
net assets;
corporate purpose;
ownership structure;
integrity requirements established pursuant to Article 25(2)(a) TUB for “qualified” shareholders[15] in the capital;
integrity requirements established pursuant to Article 26(3)(a) TUB for those performing administrative, management and control functions.
If no objections arise, the Body proceeds with registration or refuses it by a reasoned decision, within 90 days from the date of receipt of the application. The provisions specify that if no refusal decision is adopted, the application of the smaller Confidi is deemed accepted.
The secondary implementing rules of Title V issued by the Bank of Italy apply, instead, to larger Confidi. Like other supervised entities, these operators are subject to the inspection, information and regulatory supervision of the Bank of Italy (a circumstance that allows these operators broader operational scope than smaller Confidi). The supervisory provisions applicable to larger Confidi refer, in general, to the provisions applicable to Financial Intermediaries, with some additions and amendments that take account of the specific features of the operator’s organisational and operational structure.
For the purposes of granting authorisation, in particular, what is relevant above all is the possibility of also adopting the form of a consortium company with limited liability or limited by shares.
With reference to the application for authorisation for entry in the register referred to in Article 106 of the TUB, a distinction must be made between a Confidi resulting from a merger of several Confidi, none of which individually has a Volume of Financial Activity (Volume di Attività Finanziaria, VAF) equal to or exceeding EUR 150 million, and a Confidi that is established from scratch. In the latter case the Confidi must necessarily first enter the Register referred to in Article 112 of the TUB and subsequently, within 60 days following the occurrence of the condition of reaching a VAF equal to or exceeding EUR 150 million, may submit an application for entry in the Register referred to in Article 106 of the TUB. In the case, instead, of a Confidi resulting from the merger of several Confidi, it is considered, in the view of the writer, that the 60 days will run from the moment the merger deed becomes effective.
Naturally, the fact that entry in the Register is in practice an authorisation means that the amendments made to the articles of association to bring them into line with the rules applicable to Confidi entered in the Register referred to in Article 106 of the TUB, both by the Confidi that has recorded the VAF threshold being exceeded and by the Confidi created by the merger deed with the characteristics for entry in the Register referred to in Article 106 of the TUB, cannot be entered in the companies register before such authorisation has been obtained.
It should also be noted that, in both of the situations described above, the Confidi, pending the application for entry in the Register referred to in Article 106 of the TUB, must limit itself, until authorisation is obtained, to carrying out the activities reserved to the so-called “smaller Confidi”.
For the purposes of obtaining authorisation for entry in the register referred to in Article 106 of the TUB, following the resolution on the amendments to the articles of association to bring them into line with the rules contained in MEF Decree no. 53/15 and in Bank of Italy Circular no. 288, and before proceeding with entry in the companies register, the body with strategic supervision function (in the “traditional” governance system, the Board of Directors) of the entity that has recorded the exceeding of the size threshold (or that was created by the merger) resolves on the submission of the authorisation application to the Bank of Italy. The minimum capital required is EUR 2 million and the application must be submitted within 60 days of the occurrence of the size conditions laid down in the MEF Decree.
The application must be accompanied by the same documentation required for Financial Intermediaries (business plan, projected financial statements, integrity and professional standing of company officers and shareholders, etc.) with the addition of the specific features linked to the volume of financial activity required by the MEF Decree for entry in the register under Article 106 TUB.
In particular, the application also contains a certification that:
the volume of financial activity is equal to or exceeds EUR 150 million and that it has been maintained for the following six months;
the requirements laid down on prudential supervision are met;
In addition to the annexes required for the authorisation application of Financial Intermediaries, the following must be added:
the documentation showing that the requirement relating to the minimum volume of financial activity has been maintained for the six months following the close of the last financial year[16];
the information sheet on the composition of financial assets;
the information sheet on the activities carried out.
Nothing changes, compared with the regime provided for the Financial Intermediary, as regards the case of an authorisation application by companies already in existence.
Particularly important in the new regulatory framework is the definition of the stages of exit from the market which, before the reform, had not found a complete systematisation in the legislative and regulatory texts.
In the new regime, Confidi required to enter the Register referred to in Article 106 of the TUB are exempt from the obligation to enter the Register kept by the Body provided for in Article 112-bis of the TUB. Article 107(3) of the TUB applies to them, which refers to the rules on revocation or lapse of authorisation entrusted to the Bank of Italy (see Circ. 288, Title VII, Chapter 1, Section IV).
In particular, if for a period of three consecutive financial years the Confidi records volumes of financial activity below the minimum required for entry in the Register referred to in Article 106 of the TUB (EUR 150 million), its authorisation would be revoked and it would be entered ex officio in the Register referred to in Article 112 of the TUB (MEF Decree 53/2015, Article 4(3)). In this case the legal representative of the Confidi is obliged to notify the Bank of Italy that the Volumes of Financial Activity have fallen below the threshold, attaching to the notification a plan for the disposal of balance-sheet assets deriving from activities not permitted to Confidi entered in the Register referred to in Article 112 of the TUB, lasting no more than 12 months.
The authorisation of Confidi entered in the Register referred to in Article 106 of the TUB may be revoked pursuant to Article 113-ter of the TUB if exceptionally serious irregularities in administration or exceptionally serious breaches of legislative, administrative or statutory provisions emerge, if capital losses of exceptional seriousness are anticipated, or if revocation is requested by the administrative bodies, the extraordinary shareholders’ meeting or any commissioners appointed pursuant to Article 113-bis of the TUB.
Revocation of authorisation pursuant to Article 113-ter of the TUB, unlike the falling below of the Volumes of Financial Activity, constitutes grounds for dissolution of the company and, within 60 days of the revocation measure, the Confidi is required to notify the Bank of Italy of the company’s liquidation programme. The Bank of Italy must verify that the conditions for the orderly conduct of the liquidation exist pursuant to Article 96-quinquies of the TUB. If the above verification has a positive outcome, the dissolution resolution may be entered in the companies register and during the liquidation, without prejudice to the powers of the credit authorities, the activity may be continued pursuant to Article 2487 of the Civil Code, and the Bank of Italy will also be able to replace, pursuant to Article 97 of the TUB, the liquidators and the members of the supervisory bodies.
If the Bank of Italy does not consider that the conditions for an orderly conduct of the liquidation exist, the procedure of compulsory administrative winding-up (liquidazione coatta amministrativa) may be applied (Title IV, Chapter I, Section III of the TUB). In particular, failure to establish the conditions for an orderly liquidation, for a Confidi that has raised funds with an obligation of repayment exceeding its net assets, leads directly to the application of the compulsory administrative winding-up procedure. Otherwise, the state of insolvency of the Confidi must be established pursuant to Article 82(1) of the TUB in order to proceed with the application of the compulsory administrative winding-up procedure.
For “smaller Confidi”, Article 112-bis of the TUB provides that the Body may order removal from the Register referred to in Article 112 of the TUB if the requirements for registration cease to be met, serious breaches of legislation emerge, non-payment of contributions to the Body is found, or the Confidi has been inactive for a period of not less than one year.
Finally, in order to learn the subsequent steps aimed at the orderly exit from the market of a “smaller Confidi” removed from the Register referred to in Article 112 of the TUB, it will be necessary to wait until the Body is established and its statute, which will detail its powers towards registrants, is issued and approved.
4. The scope of operations.
In the context of financing businesses, and in particular small and medium-sized ones, the role of the Confidi has made it possible to reduce the costs of information on the borrowers to be extended credit and the risks in cases of default. The Confidi, in particular, have taken on renewed vigour during the economic and financial crisis of recent years, contributing to the functioning of the credit market under conditions that are, as is well known, rather difficult for those running a business.
The success and development factors of collective credit guarantee consortia have always resided in the existence of a sort of control exercised by the group. In particular, the productive and commercial interdependence between small and medium-sized enterprises, which is created within the structure of these bodies (associations, consortia, companies), means that the business situation and prospects of the member entrepreneurs constitute a common information asset within the group to which they belong. A sort of mutual control is in fact put in place among the various entrepreneurs who are members, in order to give life to the Confidi.
Many times, therefore, the Confidi become aware of information on member companies that the credit institution does not have available in assessing the creditworthiness of the businesses that access the various forms of financing. The control and analysis by two parties (Confidi and credit institutions) has therefore enabled, and still enables today, the reduction of the information gap for the benefit of all operators in the sector.
Moreover, the risk-sharing by the guaranteed business and the competition inevitably present among entrepreneurs in the same sector constitute an incentive to keep the level of mutual attention high, since there is no advantage for the Confidi in favouring unreliable parties or parties that have become particularly risky. This mechanism, the so-called “peer monitoring”, operates on an ongoing basis[17]:
a first selection of businesses is carried out by the Confidi on receipt of membership applications;
a further selection is carried out when the member business requests the guarantee covering its bank debt;
an ex post control is carried out after the guarantee has been provided, in order to monitor the performance of the guaranteed business[18].
That said, it should be noted that today the Confidi system, although it has shown in the past that it has the means and operational capacity to survive the economic and financial crisis, appears to be going through a difficult period. In fact, for these operators the guarantees issued are decreasing on the one hand, while on the other the share of non-performing assets is reaching worrying levels[19].
The riskiness of the sector has increased by about 11 percentage points and, in particular, the increase in anomalous positions was caused by the economic situation as well as by a more precise accounting of profits and losses (see Bank of Italy Communication of 8 May 2013). The deterioration of credit further squeezes earnings results, and to this is added the tightening of public finance conditions.
All circumstances that call for reflection on the current state of the model of supervised Confidi.
4.1 The activities that may be carried out
In this socio-economic scenario, as anticipated, the Confidi operate within a precise regulatory regime (of primary and secondary sources) that describes the activities that may be carried out, by reason of the operational complexity of the intermediary and of the register (Article 106 TUB) or list (Article 112(1) TUB) in which it is entered.
For smaller Confidi, the law prescribes the exclusive exercise of the activity of collective credit guarantee and of the related or instrumental services, in compliance with the provisions laid down in the MEF Decree referred to and the activity reservations provided for by law (see Article 112(1) TUB). In particular, related services means services that allow the collective credit guarantee activity to be developed, are carried out on an ancillary basis and are consistent with it (e.g. consultancy services and agreements with banks aimed at facilitating access to credit for member companies), while instrumental services means ancillary activities (e.g. the purchase of real estate and the acquisition of shareholdings, etc.). In this regard, it should be specified that Article 5 of the MEF Decree and the Bank of Italy, clarifying the scope of the rule, have limited the exercise of the related activity of corporate finance consultancy to member companies of the Confidi only and strictly aimed at the issuance of the mutual guarantee, whether its own or a third party’s. In addition, the instrumental activity of purchasing real estate must be strictly functional to the exercise of the main activity. In this regard, non-functional properties held before registration may be leased or sold as soon as possible.
For these Confidi, the activity of acquiring shareholdings also remains very limited, being restricted exclusively to other Confidi or collective credit guarantee banks or to other financial intermediaries which, on the basis of specific agreements, issue guarantees to their own members.
By contrast, larger Confidi carry out collective credit guarantee activity as their main activity[20] (see Article 112(4) TUB) and may, on a residual basis (under Article 112(6) TUB), grant other forms of financing or guarantee the issue of debt instruments by member SMEs, in the same way as the activities that may be carried out by Financial Intermediaries and within the limits laid down by the Bank of Italy’s supervisory provisions (i.e. within a limit equal to 20% of total assets[21]).
These Confidi, entered in the register under Article 106, may also carry out, mainly in favour of consortium member or shareholder companies, the following activities:
providing guarantees in favour of the State tax administration, for the purpose of the payment of tax refunds to consortium member or shareholder companies;
management of public incentive funds (pursuant to Article 47(2) TUB);
entering into contracts with the banks to which public guarantee funds have been assigned in order to regulate relations with consortium member or shareholder companies, with a view to facilitating their use of those funds (pursuant to Article 47(3) TUB).
Confidi entered in the register under Article 106 TUB may also carry out related or instrumental activities. Related and instrumental activities are ancillary activities that make it possible, on the one hand, to develop the Confidi’s core operations (e.g. the provision of commercial information services) and, on the other, are supportive of them (e.g. economic and financial studies, research and analysis, management of real estate for functional use, information, consultancy and assistance activities for consortium member or shareholder companies).
Unlike smaller Confidi, Confidi entered in the register may carry out related and instrumental activities also for non-member clients, provided that such activities are carried out in a way that is functional to the development of the main activity of collective credit guarantee or of the activity carried out on a residual basis pursuant to Article 106 of the TUB. This facility, compared with “smaller Confidi”, together with the broadening of the activities permitted to them, allows considerable expansion of activity and the possibility of increasing and diversifying the sources of income capable of supporting the Confidi itself.
The management of real estate as an instrumental activity ancillary to the exercise of financial activity also allows Confidi entered in the register to acquire properties intended, in whole or in part, for the exercise of their institutional activity or the pursuit of their corporate purpose, as well as to manage properties acquired for credit recovery for the time necessary for their disposal. The leasing of properties arising from situations prior to entry in the register remains permitted for them.
The difference in the operational scope permitted by the rules between the two categories of Confidi, which has its reasons in the different supervisory regimes applicable to them, nevertheless creates a segmentation of the market. “Smaller Confidi” in fact see their growth prospects greatly restricted and indeed risk exit from the market for reasons attributable to their size, to the possibility of diversifying sources of income and to the competition that will be exerted in the guarantee sector by their larger counterparts.
From this perspective, if the legislation establishing the register under Article 112 of the TUB and the Body intended to supervise the Confidi entered in it does not introduce operational innovations for “smaller Confidi”, a slow exit of the latter from the market could be witnessed. On the other hand, it should be observed that the legislative innovation of Legislative Decree 141/2010 should push the strategic choices of “smaller Confidi” towards aggregation, capable of increasing their size and thus gaining access to the register under Article 106 of the TUB.
5. The secondary legislation. An outline.
It is useful here, without prejudice to what has already been specified in the preceding paragraphs, to highlight the further regulatory differences between the regime for larger and smaller Confidi.
The secondary regulatory rules (see the MEF Decree) for smaller Confidi address two main issues:
the amount of financial assets that Confidi may hold in order to be classified as a larger or smaller operator (see Art. 4);
what has already been said regarding the definition of the related and instrumental services to be provided together with the exclusive exercise of the collective credit guarantee activity[22] (see Art. 5).
The rules laid down by the Bank of Italy (Circular 288 of 3 April 2015) for larger Confidi are, instead, more complex, closely following the rules for Financial Intermediaries on sanctions, inspection and information supervision, prudential supervision, company officers and shareholders, and administrative and accounting organisation. All this taking account of the necessary adaptations.
Without prejudice, in general, to the reference to Section VII, Chapter 1 of the aforementioned Circular 288 for a more in-depth reading, it is worth specifying the peculiarities of the regime for larger Confidi compared with what is prescribed for Financial Intermediaries:
“Holdable shareholdings”. As for financial intermediaries, Confidi are also permitted to acquire shareholdings in other companies. However, in order to preserve the typical characteristics of these operators, some restrictions have been imposed:
(i) a prohibition on acquiring controlling interests in banks or other financial or insurance companies;
(ii) strict limits on acquiring shareholdings in non-financial companies, etc.
“Prudential supervision”. The chapter on own funds for financial intermediaries is supplemented with some clarifications as to what may be counted as a capital element among those considered “public funds”.
That said, still with reference to larger Confidi, in the same way as occurred for operators entered in the special register (under Article 107 TUB), in the wake of the implementing provisions of the comprehensive reform of the regime (Decree-Law no. 269/2003), the guarantees issued by these entities, which with entry in the Article 106 register are subject to a supervisory regime equivalent to that of banks, are treated as equivalent to those issued by banks. Consequently, there are benefits in terms of the calculation of risk-weighted assets for financial intermediaries and credit institutions which, in granting loans guaranteed by Confidi, will reduce their credit risk exposure (i.e. Confidi appear to be a useful tool for the purposes of so-called “Credit risk mitigation”)[23].
6. The transitional regime and the consequences of failure to comply with the new regime.
It is Legislative Decree 141/2010, in Article 10, that lays down a regime designed to allow operators to manage the transition phase and the subsequent phase of moving to the new rules.
It is provided that Confidi, under Articles 107 or 155(4) of the “old” TUB, may continue to operate for a period of 12 months following the issue of the implementing provisions of Title V of the TUB (i.e. 12 May 2016) or from the establishment of the Body under Article 112-bis TUB (see Article 10(1), Legislative Decree no. 141/2010).
As regards, instead, the procedures for moving to the new regime, it should be noted that:
on 11 October 2015 the deadline expired for larger Confidi, previously entered in the register referred to in Article 107 of the TUB, to submit the authorisation application for entry in the register referred to in Article 106 of the TUB[24];
within nine months of the issue of the measure setting out the structure, powers and operating procedures of the Body under Article 112-bis TUB, “smaller Confidi” must submit an application for entry in the register referred to in Article 112(1) TUB. While the authorisation application is pending, they may continue to operate even beyond the twelve-month period.
That said:
if the application is not accepted, the Confidi resolve to liquidate the company or amend their corporate purpose, removing the reference to activities reserved by law;
once the twelve-month period from the issue of the secondary rules has elapsed, Confidi that have not submitted an application for authorisation, entry or removal resolve to liquidate the company or amend their corporate purpose, removing the reference to activities reserved by law.
The foregoing reveals a fairly rigid transitional regime. Confidi are therefore required to comply in order to continue operating in the sector, aware that the reform of Title V TUB appears to leave no further room for structures that are not correctly and professionally managed, among those wishing to continue providing collective credit guarantees. This applies whether they are larger or smaller Confidi.
[1] The activity of providing guarantees is usually carried out through the establishment of restricted cash deposits or dedicated funds, also financed by public bodies, which take the form of a monetary risk fund or a guarantee fund.
[2] This refers to the wording of Article 155 of Legislative Decree no. 385/1993, prior to the amendments made by Decree-Law no. 269/2003 (converted with amendments into Law no. 326 of 24 November 2003). In particular, Article 155(4) provides: “the collective credit guarantee consortia, of first and second level, including those set up in the form of a cooperative or consortium company, and carrying out the activities indicated in Article 29(1) of Law no. 317 of 5 October 1991, are entered in a dedicated section of the register provided for by Article 106(1). Title V of this legislative decree and Articles 2, 3 and 4 of Decree-Law no. 143 of 3 May 1991, converted, with amendments, by Law no. 197 of 5 July 1991, do not apply to them. Entry in the section does not authorise them to carry out the other transactions reserved to financial intermediaries”.
[3] In that Committee, attention is drawn to the effects of the new regulatory framework for small and medium-sized enterprises; see Associazione Bancaria Italiana (ABI), 2003, L’impatto di Basilea sull’attività dei Confidi, in Bancaria, no. 9, pp. 74-81. In January 2001 the Basel Committee published the document “The New Basel Capital Accord”: a consultation document to define the new regulation on bank capital requirements. After a long phase of discussion with the supervisory authorities of the various countries and a series of quantitative surveys, a final text was reached in June 2004, while implementation of the accord was scheduled for the end of 2006.
[4] This depends on whether the credit risk weighting factors are determined by the rating assigned to the business by rating agencies (standardised approach) or by risk assessment criteria developed within individual intermediaries (internal ratings approach); see in this regard the 2001 consultation document of the Basel Committee revising the 1988 Basel Accord.
[5] The Decree of the Ministry of Economy and Finance of 9 November 2007 (as subsequently amended by MEF Decree no. 29/2009), which implemented Article 155(4-bis) TUB, specifies the criteria for the entry of Confidi in the special register provided for by Article 107(1) TUB: volume of financial activity equal to or exceeding EUR 75 million.
[6] See F. Capriglione, 2012, Art. 106 – in Commentario al Testo Unico delle leggi in materia bancaria e creditizia, edited by F. Capriglione with the collaboration of M. Pellegrini, M. Sepe, V. Troiano, Tomo III, 3rd ed., p. 106 ff. In particular, with reference to the secondary regulation on “Collective credit guarantee banks”, see the Bank of Italy measure of 28 February 2008 “Disposizioni di vigilanza Banche di garanzia collettiva dei fidi” (to be read today in line with the amendments made by Circular 285/2013 to Circular 229/1999 and Circular 263/2006).
[7] For further detail on the capitalisation of Confidi, see the rules laid down by Article 39(7) of Decree-Law no. 201 of 6 December 2011, converted into law by Article 1(1) of Law no. 214 of 22 December 2011, and Article 36(1) and (2) of Decree-Law no. 179 of 18 October 2012, converted with amendments by Law no. 221 of 17 December 2012. These are measures introduced to strengthen the capital of Confidi, allowing: (i) large non-financial companies and public and private bodies to enter the share capital of the latter; (ii) risk funds fed by public contributions subject to destination restrictions to be allocated to the consortium fund, share capital or a dedicated reserve. This in light of the deterioration of the capital of Confidi in the aftermath of the economic and financial crisis.
[8] It should be noted that Bill no. 1259 (enabling act empowering the government to reform the legislation on Confidi) is currently under examination by the Parliamentary Committees. The legislator’s intention appears to be to: extend guarantees of access to credit also to independent professionals; strengthen the capitalisation of Confidi, particularly for supervised entities; establish a national database to record public aid to state and regional Confidi, those of the chamber of commerce system and the European Investment Fund (EIF), in order to assess the efficiency and fairness of its distribution; introduce a rewards regime for the most efficient and functional entities; and, finally, put in place a monitoring system to assess the coexistence of supervised and non-supervised Confidi.
[9] Pursuant to Article 13(1) of Decree-Law no. 269/2003, converted with amendments by Law no. 326/2003, second-level Confidi are defined as: “consortia with external activity (as well as those for the collective guarantee of credit among independent professionals), cooperative companies, consortium companies limited by shares, with limited liability or cooperative, set up by Confidi and possibly by consortium member or shareholder companies of the latter or by other companies”.
[10] The Bank of Italy, in Circular 288/2015, Title VII, Chapter I, Section II, lays down the criteria for calculating this volume of activity, determined by reference to the data of the last approved financial statements and maintained in the six months following the close of the financial year to which those statements refer, and made up of the following aggregates:
cash and cash equivalents;
receivables from credit institutions (excluding so-called “money market funds”);
receivables from financial institutions (excluding so-called “money market funds”);
receivables from customers;
implicit receivables in finance lease transactions;
bonds and other fixed-income securities (excluding securities deriving from investment of so-called “money market funds”);
shares, units and other variable-income securities;
accrued income;
guarantees given;
other asset items and “off-balance-sheet” transactions.
[11] In particular, pursuant to Article 112-bis TUB a Body is established, having private-law legal personality, with organisational, statutory and financial autonomy, responsible for managing the register referred to in Article 112(1). The Body carries out every activity necessary for the management of the register and determines the amount of the contributions payable by registrants (within a certain limit). As stated, the entry into force of the Decree of the Ministry of Economy and Finance setting out the powers and operating procedures of the Body under Article 112-bis TUB is awaited.
[12] This body was established pursuant to Legislative Decree no. 141 of 13 August 2010. The OAM has private-law legal personality, in the form of a not-for-profit association, with organisational, statutory and financial autonomy.
[13] For further detail see the rules laid down by Legislative Decree no. 231/2007 on anti-money laundering.
[14] See the MEF Regulation put out for consultation concerning the rules on the structure, powers and operating procedures of the Body provided for in Article 112-bis of the TUB, as well as the identification of the integrity and professional standing requirements for members of the Body and the related criteria and procedures for their appointment and replacement.
[15] The reference to Article 25 means that the shareholders referred to in Article 112(2) of the TUB are identifiable as those referred to in Article 19(1) of the TUB (shareholders who hold control, who can exercise significant influence, or who hold a share of voting rights equal to at least 10% of the Confidi’s capital).
[16] In particular, the certification must refer to documents prepared for the public (e.g. the statement of accounts as at the end of the half-year following the closing date of the financial year for which the requirements are verified) or to internal accounting records.
[17] For further detail see Paolo Emilio Mistrulli and Valerio Vacca (coordinators), October 2011, I confidi e il credito alle piccole imprese durante la crisi, Questioni di Economia e Finanza, Banca d’Italia, no. 105.
[18] See the address by the Central Director for Credit and Financial Supervision of the Bank of Italy, Dr Bruno Bianchi, to the Finance and Treasury Committee of the Senate on Bills no. 193, no. 1176, no. 1207 and no. 1267, containing rules on collective credit guarantee consortia, Rome, 10 October 2002.
[19] “Confidi, più sinergie contro crisi e sofferenze”, 22 January 2014, Il Sole 24 Ore, online version.
[20] The prevalence requirement, under the Bank of Italy’s implementing provisions, is met if both of the following conditions are verified from the last approved financial statements:
1) the amount of revenues deriving from collective credit guarantee activity and from related and instrumental activities is greater than 50% of total revenues;
2) the nominal amount of collective credit guarantees is greater than 50% of total assets.
[21] With reference to financial statements prepared pursuant to Legislative Decree no. 87 of 27 January 1992, total assets means the sum of “on-balance-sheet” and “off-balance-sheet” assets. With reference to financial statements prepared in accordance with the Bank of Italy Measure of 14.2.2006, total assets means the sum of “Total assets” of the Balance Sheet and the “Total” of Guarantees and Commitments, referred to in Tables D.1 and D.2 of the Notes to the Accounts – Part D (“Other Information”).
[22] See also, for further detail, the Decree of the Ministry of Economy and Finance, not yet in force, which completes the regulatory framework by laying down the powers and operating procedures of the Body under Article 112-bis TUB.
[23] It should in any event be noted that the CRM benefit of the guarantee of supervised Confidi has gradually diminished as the rating of the Italian Republic has fallen. Since Italy has moved from credit quality class 1 (weighting of supervised intermediaries = 20%) to class 2 (50%) and then to class 3 (100%), the CRM benefit is currently practically nullified (it remains only for one ECAI that still classifies Italy in class 2). The benefit remains in the case of a counter-guarantee from the Central Fund (which benefits from a 0 weighting by virtue of the safeguard clause on claims on and/or guaranteed by national States), but obviously this benefit does not require the intermediation of a supervised Confidi.
[24] A particular case is described in Article 2 of the MEF Decree. In detail, Confidi previously entered in the special register under Article 107 TUB with a volume of financial activity equal to or exceeding EUR 75 million could submit the authorisation application for entry in the register under Article 106 TUB, even though they did not reach the size threshold provided for (financial assets equal to or exceeding EUR 150 million). Such Confidi, having entered the Article 106 TUB register by 11 October 2015, must reach the size threshold provided for entry in the register within the following five years, failing which they are subject to revocation of authorisation and will be entered ex officio in the register under Article 112(1) TUB.
SOURCE: http://www.dirittobancario.it/spazio-confidi/inquadramento-normativo/la-nuova-disciplina-degli-intermediari-finanziari-e-i-confidi
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