Giuseppe Schiavello
Schiavello & Co. Studio Legale, Milan
giuseppe.schiavello@schiavello-co.com

Olga Loragno
Schiavello & Co. Studio Legale, Milan
olga.loragno@schiavello-co.com

Mariachiara Cavuto
Schiavello & Co. Studio Legale, Milan

Introduction

The landscape of cross-border financial transactions has evolved into a complex interplay of globalised financial practices and localised regulatory frameworks. Within this dynamic, the principle of reverse solicitation has emerged as a pivotal concept for non-EU financial institutions seeking to navigate the intricate requirements of European jurisdictions. This exception – albeit limited – to the general regulatory obligations for the provision of financing activities allows non-authorised, non-EU entities to provide banking or financial services within the EU, provided that the initiative to establish the relationship originates exclusively from the client. This rule, while offering significant operational flexibility, operates within a tightly defined legal scope. This is particularly relevant in jurisdictions such as Italy, where the provision of financial services is stringently regulated, inter alia, under the Legislative Decree No 385 of 1 September 1993 (the ‘Banking Act 1993’). The reverse solicitation exemption effectively balances the need for market access to third-country institutions by EU borrowers against the imperative of regulatory oversight intended to safeguard market integrity. However, the applicability of reverse solicitation is fraught with legal and practical challenges. Questions surrounding what constitutes a genuine client initiative, the geographic scope of services and the avoidance of implicit solicitation or promotion require careful navigation. This article delves into the foundational elements of reverse solicitation, exploring its regulatory basis and implications in the Italian context, as well as its alignment with evolving EU standards. Through this analysis, we aim to clarify how reverse solicitation can serve as a legitimate channel for non-EU institutions to engage in cross-border lending with Italian borrowers while adhering to the rigorous compliance requirements imposed by EU and Italian law.

Legal framework

The regulatory framework governing cross-border lending in Italy, especially in cases involving non-EU financial institutions, is underpinned by a sophisticated interplay of Italian and EU legal provisions:

• the Banking Act 1993;
• the decree of the Minister of Economy and Finance No 53 of 2 April 2015; and
• Directive (EU) 2024/1619 of the European Parliament and of the Council of 31 May 2024 amending Directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches and environmental, social and governance risks (‘CRD VI’).

In summary, based on the current Italian legislation as standing prior to the entry into force of CRD VI:

• the exercise of banking activities, as well as the granting of financings on a professional basis in the territory of the Republic of Italy by a non-EU lender either by means of a branch and on a cross-border basis, requires the authorisation of the Bank of Italy;
• following the entry into force of CRD VI, performance of the activities in the first bullet point would only be permitted to a non-EU lender by means of a branch;
• performing those activities in the absence of such authorisation is prohibited and shall constitute a crime;
• agreements executed in connection with the activities in the second bullet point in this list may be held null and void by an Italian court;
• nonetheless, the above does not apply if:
  • such activities are performed as a result of the own exclusive initiative of the client (so-called ‘reverse solicitation’); or
  • the activities are performed on a purely occasional basis.

Reverse solicitation

As mentioned, CRD VI introduced for the first time the concept of ‘reverse solicitation’ in relation to the performance of banking or financial services. Reverse solicitation is treated as an exception to the requirement to establish a branch and to obtain the authorisation of the relevant EU regulatory authority by non-EU entities intending to perform banking or financial activities in an EU Member State.

Nonetheless, CRD VI (and its provisions on reverse solicitation) and any relevant implementing provisions shall only enter into force from 11 January 2027. Whilst the provisions at stake within CRD VI shall indeed in the meantime constitute a useful interpretative guidance on what shall legitimately constitute ‘reverse solicitation’, reliance on ‘reverse solicitation’ as an avenue for non-EU banks to extend loans to persons or entities based in an EU Member State shall currently be grounded on Italian legislation as standing prior to the coming into effect of CRD VI.

The first issue to be addressed, in our analysis, is whether or not, and the conditions by which, a lending transaction would amount to the provision of financing activities in the territory of the Republic of Italy.

Traditionally and historically, some interpretative guidance may be found, by analogy, in the Commission Interpretative Communication on Freedom to provide services and the interest of the general good in the Second Banking Directive (SEC(97) 1193 final of 20 June 1997) (the ‘CIC97’). The CIC97 addresses, inter alia, the issue of when the notification requirement laid down in Article 20(1) of the Second Banking Directive (requiring an EU Member State bank to notify its country-of-origin authority of its intention to perform certain services in another Member State) shall apply.^[1]

In summary, the notification requirement is stated to be applicable when a bank based in a Member State intends to provide services ‘in another Member State’. To assess when performance is deemed to occur in ‘another Member State’, the mere fact that the customer residence or place of business is in a Member State other than that of the bank is not deemed to suffice. Rather, a ‘characteristic performance’ test is adopted.^[2]

To this end, the European Commission (the 'Commission') does not consider that a ‘characteristic performance’ is deemed to occur in case of:

• the relevant bank ‘temporarily visiting the territory of a Member State to carry on an activity preceding (eg, a survey of property prior to granting a loan) or following (incidental activities) the essential activity’; or
• ‘any visits which a credit institution may pay to customers if such visits do not involve the provision of the characteristic performance of the service that is the subject of the contractual relationship’;

however:

• ‘if, on the other hand, the institution intends to provide the characteristic performance of a banking service by sending a member of its staff or a temporarily authorized intermediary to the territory of another Member State, prior notification should be necessary’; and
• ‘conversely, if the service is supplied to a beneficiary who has gone in person, for the purpose of receiving that service, to the Member State where the institution is established, prior notification should not take place’.

It is also worth noting that the Commission considers that ‘the prior existence of advertising or an offer cannot be linked with the need to comply with the notification procedure’, since ‘it is not the prior offer of a service to a non-resident but merely the intention to carry on activities within the territory of another Member State that Article 20 makes conditional on notification’.

This being said, our view is that in case of the extension of a loan, the ‘characteristic performance’ test would hardly lead to a definite solution as to where the service is provided.

One, in fact, might argue that the ‘characteristic performance’ is that of the lender disbursing the funds. Nonetheless, it might be counter-argued, on the one hand, that the activity of ‘disbursing the funds’ is not merely that of ordering the drawdown of the facility, but is completed by the actual crediting of the funds in the borrower’s account and that to the extent the funds are disbursed in an account held by the borrower in its home country, that is the place where the characteristic performance is completed. On the other hand, one might also counter-argue that such characteristic performance is instead that of the borrower reimbursing the loan and paying interest thereunder.

As indicated, reverse solicitation is not a regulated concept with respect to banking and financing activities prior to the entry into force of the relevant provisions of CRD VI. Nonetheless, some guidance can be found in papers and materials published in respect of the immediate predecessor of paragraph (9) of CRD VI, namely Article 42 of Directive 2014/65/EU (‘MiFID II’).

Guidance on Article 42 of MiFID II can be found in the following main sources:

• The European Securities and Markets Authority’s (ESMA) Questions and Answers on MiFID II and MiFIR investor protection and intermediaries topics, and in particular point 13, which indicates, inter alia:
  • with respect to the provision whereby ‘where a third-country firm […] solicits clients or potential clients in the Union, it shall not be deemed to be a service provided at the own exclusive initiative of the client’, that, ‘as for the means of such solicitations, ESMA is of the view that every communication means used such as press releases, advertising on internet, brochures, phone calls or face-to-face meetings should be considered to determine if the client or potential client has been subject to any solicitation, promotion or advertising in the Union on the firm’s investment services or activities or on financial instruments’; and
  • that ‘the client’s own exclusive initiative shall be assessed in concreto on a case by case basis for each investment service or activity provided, regardless of any contractual clause or disclaimer purporting to state, for example, that the third country firm will be deemed to respond to the exclusive initiative of the client’.

• ESMA’s Public Statement of 13 January 2021, further stressing the guidelines mentioned above in respect of factual circumstances where the relevant non-EU service provider was ‘trying to circumvent MiFID II requirements by including general clauses in their Terms of Business or through the use of online pop-up “I agree” boxes whereby clients state that any transaction is executed on the exclusive initiative of the client’.

We would therefore conclude that relying on the ‘reverse solicitation’ exemption would be advisable only if:

• the initiative is genuinely and univocally taken by the relevant Italy-based customer and this is evidenced by all documentation and evidence relating to the specific transaction, the initial approach taken in such respect and the negotiations of its legal and commercial terms; and
• no prior solicitation by the non-EU lender targeted to Italy-based customers took place.

Indicating that the initiative to proceed with the transaction was by the relevant Italian customer in all documents, agreement and deeds relating to the transaction (eg, in the recitals, and/or by including specific reps and warrants to this effect) or executing them in the place of business of the non-EU lender^[3] would indeed help, but this would not be a conclusive argument if other decisive evidence to the contrary is found.

Occasional character of a lending transaction

Some few words shall be spent on the other possible reason why a lending transaction involving a non-authorised non-EU lender might be exempt from the Italian law authorisation requirements described in this article, ie, the relevant financing being granted to the EU-based borrower on a merely occasional basis. We would not advise a non-EU financial institution to put great reliance on this argument. Italian courts, in fact, when asked to judge on the crime of performance of non-authorised financing activities (Abusiva attività finanziaria – Article 132 of the Banking Act 1993),^[4] have consistently taken a strict approach to defining what constitutes the ‘professional’ provision of financing activities under the Banking Act 1993. Even a single financing operation can in fact be deemed professional – and thus require prior authorisation – if it is indicative of the financier’s broader capacity or intent to potentially engage with an undefined and unlimited number of clients. This principle applies particularly to non-EU financial institutions, where financing activities constitute the very lender’s corporate and business purpose.

There is in fact quite a consistent line of precedents by the Italian courts stressing the concept that the crime of abusive exercise of financing activities shall be considered as committed if the abusive financing activity, albeit performed in only one occasion, is potentially exercisable vis-à-vis an indistinct number of customers.^[5] The nature of the lender and its business is one of the key elements to consider in this analysis: to keep it simple, whilst it is arguable that the granting of a loan by a natural person does not constitute ‘professional granting of financings’, this is hardly conceivable in case of a loan extended by a non-licensed non-EU bank, given the very nature of the lender (an entity which is professionally granting financings as its core business).

Conclusion

The principle of reverse solicitation remains a critical yet narrowly construed exception within the regulatory framework governing cross-border financial transactions in Italy. Its application allows non-EU financial institutions to engage with Italian clients under specific conditions, striking a delicate balance between facilitating market access and maintaining rigorous oversight. However, the inherent challenges of proving genuine client initiative, avoiding inadvertent solicitation and adhering to a tightly regulated operational scope underscore the complexity of this exemption. Moreover, Italian judicial precedents further clarify the scope of professional financing activities, emphasising that even singular transactions may fall afoul of authorisation requirements if they reveal an underlying intent to serve an indefinite public audience. For non-EU lenders, success in leveraging on reverse solicitation depends on meticulous documentation, transparent practices and a commitment to compliance. As the regulatory landscape continues to evolve – particularly with the implementation of CRD VI from 2027 – institutions must remain vigilant in adapting their strategies to align with emerging standards and interpretations.