CONTENTS

Glossary 4

EXECUTIVE SUMMARY 6

INTRODUCTION 11

A. Context and Scope 11

MARKET STRUCTURE 12

INSTITUTIONAL SETTING 15

A. Supervisory Responsibilities, Objectives and Powers 15

B. Supervisory Independence, Governance and Accountability 17

C. Supervisory Resources 21

SUPERVISORY APPROACH AND TOOLS 22

A. Licensing, Mergers and Acquisitions 22

B. Supervisory Approach, Tools and Cooperation 25

C. Corrective Actions and Sanctioning Practices 31

REGULATION AND SUPERVISION OF KEY RISKS 32

A. Corporate Governance 32

B. Transactions with Related Parties 35

C. Capital Adequacy: Pillar 2 37

D. Credit Risk and Problem Assets 38

E. Liquidity and Funding Risk 41

F. Operational Risk 44

G. Interest Rate Risk in The Banking Book (IRRBB) 47

H. AML/CFT 48

BOX

1. Collection of Deposits through On-line Deposit Platforms – BdI’s View on Risks and Supervisory

Response 43

FIGURE

1. Italian LSIs: changes 2019-2025 (Q1) 13

TABLES

1. Key FSAP Recommendations 9

2. Evolution of LSIs in Number and Size 12

3. Capital, NPLs and Profitability Ratios of the Italian LSI Sector 14

4. Planned Prudential On-site Inspections 2022-2025 28

5. Prudential Meetings 2022-2024 30

APPENDICES

I. Overview of the LSIs Business Models 51

II. Methodological Framework for Supervisory Quality Assurance 53

III. Overview of the SSM Supervisory Review Process 55

IV. Overview of BdI’s SupTech Tools and Digitalization Initiatives 57

V. Implementation Status of Key Recommendations in the 2020 Italy FSAP 59