Lexia authored for Chambers and Partners the new Fintech Guide 2023. The guide offers an in-depth analysis of the Fintech industry, covering the latest trends, challenges and opportunities that exist in this rapidly evolving sector. In this page, we will provide a brief summary of the contents of these documents and encourage readers to access the full versions on Chambers’ website for a more detailed analysis.

– Authors: Angelo Messore, Francesco Dagnino, Carlo Giuliano, Filippo Belfatto, Giulietta Minucci.

Law and Practice: Fintech Market in Italy

The fintech market in Italy is growing rapidly due to favorable conditions such as good reputation of Italian supervisory authorities, public subsidies, availability of skilled resources, and lower costs of human capital and real estate. For this reasin, major EU fintech players are establishing an Italian hub for their EU operations. However, the Italian fintech market faces challenges such as impending legislation and regulations, including those for crowdfunding platforms, DLT Pilot Regime, MiCA Regulation, and buy now pay later models. Additionally, there is a significant debate in Italy on the regulation of virtual asset service providers (VASPs) and it is possible that further initiatives will be taken by Italian competent authorities to regulate this new industry.

Fintech business models

In Italy, the fintech space has established a strong presence. Traditional banking groups have also launched fintech companies or units that offer payment solutions and crypto exchange services, with some services based on co-operation or white label agreements with other fintech players. Insurtech companies operating on the basis of an MGA model are increasing their market shares.

Fintech Regulatory Regime in Italy

The Italian regulatory regime is largely dependent on the EU framework that applies to fintech services such as investment or asset management, crowdfunding platforms, and insurtech.

Moreover, Italian fintech companies are subject to various non-financial services regulations, including those related to privacy, cybersecurity, social media content, and software development. Compliance with GDPR is crucial, as fintech companies must process personal data in a secure and lawful manner. Robust security measures must be in place to protect against cyber threats, and caution must be exercised when using social media as a form of advertising.

Fintech companies are not subject to specific or more rigid requirements than legacy players, but they are more vulnerable to certain types of risks and must pay attention to compliance. These companies may benefit from certain exemptions from the ordinary requirements, as the Italian authorities recently introduced the regulatory sandbox, which allows fintech companies to test innovative business models for up to 18 months under the supervision of the Italian regulators.

AML requirements

Compliance with AML requirements is crucial for fintech companies in Italy. However, fintech companies often struggle to balance the need to comply with KYC procedures required by AML regulations while creating a smooth and customer-friendly onboarding process. Fintech companies must also establish methodologies to monitor customers’ transactions and identify suspicious transactions to report them to the Italian Financial Intelligence Unit.

To further explore topics such as compensation models, jurisdiction of regulators, outsourcing of regulated functions, gatekeeper liability and enforcement actions, it is recommended to consult the Chambers Guide.

Relevant aspects of the Fintech industry In Italy

The guide delves into various aspects of the Fintech industry in Italy, including robo-advisers, online lending, algorithmic trading, marketplaces and exchanges, payment processors and fund administrators, open banking, insurtech, regtech providers, and blockchain technology.

To further explore regulatory and compliance topics such as compensation models, jurisdiction of regulators, outsourcing of regulated functions, gatekeeper liability and enforcement actions, it is recommended to consult the Chambers Guide.

Trends & Developments: BNPL financing models

In our Trends & Developments document published for Chambers we discuss the rising popularity of BNPL financing models in Italy, attributing it to changes in consumer behavior and the growth of e-commerce. The BNPL system allows consumers to defer payment for purchases with zero interest, leading to faster and easier access to credit.

However, there is a lack of a comprehensive regulatory framework governing BNPL agreements in Italy and the EU, leading to different legal structures used by BNPL operators.

The Bank of Italy published a communication in October 2022 highlighting the legal issues and risks associated with the different models used for BNPL schemes.

As consequence, the European Commission proposed amendments to the Consumer Credit Directive to expand the scope of application of the existing regime and to include BNPL products, which have been in some cases exempted from the existing rules.

While the primary objective is to improve consumer rights and protection, it is important to consider the potential consequence of heightened regulatory oversight on BNPL service providers, which may lead to decreased appeal of their products in the future.

We invite you to access the full documents on Chambers’ website for a more detailed analysis.