Italy: Financial Sector Assessment Program-Technical Note on Regulation and Supervision of Less Significant Institutions

This paper focuses on a Technical Note on Banking Regulation and Supervision of Less Significant Institutions for the Italy Financial Sector Assessment Program (FSAP). The FSAP undertook a targeted review of the banking regulation and supervision of Italy’s Less Significant Institutions (LSIs). Italy has a robust regulatory and supervisory framework, which is primarily based on the European Union framework with specific adjustments to address national needs. Prudential supervision of LSIs is high quality and comprehensive, structured around the Supervisory Review and Evaluation Process. Banca d’Italia’s supervisory priorities and activities focus on relevant LSIs risks and vulnerabilities, such as governance, business models, IT/cybersecurity, and credit risk. It is crucial to continue increasing the coverage of on-site site inspections for the LSI sector and to further broaden the use of targeted, thematic, and follow-up inspections, supported by even more streamlined processes. It is crucial to strengthen legal protection for supervisors, including full coverage of defense costs for actions or omissions made in good faith during official duties, starting from the onset of proceedings.