In a recent judgment (No. 12777/2019 published on 22 March 2019,
the "IBLOR Judgment"), the Fifth Criminal Section of
Italy's Supreme Court of Cassation ruled the illegality of a
fronting structure, where an Italian licensed lender (the Italian
Bank Lender of Record, "IBLOR") and a foreign bank grant
loans to Italian customers in what is deemed to be a breach of the
requirement for a banking license.
In this case, the fronting structure was based on an undisclosed
mandate to the Italian bank to grant loans to Italian customers
with the use of funding made available by the foreign
bank.
The Supreme Court found that, while the loans were granted to
the Italian customers by the Italian bank only, this was not
sufficient to shield the customers from direct action by the
foreign lender. Under Italian law, an undisclosed mandate provides
the principal with certain rights of action vs. the customer.
Further, the Supreme Court found that the customers did
