It was issued to Italians in the UK. When Italy surrendered their captives could no longer be classified as PoW so they all should have been returned to Italy. However, this would have left the UK short of labour so Italians were given the option of 'co-operator status' whereby they were allowed semi-freedom, and were issued these badges to identify them as 'friendly'.
I'll blatantly plug a book I wrote a few years ago which covered this subject, and the only occasion when Home Guard exchanged rifle fire with enemy infantryman.
Stephen.
https://www.amazon.co.uk/Prisoners-W.../dp/1445603128