The book aims to strike a balance between theory and empirical analysis of the Italian legal system in the banking and financial sector. Chapter 1 reviews the specific features and potential evolution of Italian banking and financial law, in order to provide a frame for the entire series. After a brief overview of the historical background of banking and financial regulation, it describes some unusual features of the Italian legal system, recent reforms and legislation and, finally, its main trends and potential evolution, also related to institutional development and economic growth.

Volume I is divided into two parts. Part I, “Supervision Purposes and Forms”, examines the purposes of supervision in banking, finance and insurance regulation, the forms of supervision (the obligation to provide information, powers of investigation and intervention, regulatory powers) and the ways in which money laundering and terrorism financing are countered.

Part II, “Supervisory Authorities”, examines both the “political” authorities (Interministerial Committee for Credit and Savings (ICCS) and the Ministry for the Economy and Finance) and the independent, technical authorities: Bank of Italy, Commissione Nazionale per le Società e la Borsa (Consob), Istituto per la Vigilanza sulle Assicurazioni (Ivass) and Commissione di vigilanza sui fondi pensione (Covip, the Financial Intelligence Unit).

A number of issues are assessed, including: the responsibilities of different authorities, their institutional structure, their effectiveness and efficiency in exercising their powers of regulation and control; the numerous reform laws (such as Law no. 262 of 2005), and their integration into global financial markets as well as supranational legal regulatory systems, especially in the banking sector; and the devolution of the function of banking supervision at the European level with the launch of the Banking Union.

The Italian banking system of the early twenty-first century is essentially private, but from 1861 to 1993 a market share consisted of State-owned banks, special credit institutions and, from the 1930s, banks of national interest and public-law banks. In 1990, the Amato Law transformed banks, public-law banks and many special credit institutions into companies limited by shares. The Italian banking system was also characterized by intermediaries belonging to different categories, until the enactment of the 1993 Consolidated Law on Banking cancelled all forms of specialization, allowing universal banks to operate. Besides, in the Italian market the role of cooperative banks has always been significant.

According to the recent surveys of the Bank of Italy, at the end of 2013 there were: five large banking groups, of which two were comparable in size with the leading European banks; 72 more groups; 524 banks not belonging to a group, the latter including 375 mutual banks; 19 cooperative banks; and 79 branches of foreign banks.³ Italian banks focus on traditional business, mainly on raising funds from customers and granting loans to firms and households.⁴

Currently, bank loans amount to more than 100 per cent of the Italian GDP while deposits are around 70 per cent; the ratio of loans to deposits reached its historical maximum of 1.65 in 2007, and then fell due to the 2008–2009 recession and the eurozone sovereign debt crisis affecting the Italian economy since 2011. The increasing gap between loans and deposits – the “funding gap” – was mainly funded by Italian banks by issuing new bonds and borrowing funds in the foreign interbank markets.⁵

With regard to non-bank intermediaries, recent changes in the legislative framework led to a reduction in the number of firms providing investment and asset management services and loans; the profitability of asset management companies and investment firms improved, except for asset management companies specializing in real estate and private equity funds and for mutual loan guarantee consortiums (the confidi).⁶

In 2013 investment firms’ net profit and own funds increased, while non-bank intermediaries (leasing, factoring and consumer credit companies) provided new loans to the economy. Financial companies entered the special register under Art. 107 of the Consolidated Law on Banking.⁷

Assets of Italian institutional investors (i.e., investment funds, insurance companies, pension funds, individually managed portfolios), in comparison with the other main euro-area countries, preponderantly consist of public sector securities, while the proportion of private sector bonds is not relevant.⁸ Among Italian insurance companies, 41 operate exclusively in life insurance, 70 in non-life insurance and 23 in both sectors.⁹

The regulation of this market structure had a long historical development, which led to a gradual international opening of the Italian market and to the recent gradual adaptation to the European Union law.

The distinctive feature of the Italian law on the banking and financial sector resides to a large extent in the constant search for a balance, throughout history, between State intervention to protect public interests and the entrepreneurial autonomy of banks and financial intermediaries.¹⁰

In compliance with Art. 47 of the Italian Constitution, which states that “the Republic encourages and safeguards savings in all forms. It regulates, coordinates and oversees the operation of credit”, the regulatory and supervisory role is played by public authorities such as the Ministry for the Economy and Finance, the Interministerial Committee for Credit and Savings, the Bank of Italy, the Commissione Nazionale per le Società e la Borsa (Consob) as the public authority responsible for regulating the Italian financial markets, the Supervisory Authority for the Insurance Industry (Ivass), the Ministry for Production, the Italian Competition Authority and the Supervisory Authority for Pension Funds (Covip).

The regulatory framework for the supervision of banking and financial intermediaries is based on primary (legislative) and secondary (issued by regulatory authorities on technical matters and interventions of a prudential nature) domestic sources.

In order to ensure a balance between political authority and administrative regulation, the Interministerial Committee for Credit and Savings, acting on a proposal from the Bank of Italy, should establish principles and methods for the supervision of banks.

The Bank of Italy is the supervisory domestic authority on banks. It checks that banking and financial intermediaries are managed soundly (i.e., that they carry on their entrepreneurial activity in compliance with the rules) and prudently (i.e., that they do not put their survival or the money entrusted to them at risk in order to make profits), and monitors the transparency and correctness towards customers of banking and financial transactions and services. The Bank of Italy issues technical regulations and ensures that they are applied, fosters the sound and prudent management of intermediaries by examining documentation and carrying out inspections on their premises, and imposes sanctions when provided by the law. The Bank of Italy is also in charge of promoting the regular operation of payment systems and is accordingly enabled to issue regulations to ensure the efficiency and reliability of clearing and payment systems.¹¹ Such payment systems oversight is included in the tasks assigned to the European System of Central Banks.

The Consob is tasked with protecting the investing public and is a competent authority for: ensuring transparency and correct behaviour by financial market participants; disclosure of complete and accurate information to the investing public by listed companies; compliance with regulations by auditors entered in the Special Register; and accuracy of the facts represented in the prospectuses related to offerings of transferable securities to the investing public. Some more recent tasks allow investigations with respect to potential infringements of market manipulation law and insider dealing.

At present it could be said, in order to explain the division of powers under the various authorities, that the supervisory role of the Bank of Italy is aimed mainly at the stability of banks and financial intermediaries, while the Consob’s supervision is aimed mainly at the protection of investors. The competitiveness of the financial system should be also ensured, as we shall see, by the Competition Authority.

The Ivass supervises insurance and reinsurance business, its purpose being the sound and prudent management of insurance and reinsurance undertakings, alongside transparency and fairness in the behaviour of undertakings, intermediaries and other insurance market participants with regard to stability, efficiency, competitiveness and the smooth operation of the insurance system. It also watches over the protection of policyholders and of those entitled to insurance benefits as well as consumer information and protection. The role of the Ministry for Production is to take the measures required by the law within the frame of insurance policy lines set by the government.

The Covip is an independent administrative authority charged with overseeing the proper functioning of the pension funds, so as to protect the savings of their members for a supplementary pension.

For Italy, the Financial Intelligence Unit (FIU) was established at the Bank of Italy on 1 January 2008 pursuant to Legislative Decree 231 of 2007, issued in implementation of Directive 2005/60/EC. It is charged with receiving and analysing reports on suspicious transactions and other information related to money laundering, the associated predicate offenses and the financing of terrorism, and with transmitting the results of its analyses to the competent bodies for subsequent investigation.

The objectives of such supervision are: stability of the financial system, safeguarding faith in the financial system, protection of investors, competitiveness of the financial system, observance of financial provisions. The supervisory authorities, within the extent of their duties, may require authorized intermediaries to communicate data and information and to transmit documents and records.¹² They are empowered to supervise banks and financial intermediaries, and to intervene when necessary. The law also gives these authorities the right to convene the board of directors or the shareholders’ meeting, to impose restrictions on some activities and to adopt measures such as special administration and compulsory administrative liquidation.

In accordance with advanced international standards, the supervisory approach is: “consolidated”, to detect the intermediaries’ overall risks and safegu...