Italian Banking and Financial Law: Intermediaries and Markets

D. Siclari, D. Siclari

• Publisher: Palgrave Macmillan
• Year: 2016
• ISBN:
  9781137507563
• Topic: Betriebswirtschaft
• Subtopic: Finanzwesen

In today's increasingly global and integrated financial climate, there is an amplified need for cooperation between regulators and supervisors across the globe in order to promote economic growth and maintain competitive markets. However, idiosyncrasies remain within local markets, and for those wishing to participate within them, it is necessary to understand the distinctive qualities of each. This book explores the intermediaries of the Italian financial system. It examines the banks, investment services, electronic payment institutions, insurance companies and credit rating agencies functioning in the country, to explore how Italian regulation functions within the context of a wider harmonizing trend. The authors present a study on the current control models of the Italian markets in the wake of changes induced by the privatization of public banks, the increased size and complexity of the intermediaries, the increased level of competition, and the internationalization of the financial innovation. They explain how the country's financial markets are controlled by a combination of bodies, including the State, the authorities and the market participants themselves.

1

Introduction

Domenico Siclari

This book deals with intermediaries (banks, financial intermediaries in investment services or activities, electronic money institutions and payment institutions, insurance companies, credit rating agencies) and markets, both regulated and unregulated.

In an increasingly global and integrated world, the national regulation of financial intermediaries and markets also reflects external factors, both global and European. Therefore, coordination and cooperation between regulators and supervisors of different countries proves absolutely necessary for the development of the market, thus ensuring a level playing field among intermediaries and competitive market stability, and providing more opportunities for investment or financing families and businesses.

In an effective synthesis of global regulation and European and national characteristics, the quality of regulation and supervision should be increased in order to ensure sound and prudent management of individual institutions and overall system stability. The degree of convergence between the EU countries should also be increased to grant intermediaries conditions of effective competitive equality (level playing field) while respecting the specific features – legal, economic and operational – of individual Member States.

A further important step in the creation of a unitary body of rules for all banks in the single market is the new organic regulatory and control system on banks and investment firms, defined by the legislative package known as CRD4-CRR (Directive EU/2013/36 and Regulation EU/2013/575), which since 1 January 2014 has accepted the contents of the third Basel Accord on capital. Thus a homogeneous system of rules (Single Rulebook) will be able to ensure a level playing field within the Single Market, because CRD4 and CRR require the European Banking Authority to develop technical standards that the European Commission issues through acts directly applicable in the Member States.

The very functioning of the Banking Union in Europe is based on a system of common rules applicable to banks located in different countries which still retain, where appropriate, their traditional specificities. So even within this framework of a harmonization trend, the Italian regulation of intermediaries preserves certain specific features arising from both the normative tradition and the trade practices in the market that have been developed over a long time.

After the successful restructuring of public oversight, now neutral under pressure from the European legal system and after the enactment of the Consolidated Law on Banking in 1993, a reshaping of the fundamental structure of subjective control is now taking place in Italy. This reshaping gradually arose from the need to calibrate the degree of control to the actual dimensional and qualitative parameters of every single intermediary, relying on intermediaries to carry out certain functions of self-regulation.

In the Italian legal framework, therefore, control over the financial markets is no longer exercised only by the State through the various Authorities, but also by the market participants themselves. The control model of supervision has changed in the wake of several factors: the privatization of public banks; the consolidation of the banking system and the consequent increased size and complexity of the intermediaries; the increased level of competition; and the internationalization of financial innovation.

This process has also been brought about by the globalization of markets, rules in the current international financial architecture now being established at the supranational level, often with the help of some of the intermediaries themselves.

In the structure of subjective control, therefore, public supervision is now added to the self-regulation of intermediaries. These more advanced forms of control and the characteristics of risk-based supervision should result in the enhancement of the autonomy and the entrepreneurship of the supervised entities.

Even in Italy the increasing importance of non-bank financial intermediaries in the economy of the country has led to the supervision on banks being extended to them. Supervisory rules and capital requirements that have so far been applied to non-bank intermediaries, both large and small, size were expanded and reinforced. As for banks, their checks on the integrity of intermediaries regarding compliance with the legislation on money laundering are also guided by a risk-based approach.

In the current bank financing model for the Italian economy, resilient and efficient financial markets are seen as a necessary condition to restore satisfactory economic growth. The recent Finance for Growth policy by the Italian Government was related to the regulation of the activity of collective Italian portfolio management and insurance companies, opening up investment in debt securities issued by non-listed companies and small and medium enterprises. This is intended to facilitate the raising of capital by business directly on the markets, thus developing greater articulation of the financial system.

Finally, the Italian model of regulation and control also includes brokers and operators carrying out activities akin to those of the banks, in order to avoid regulatory arbitrage and the emergence of inadequately monitored risks. This is in keeping with the strengthening of the supervision on shadow banking. Even in this field, however, national specificities will be challenged by the new MiFID (Directive 2014/65/EU) and the MiFIR (600/2014), which introduced major changes relating to the transparency of trading and the regulation of over-the-counter transactions, specifically introducing OTFs (organized trading facilities) as new trading venues, and extending the transparency regime to non-equity instruments.

Part I

Intermediaries

2

Banks

Vincenzo Troiano

2.1 Banks: types and organizational forms

The Consolidated Banking Act (Legislative Decree no. 385 of 1 September 1993, hereinafter also referred to as the TUB) defines a bank as an “undertaking authorized to engage in banking”. Banking consists of fund-raising on a public basis and the granting of credit (TUB 10, para. 1). In addition to banking, banks may also engage in any other financial business, in accordance with the provisions applicable to each activity, as well as related and instrumental activities (TUB 10, para. 3).¹

Under the current legal framework, banking may be engaged in by banks in an undifferentiated manner. Banks are structured in two ways: banks organized as joint stock companies, and banche cooperative organized as cooperative limited liability joint stock companies.

The current structure was attained following a lengthy development phase involving the institutional simplification of entities operating in the banking sector.

Put very simply, prior to the enactment of the Consolidated Banking Act, when the Banking Law of 1936 was in force, the conduct of banking was allocated between aziende di credito (lending companies) and istituti di credito (credit institutions): the former entities were authorized to engage in fund-raising, including short-term savings; the latter entities tended to limit the scope of their operations to the medium/long-term with regard to both fund-raising and the granting of credit.² Within these two broad categories, there were additional segmented types of entities.

Credit institutions also included a vast number of entities which operated over the medium/long term and which had been established over the years (as autonomous entities or even as separate sections of credit institutions), mainly with the objective of providing financial support for specific sectors of the economy (mortgage lending, agricultural lending, industrial lending, lending for public utilities, real estate development lending).

The segment consisting of banks with public-law status (banche pubbliche) was very important.³ This category included some of the entities classified under the banking law of 1936 as aziende di credito – especially savings credit unions (casse di risparmio) and public law lending institutions – and, to a major extent, the credit institutions that specialized in medium/long-term loans, and entities that operated in special lending sectors.

Overall, at least until the mid-1980s, the system in place in Italy was characterized by a marked pluralism (with reference to the various fragmented types of entities that engaged in lending operations which were distinguishable from one another based upon the regulatory framework applicable to each, depending upon whether they were entities with public-law status, joint stock companies, cooperative companies, etc.) and by a rigid specialization (referring to the limited types of banking operations that each operator could effectively engage in).⁴

2.2 Development of the banking organization over time and the reform of banks with public-law status

The commencement of a process aimed at updating the banking system dates back to the first half of the 1980s. This process was aimed at endowing banks with organizational and structural models that were better equipped to thrive in a market context undergoing rapid development.

The segmentation of the market and the division of banking operations required the existence of a market that was not very open to competition and was protected from access by new operators.⁵

The market context was radically changed by the appearance on the scene of new non-bank financial intermediaries which posed a threat to the broadly monopolistic position that the system had until then assured for lending companies and institutions, and the development of banking laws and regulations of EC origin, which potentially opened the domestic system to competition at the European level.⁶

1. From a standpoint of the organization of the entities, the conviction grew into a consensus that the corporate model and that of the joint stock company in particular was better suited to the need for the modernization of the structure of the sector.

The significant component of banche pubbliche at such a time justified the close relationship between the process of simplifying the sector and the affirmation of the banking joint stock company as the model of choice, on the one hand, and the restructuring and privatization banks having a public-law status, on the other.

With a view to modernizing the Italian credit system, the component of banche pubbliche was the one which appeared to require the most urgent action. At the technical level, it is worth noting that there were inefficiencies inherent in the structure of banks with public-law status generated by a reduced operational capacity, an often opaque relationship between the management and control bodies, and difficulties in increasing their capital without resorting to self-financing. Such conditions generated the clearly disadvantageous position of banks with public-law status with respect to other banks.⁷

Law no. 218 of 1990 (the Amato Law) launched a season of radical reforms and privatization of banche pubbliche⁸ after a wave of prior initiatives through actions of an administrative nature,⁹ which had started as soon as the early 1980s, but without particularly successful outcomes. The Amato Law¹⁰ provided for two fundamental forms of restructuring banks with public-law status:¹¹ (a) the direct transformation into joint stock companies and (b) the contribution of the banking assets to one or more existing or newly created joint stock companies.¹² The restructuring through contribution gave rise to two types of entities: the assignee banking company of the banking assets (società bancaria conferitaria) and the contributing public entity (which was commonly referred to as the “banking foundation”).¹³

The abandonment of the organizational models of the past led to a gradual elimination of the differentiations between the types of bank.

Through the Consolidated Banking Act, the centrality of the joint stock company model for the organization of the bank and the conduct of banking was reaffirmed.¹⁴ The only material exception consisted of banche cooperative (in the twofold structure of banche popolari and banche di credito cooperativo) which may be organized in the form of cooperative joint stock companies.¹⁵ The assignment to banche cooperative of a precise organizational specificity was justified by the importance ascribed to the feature of m...