Opinion of the European Monetary Institute at the request of the Italian Ministry of the Treasury under Article 109f (6) of the Treaty establishing the European Community (the “Treaty”), Article 5.3 of the Statute of the EMI and Council Decision 93/717/EC of 22 November 1993, concerning a draft bill “Codified Law on Finance” (the “Draft Bill”) (CON/98/3)
Date: 1998-02-26
Institutions: European Monetary Institute
Subjects: European System of Central Banks, Italy, central bank, exchange of information, financial instrument, financial stability, financial supervision, investment company, payment system, securities

OPINION OF THE EUROPEAN MONETARY INSTITUTE

at the request of the Italian Ministry of the Treasury under Article 109f (6) of the Treaty
establishing the European Community (the “Treaty”), Article 5.3 of the Statute of the EMI

and Council Decision 93/717/EC of 22 November 1993, concerning a draft bill “Codified Law

on Finance” (the “Draft Bill”)

(CON/98/3)

1.

On  19  January  1998,  the  EMI  received  a  request  for  an  opinion  on  the  Draft  Bill  from  the

General Director of the Italian Treasury. This opinion is based on an unofficial English translation

of the Italian draft submitted to the EMI by the consulting authority.

2.

The  EMI’s  competence  to  deliver  an  opinion  is  based  on  Article  1.1,  second,  fourth  and  fifth

indents,  of  the  Council  Decision  (93/717/EC)  of  22  November  1993  on  the  consultation  of  the

EMI  by  the  authorities  of  the  Member  States  on  draft  legislative  provisions,  as  the  Draft

Legislative Decree contains   (a)  provisions  dealing  with  the  status  and  powers  of  the  national

central bank,  (b) provisions concerning clearing and payment systems and  (c)  provisions  which

affect the stability of financial institutions and markets.

3.

Concerning the first part (“Disciplina degli intermediari” - Articles 1 - 82), the EMI understands

that  it  aims  at  replacing  current  provisions  which  are  spread  over  several  pieces  of  legislation

with  a  view  to  obtaining  a  consistent  and  comprehensive  legislative  framework  covering  the

whole range of intermediaries operating in securities markets. At the same time, it is recognised

that the draft bill also introduces some innovations with particular regard to the undertakings for

collective  investment  (UCIs),  whereas  with  respect  to  investment  firms  it  mainly  confirms  the

current provisions which transpose Directive 93/22/EEC on investment services in the securities

field. In this respect, the EMI notes that one of the main objectives is to reduce the differences

between  the  regulatory  and  supervisory  frameworks  for  UCIs  and  investment  firms.  The  EMI

welcomes in general this approach which reduces the scope for segmentation of the markets and

acknowledges  that  residual  differences  are  inevitable  in  relation  to  the  different  operational

features  of  the  two  categories  of  institutions.  In  this  context,  it  is  noted  that  the  share  of

supervisory  competences  between  Banca  d’Italia  and  the  supervisory  authority  responsible  for

securities markets (Commissione Nazionale per le Società e la Borsa - “CONSOB”), according

to  which  the  former  is  responsible  for  the  reduction  of  risks  and  the  stability  of  intermediaries

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and  the  latter  for  transparency  and  correctness  of  their  behaviour,  is  now  applied  in  a  uniform

way to both categories of institutions. The EMI hopes that this share of competences between

the  two  authorities  will  be  conducive,  from  an  overall  perspective,  to  effective  supervision

without imposing an excessive burden on the supervised entities.

4.

The EMI takes note of the main innovations related to the field of UCIs. The first (Article 34)

covers  the  introduction  of  a  new  category  of  management  company  (“Società  di  gestione  del

risparmio”)  which  will  be  allowed  to  undertake,  in  addition  to  the  management  of  UCIs  and

pension funds, also portfolio management on behalf of individual customers (which currently can

be  carried  out  only  by  credit  institutions,  investment  firms  and  fiduciary  companies).  The  new

intermediary will be therefore able to offer a whole range of closely related services in the area

of  investment  management.  The  EMI  welcomes  this  provision  which  reduces  possible

segmentation in the field of asset management and enables operators to develop professionalism

and  to  achieve  economies  of  scale.  The  second  (Article  38)  refers  to  the  new  regulatory

approach  applying  to  the  different  categories  of  UCIs.  Whereas,  according  to  the  current

legislation,  each  category  of  fund  (open-ended,  closed-ended,  real  estate,  etc.)  is  codified  in  a

specific legislation, the draft bill leaves to the secondary legislation and, thus, to the administrative

authorities  the  specification  of  the  type  of  fund.  The  EMI  takes  note  that  this  approach  allows

for  a  certain  degree  of  flexibility  by  the  public  authorities  in  devising  the  regulatory  framework

for new forms of UCIs.

5.

Professional secrecy and exchange of information between Banca d’Italia and the CONSOB on

the one hand and the competent authorities of the European Union on the other are dealt with in

Article  17,  second  paragraph,  of  the  Draft  Bill.  It  should  be  ensured  that  the  notion  of  EU

competent  authorities  as  used  in  the  Italian  legislation  covers  also  the  European  Central  Bank,

which might need information on these intermediaries as counterparties for monetary policy or as

participants in payment and securities settlement systems. Similarly, “EU competent authorities”

in Article 231 should include the ECB.

6.

The EMI also welcomes the rule laid down in Article 22 of the Draft Bill on separation of assets

for the provision of investment services. In particular, such a rule is clearly beneficial from the

perspective of securities settlement systems.

7.

The second part  (“Disciplina  dei  mercati  e  della  gestione  accentrata  di  strumenti  finanziari”)

deals with the organisation and supervision of financial markets as well as with central securities

depositories. Although several provisions of this piece of legislation had already been introduced

with  the  Legislative  Decree  415/96  (which  inter  alia  implemented  the  Investment  Services

Directive), this part contains nevertheless important innovations.

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8.

The first innovation contained in the  second  part  of  the  draft  bill  is  the  clear  assignment  to  the

Banca  d’Italia  of  the  oversight  function  over  the  “mercato  telematico  dei  titoli  di  Stato”

(Article  98)  and  over  interbank  fund  transactions  (Article  112).  The  EMI  welcomes  the

attribution  of  this  function  to  Banca  d’Italia,  given  to  the  importance  of  these  segments  of  the

financial market for monetary policy purposes.

9.

In  the  second  place,  the  EMI  takes  note  of  the  introduction  of  a  framework,  dealt  with  by  the

combination of Articles 87, 90 and 91 of the Draft Bill, replacing the previous fragmented rules,

which has the objective of guaranteeing the successful outcome of transactions.

10. A very important provision which is introduced by the draft bill is the one contained in Article 93,

providing  for  the  finality  of  the  clearance  and  settlement  of  derivative  and  non-derivative

financial instruments transactions. This provision eliminates from the Italian securities settlement

systems  the  zero-hour  rule  and  transposes  in  the  Italian  legal  system,  ahead  of  time,  the  rule

contained  in  the  soon-to-be-adopted  EC  settlement  and  finality  directive.  The  EMI  warmly

welcomes  the  introduction  of  this  provision  which  ensures  legal  certainty  and  the  compliance

with Standard 1 of the report on “Standards for the use of EU securities settlements systems in

ESCB credit operations”, published in January 1998.

11.

The  new  provision  introduced  at  Article  100  makes  clear  that  Article  76  of  the  Italian

Bankruptcy  Law  applies  to  certain  financial  instruments,  with  the  consequence  that  exposures

are calculated at their value on the day on which bankruptcy is declared and eventually set off

due  to  the  application  of  Article  56  of  the  bankruptcy  law.  The  EMI  warmly  welcomes  this

provision,  which  enhances  legal  certainty  in  respect  of  important  monetary  policy  instruments,

such as repo and swaps, and avoids “cherry picking”.

12.

The  EMI  warmly  welcomes  Articles  103  to  105  and  107  which  ensure  the  compliance  of  the

Italian Central Securities Depository with Standard 4 of the report on “Standards for the use of

EU securities settlements systems in ESCB credit operations”. The EMI notices, however, that

in these articles the distinction of the roles of the Banca d’Italia and the CONSOB is not always

clear-cut.  Also,  the  EMI  takes  note  of  the  liberalisation  in  the  field  of  central  securities

depositories.  Whereas  the  activity  of  central  depository  for  securities  other  than  government

bonds is at present carried out exclusively by one firm (MONTETITOLI), this will no longer be

the case.

13.

The third part (“Disciplina delle società quotate”) contains several provisions which range from

the  solicitation  of  public  savings  to  company  law.  The  provisions  concerning  soliciting  savings

(Articles  113-121),  notably  any  public  offer  aiming  at  the  sale  or  underwriting  of  financial

products,  are  intended  to  protect  unsophisticated  investors  by  requiring  to  the  issuer  the

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disclosure  of  relevant  information  through  a  prospectus.  The  EMI  would  like  to  stress  that  the

protection  of  investors  through  disclosure  of  information  is  important  in  promoting  trust  in  the

financial  system.  Also,  the  EMI  notes    that  the  financial  instruments  issued  by  the  ECB  and

NCBs are excluded by Article 120 e) from the applicability of the prospectus.

14.

The  EMI  also  welcomes  the  new  provisions  on  insider  trading  (Articles  192-207),  which

substantially improve the effectiveness of existing law. The EMI wishes to underline the positive

value that an effective regulation of the insider trading has on the smooth functioning of financial

markets.

The  EMI  confirms  that  it  has  no  objection  to  this  opinion  being  made  public  by  the  competent  Italian

authorities at their discretion.

26 February 1998