Download Superv. Inv. Companies

Kiev, 10-11 December 2012
Supervision and control over investment
companies activity by regulator, in
particular prudential supervision
Prof. Maurizio Mensi
SSEF - Italy
1
OVERVIEW OF THE PRESENTATION
PART I
1.
The evolution of rules (supervision)
2.
Structure of the italian system- Investment services and activities
3.
Different models of supervision
4.
Financial regulation in Italy – Institutional actors (Bank of Italy, Consob,
ISVAP)
5.
Cooperation between Authorities: a duty
6.
Objectives and subjects of supervision
7.
Consob and the Bank of Italy: a division of tasks based on a functional
criterium
8.
Regulatory supervision, reporting and inspection
PART II
1.
Regulatory (prudential) supervision: detailed elements
2.
Reform of financial intermediaries
3.
Regulatory powers
4.
Information supervision
5.
Inspection supervision
6.
Specific measures to be taken following infringements of rules
7.
Supervision of financial groups (specific rules)
2
THE EVOLUTION OF RULES
 The role of Monitoring Authorities within international markets
 The regulation of Financial Market: a multilevel source of law: EU
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(Regulations and Directives) and national
Starting point: from Investment Services Directive ISD (93/22/CEE)
to MiFID Dir. 2004/39/CE: growing harmonization
Lights and shadows: different standards at European and national
level
The evolution of the EU framework (financial activities, banking and
insurance)
Action Plan for Financial Services (FSAP) 11 May 1999 – European
Commission – ECOFIN 2000 Lamfalussy Committee
MiFid Dir 2004/39/CE – Dir. 2006/73/CE – Reg. CE n. 1287/2006
New European architecture: FSAP: measures to be adopted by 2005
Financial Activities: Home country control – Progress, but Path
Dependency
3
THE EVOLUTION OF RULES (2)
 Financial crisis 2007 and 2008 – High Level Group (De
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Larosiére)
2011: three European Control Authorities AVE – CESR –
Their powers
Powers of proposal and delegated regulation – Soft law,
directives, supervision
Intervention in case of urgency – Coordination and
settlements resolution – Power of replacement
Independence of Monitoring Authorities
Appeal Commission – The jurisdictionary regime of acts
adopted by European Monitoring Authorities
European Systemic Risk Board - ESRB (Reg. UE
1092/10)
4
GLOBAL LEGAL STANDARDS
 The new regulation of the financial sector should be
based on the framework of rules and principles in the
global economy which are emerging at the international
level
 It is intended to ensure the integrity and transparency of
economy and came from five categories:
1. corporate governance of enterprises and institutions
2. market integrity (preventing illegal activities such as
money laundering and financing terrorism)
3. financial regulation and supervision
4. tax cooperation
5. transparency of macroeconomic data
5
THE STRUCTURE OF THE ITALIAN SYSTEM
 The structure of the Italian banking and financial system is based on the
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presence of different kinds of institutions, which are entitled to conduct
their business in relation to the following activities:
Banks: legally entitled, in principle, to carry out most types of banking
activity (collecting savings from the general public, granting of loans and
other forms of financing, payment services, issuing of e-money and,
pursuant to specific rules, the exercising of investment services).
Italian banks may be incorporated as companies limited by shares, as
cooperative banks or as mutual banks.
Financial Intermediaries: used to be entitled to provide financing,
equity investments, brokerage on currencies and payment services (as
reserved activities); however, after a very recent reform in 2010, they
are now entitled only to grant financing as a reserved activity.
Payment Institutions: entitled to carry out only payment services or
other ancillary activities.
E-money Institutions: entitled to carry out business in the electronic
money sector.
6
INVESTMENT SERVICES AND
ACTIVITIES
 The notion of "investment services and activities" is identified by
the TUF (Law on Financial Activities, Leg. Decree n. 58/98). It has
undergone extensive changes and additions following the
implementation of the MiFID Dir. Pursuant to Art. 1, par. 5, TUF for
services and investment activities are the following when they relate
to financial instruments:
(a) dealing on own account;
(b) execution of orders on behalf of clients;
(c) subscription and / or placement of money;
(c-bis) placement without firm or standby commitment to issuers;
(d) portfolio management;
(e) reception and transmission of orders;
(f) advising on investments;
(g) management of multilateral trading systems.
7
THE DISCIPLINE OF THE
SUPERVISION OF INTERMEDIARIES
 The discipline of the supervision of intermediaries is
contained in TUF and it applies to all categories of
persons covered by TUF, and therefore investment firms,
asset management companies, investment companies
and brokers.
 The formulation of a set of rules applicable in general to
all categories of intermediaries, according to the
principle of uniformity, is one of the most significant
innovations introduced by the 1998 reform.
 So we have a common framework for financial
intermediaries, through the adoption of common
standard.
8
BANKS AND FINANCIAL
INTERMEDIATION
 Such an approach is, among other things, the more significant,
where we analyze the relationships between the TUF and TUB (Leg.
Decree n. 385/1993), on banking sector.
 In fact, the general provisions on supervision contained in the TUF
from Art. 5 to 12, are (although reformulated in part due to the
implementation of the MiFID Dir.) based on similar provisions
contained, in respect of banks in the TUB 1993.
 This ensures uniformity of discipline covers the entire field of
financial intermediation. The similarity between the TUF and the
TUB, however, is not surprising in light of the affinity that exists
between the Directive on investment services investment services
directive (ISD 93/22/EEC), hence the TUF, and II to Directive
coordinating banking (Dir. 89/646), hence the TUB.
9
DIFFERENT MODELS OF
SUPERVISION
 Supervisory models in the theory ...
• Institutional Model
- Each intermediary / market has a specific authority
• Functional Model
- Each function performed by financial institutions
corresponds to a separate authority
• Model centralized
- Single regulator
• Model for purposes
- 3 regulatory objectives, three separate authorities
10
MODELS
in Europe:
Institutional Model: Greece, Spain, France,
Portugal
Centralized model: Austria, Germany, UK, Sweden
and Belgium
Model for purposes: The Netherlands
In Italy: hybrid model under review
Institutional approach to the banking sector, for
purposes to securities markets, semi-institutional
approach to insurance and pension funds
•
11
FINANCIAL REGULATION IN ITALY
 In Italy, financial regulation is organized along functional lines.
 Financial services activities are divided among four main activities:
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banking, investment services, asset management, and insurance.
Each sector has its own supervisor, legal framework, and rules.
The Bank of Italy, the central bank, has a monetary policy role as
part of the European System of Central Banks, and has supervisory
and regulatory authority over Italian banks. It is a prudential
regulator whose focus is on the safety and soundness of the
institutions subject to its jurisdiction.
In addition to its banking supervision responsibilities, the Bank of
Italy focuses on the stability of the financial system. It has a statutory
mandate to ensure overall stability, efficiency, and competitiveness of
the financial system.
The Bank of Italy has rulemaking authority and enforcement powers.
12
THE INSTRUMENTS OF SUPERVISION
1.
Structural
concerning the structural characteristics
of the system and intermediaries
2.
Regulatory
general rules
management
3.
Information
functional assessment of the technical
and operational conditions of the
intermediaries and of compliance
4.
Intervention
directed at resolving situations of crisis
or problematic
5.
Transparency
to customers and the public
on
technical
risk
13
CONSOB
 CONSOB (Companies and Stock Exchange Commission) is an
independent Authority competent for the Italian financial products
market, with the aims to protect investors and the efficiency,
transparency and development of the market.
 It is responsible for regulating the securities markets and the
provision of investment services. Its mandate includes: (a)
transparency of and reviewing business practices by securities
market participants; (b) disclosure of complete and accurate
information to the investing public by listed companies; (c) accuracy
of prospectuses related to share and security offerings to the
investing public; and (d) compliance with regulation by auditors.
 CONSOB also conducts investigations related to insider trading and
market manipulation.
14
ISVAP
 The supervisor of the insurance sector in Italy is the Insurance
Industry Regulatory Authority (ISVAP).
 ISVAP is responsible for regulating and monitoring the activities of
insurance intermediaries. It is also required to perform all activities
necessary to promote consumer protection.
 The TUF (financial sector) mandates that the primary purpose of
insurance supervision is both the sound and prudent management of
the insurance and reinsurance business and the integrity of the
insurance market and consumer protection. Thus, ISVAP is a
functional regulator of the insurance sector with both safety and
soundness and conduct-of-business mandates.
 A few weeks ago the Government decided to incorporate ISVAP into
Bank of Italy
15
INVESTMENT SERVICES TO THE PUBLIC
 The provision of investment services to the public (negotiation on
own account, execution of orders on behalf of customers,
subscription and/or placement, with or without guarantees, portfolio
management, receipt and transmission of orders, investment
consulting and the management of multilateral trading facilities) is
reserved by law to investment firms, EU and non-EU investment
companies, asset management companies, banks authorised by the
Bank of Italy, EU and non-EU banks and foreign stockbrokers.
 CONSOB authorises investment firms to exercise one or more
investment services, registering them in a Register when they
possess specific capital requirements and when their administrative
and internal supervisory bodies meet specific requirements of
respectability and professionalism.
16
AUTHORIZED PERSONS
For out-of-office offerings of financial products and
services, intermediaries must appoint authorised
persons, registered in a special Register (managed
by CONSOB until 31/12/2008 and now by a specific
body: “Organismo per la tenuta dell’albo dei
promotori finanziari”), after passing an exam to
certify eligibility.
Registration is by entitlement provided that specific
requirements are met.
17
RELATIONS WITH THE EUROPEAN UNION LAW AND
INTEGRATION INTO ESFS
 Art. 2 TUF (Law on Financial Activities, Leg. Decree n. 58/98)
1. The Ministry of Economy and Finance, the Bank of Italy and
Consob shall exercise the powers granted to them in harmony with
the provisions of the European Union regulations apply and EU
decisions and act on the recommendations on the matters covered
by this decree.
2. The Bank of Italy and Consob, in the exercise of their respective
powers, are parts of the ESFS and participate in the activities it
carries out, taking into account the convergence in the European
tools and supervisory practices.
3. The Bank of Italy and Consob, in cases of crisis or tensions in
financial markets, keep account the effects of their actions on the
stability of the financial system of other Member States, also making
appropriate exchange of information with ESMA, the Joint
Committee, the ESRB and the supervisory authorities of the other
Member States.
18
COOPERATION BETWEEN
AUTHORITIES
 Cooperation at national level : a duty not an option
 Art. 4 TUF, Leg. Decree n. 58/98
 Law n. 262/2005 on “protection of saving” has in particular
reorganised responsibilities and mutual cooperation of the two main
public authorities responsible for supervision of the banking system
(Bank of Italy) and of the securities market (Consob)
 Cooperation at European (ref. MiFid Dir. and Art. 7, co. TUB, italian
law of Banking) and international level
 Secrecy – Transparency – Administrative proceeding and access to
documents detained by Consob (ref. case law of italian
Constitutional Court)
 Law on Administrave proceeding (n. 241/1990)
19
SUPERVISION
Similarly to TUB (banking sector), the discipline of
supervision of financial intermediaries in TUF
(financial sector) is divided into three different areas,
which relate, respectively to
(i) Regulatory supervision (Art. 6)
(ii) Information supervision (Art. 8)
(iii) Inspection supervision (Art. 10).
There are also specific powers to take action against
the supervised entities (Art. 7 TUF).
20
GENERAL OBJECTIVES AND SUBJECT
OF SUPERVISION
 Art. 5 TUF
Art. 5, "Purpose and supervision”, following the
implementation of the MiFID Directive, has been extensively
revised.
 In the current formulation, in fact, par. 1 of Art. 5 TUF identifies
the objectives of the supervision of the activities carried out
by the entities subject to regulations:
a) the maintenance of confidence in the financial system;
b) the protection of investors;
c) the stability and the proper functioning of the financial
system;
d) the competitiveness of the financial system;
e) compliance with the financial provisions.
21
DIFFERENT COMPETENCES FOR CONSOB
AND BANK OF ITALY
 The basic approach adopted by the Italian
legislation on the supervision of the securities
market operator, is the division of supervision
between Consob and the Bank of Italy on a
basis of a functional type.
 In this perspective, the TUF confirmed the choice
to entrust the Bank of Italy of a so-called
"conservative“ supervision and of the
"transparency" and "proper behavior” to
Consob.
 Competition rules: Authority for Competition
22
CONSOB AND BANK OF ITALY
 The Bank of Italy is responsible for risk containment,
financial stability and sound and prudent management of
the intermediary, while the Consob is responsible for the
transparency and fairness of behaviors (Art. 5, par. 2 and
3, TUF).
 “The Bank of Italy and Consob shall exercise the powers
for the supervision of authorized persons, each monitor
compliance with the laws and regulations in accordance
with the responsibilities defined in paragraphs 2 and 3“
(par. 4).
 The distribution of tasks for the purpose is then to be
realized within the general criterion in specific provisions,
relating, respectively, to regulatory oversight, disclosure
and audit.
23
THE PURPOSE OF SUPERVISION
 The generic identification of the "purpose" of surveillance, based on
the concepts above, can lift, however, difficulties in enforcement.
 On the one hand, it is not always easy to identify, within the wide
range of subjects and topics that make up the discipline of the
securities market, such issues as part of either "vigilance“.
 On the other hand there are matters with respect to which there is a
clear risk of overlap between the two areas of supervision.
 In order to solve these issues, the TUF does not rely only on general
concepts, but analytically identified, according to the different areas
of supervision, the powers of the one and the other Authority. In
addition, with the implementation of the MiFID Directive are also well
identified several areas in which the exercise of the tasks of
regulatory supervision should be jointly by the Bank of Italy and
Consob.
24
MONITORING FUNCTIONS
 Objectives
 Consob and Bank of Italy
 Coordination and cooperation
 The Agreement of 31 October 2007
 Responsability of Consob for lack of control
– Legal consequences (case law of Supreme
court)
 Dir. 2010/78/UE – Commission Communication
of 4 March 2009, Driving European recovery
25
DUTIES OF COOPERATION
BETWEEN AUTHORITIES
 The choice of different functions to the
supervisory brings out the best specific skills and
expertise of each Authority, but poses obvious
problems of coordination and cooperation
between them.
 The solution provided by Art. 4 TUF is to
establish clear obligations for cooperation
between the supervisory authorities
26
COOPERATION DUTY
 It is established a clear obligation to notify one another
of the measures taken, and the irregularities detected in
the exercise of supervision (Art. 5, par. 5, TUF).
 In addition, the rule reflects the justified concern that the
fragmentation between several supervisory functions
would result in an increase in the workload of the
supervised entities, and thus establishes a clear
obligation to act "in order to minimize the burden
imposed on authorized persons“.
 It is a highly innovative rule, reflecting an approach to
economic regulation aimed at ensuring an adequate
balance between the needs of public oversight, and the
development of regulated sectors.
27
MEMORANDUM OF 31 OCTOBER 2010
 Par. 5-bis, Art. 5 TUF requires that the Bank of Italy
and Consob to enter into an agreement aimed to
"coordinate the exercise of their functions" and
"minimize the burden on the regulated parties ".
Therefore, the protocol must be adjusted: (i) the
tasks of each authority and the manner of their
execution, according to the principle of the division of
functions, and (ii) the exchange of information
(Memorandum of Understanding - Bank of Italy
and Consob, published on October 31, 2007)
28
THE GENERAL AIMS OF
SUPERVISION
 Objectives of the supervision services and investment
activities: trust in the financial system, the protection
of investors, stability, smooth operation and
competitiveness of the financial system and
compliance with the provisions on financial matters.
 Among these is worthy the reference to the
"competitiveness" and "proper functioning" of the
financial system, as it has to be added to those more
typically related to the purposes of public intervention in
the financial markets, but also the "transparency and
proper behavior", which are not found in analogous
prediction of the TUB (Art. 5), due to the greater attention
to measure profiles of prudential supervision, with
respect to other purposes of supervision.
29
SOUND AND PRUDENT
MANAGEMENT
Art. 5 TUF, par. 2, highlights the
criterion of "sound and
prudent management” as one
of the aims pursued by the
Bank of Italy in the exercise of
supervision.
30
THE REGULATORY SUPERVISION,
REPORTING AND INSPECTION
Turning then to the forms in which it is carried out the
supervisory activity, there are three general types of
them, and two more specific.
General ones, similar to the banking sector regulated in
the TUB, are:
(I) regulatory supervision;
(II) information supervision ;
(III) inspection supervision.
Specific ones are represented by so called "Specific
actions" and the supervision of groups.
Although discipline is clearly inspired by the TUB, there is
the problem of differentiation of the powers and tasks of
the Bank of Italy, from those of Consob.
31
32
REGULATORY POWERS
Art. 6 TUF
In exercising the functions of regulatory supervision,
Bank of Italy and Consob observe the following
principles:
a) enhancing the decision-making of a qualified entity;
b) proportionality criterion, understood as the exercise of
power in order to attain the goal, with the least sacrifice
of the interests of the recipients;
c) recognition of the international character of financial
market and safeguard the competitive position of the
Italian system;
d) facilitating innovation and competition.
33
RESPONSIBILITIES OF THE BANK OF
ITALY AND CONSOB
 Consob is, however, competent to regulate, after
consulting the Bank of Italy, the obligations of
authorized transparency and proper conduct.
Par. 2-bis also identifies the matters falling within
the "joint" jurisdiction of Consob and Bank of
Italy, that are between the responsibility of each
Authority and which represent one of the most
significant innovations introduced by the MiFID
Directive.
34
REGULATORY POWERS
 More precisely, the Bank of Italy and Consob adopt a regulation with reference
to the provision of services and investment activities, as well as the asset
management, the requirements of a qualified entity in relation to:
(1) general requirements of organizations;
(2) continuity;
(3) administrative and accounting procedures, including the establishment of the
function referred to in point e);
(4) procedures, including internal control, proper and transparent provision of
investment services and activities as well as the asset management;
(5) monitoring of compliance with standards;
(6) risk management firm;
(7) Internal Audit;
(8) responsibility of senior management;
(9) handling of complaints;
(10) personal transactions;
(11) outsourcing of critical or important operational functions or services or
activities;
(12) Conflicts of interest potentially detrimental to a client;
(13) record keeping;
(14) procedures, including internal control, for the charging or payment of
35
incentives.
INVESTORS
 In the context of regulatory oversight, is worth mentioning the
reference to the scope of the provision concerning the
"professionalism" or the competence of investors.
 For example, the need to enact specific rules of conduct "to
relations between authorized persons and professional clients",
letter. d) refers to the special regime applicable in the relations with
the cd. "Eligible counterparties“ (Par. 2-c, letter. c) and d), art. 6
TUF).
In this sense, the rules reflect a specific set of Community rules, in
particular the MiFID Directive, which provides for a specific
graduation of the discipline as a function of "nature" professional or
not of he customer.
 In this context, the MiFID Directive provides for different treatment
depending on whether the investor is considered "Retail clients",
"professional clients" or "Eligible counterparties".
36
REGULATORY POWERS
 For the matters covered by Dir. 2006/73/EC, Bank of Italy and
Consob may maintain or impose obligations in the regulations
additional to those laid down in that directive only in exceptional
cases where such obligations be objectively justified and
proportionate, taking into account the need to cope with specific risks
to investor protection or market integrity that are not adequately
addressed by Community legislation and if at least one of the
following conditions is satisfied:
 (1) the specific risks to which the additional requirements are
designed to cope are particularly relevant, given the structure of the
Italian market,
 (2) the specific risks that additional obligations are aimed at tackling
emerge or become evident after the publication of the relevant
Community provisions in this field.
37
REGULATORY SUPERVISION
 Principles of secundary regulation
 The “Gold Plating” (Dir. 2006/73)
 Consob regulations
 Reg. 16190/2007 on financial operators and services (ref. Part II of
TUF)
 Reg. 29/10/2007, Consob and Bank of Italy, organization and
procedures of financial operators
 Decree of Ministry of Economy and Finance 24/12/2008, n. 206
on professionalism, integrity independence
 Decree of Ministry of Economy and Finance 24/5/1999 n. 228 on
Investment Funds
38
REGULATORY SUPERVISION (2)
 Regulatory supervision
 The Bank of Italy’s supervision aims at ensuring the sound and prudent
financial management of supervised entities as well as the stability,
efficiency and competitiveness of the banking and financial system as a
whole. This aim is pursued through the enforcement of the rules and
provisions regulating the credit sector.
 Within the exercise of regulatory supervision, the Bank of Italy adopts
provisions having as their purpose:
• capital adequacy;
• risk containment;
• ownership restrictions;
• permissible shareholdings;
• administrative and accounting organisation of the banks and internal
audits; and
• public disclosure that supervised entities must provide with respect to the
above points.
39
REGULATORY SUPERVISION (3)
 The legal basis of power
 The public consultation with market operators
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(stakeholeds)
The analysis of impact of regulation (AIR) – The
verification of impact of regulation (VIR)
Better regulation (Checklist OCSE 2005 – White Paper
2005-2010 on Financial Services Policy, of Dec. 2005,
2006 Guidelines)
“Transparent, evidence-based policymaking”
(Lamfalussy procedure)
Best practices: Financial Supervisory Authority FSA (UK)
– Securities and Exchange Commission SEC (USA)
40
REFORM OF FINANCIAL
INTERMEDIARIES
 A recent reform, by Leg. Decree n. 141/2010, introduced a new set of
rules, which amends title V and VI of the TUB, mainly regards
financial intermediaries (ie, entities carrying out financial activity but
without collecting savings from the general public).
 On one hand, some activities originally considered as reserved
activities (equity investments and brokerage on currencies) have
been removed and are no longer subject to authorisation, unless
they fall under other regulated activities, on the other hand, the
reform raises the level of supervision on capital adequacy, as well as
the number of requirements for the administrative and accounting
organisation of those entities.
41
REFORM OF FINANCIAL
INTERMEDIARIES (2)
 The aim of this reform is to ensure that all entities operating in the
financial sector comply with the organisational and accounting
rules once required only for certain financial intermediaries involving
systemic risks (intermediaries formerly falling under Art. 107 TUB)
and therefore to exclude from the sector or market all those entities
that are not able to grant an equivalent level of protection.
 As a result, in the next few years there will probably be a reduction in
the total number of financial intermediaries authorised to conduct
business in Italy.
 The scope of the reform also includes new rules governing financial
agents and credit intermediaries, providing a more thorough
regulation of those entities.
42
INTERVENTION ON AUTHORIZED ENTITIES
 Art. 7 . The Bank of Italy, after consulting Consob, shall regulate:
a) the obligations of investment firms and asset management companies in the area
of ​capital adequacy, containment risk in its various shareholdings,
b) the obligations of SIM, the EU investment firms, asset management companies, as well
as financial intermediaries entered in the register provided for in Art. 107 TUB, Italian banks
and non-EU banks, authorized to provide the services or investment activities in the field of
mode deposit and sub-deposit financial instruments and funds belonging of customers;
c) the rules applicable to collective investment undertakings concerning:
1) the criteria and prohibitions related to investing, having regard also to group relations;
2) the prudential rules for limiting and spreading risk;
3) type schemes and methods of preparation of financial statements that companies asset
management and the Company shall prepare periodically;
4) the methods of calculating the value of units or shares of collective investment
undertakings;
5) criteria and procedures to be adopted for the valuation of assets and securities in which
assets are invested and the frequency of valuation. For the evaluation of goods not traded
on regulated markets, the Bank of Italy may provide for the use independent experts and
request their intervention even in the purchase and sale of goods by the operator.
43
INTERVENTION ON AUTHORIZED
ENTITIES (2)
 For the evaluation of goods not traded
on regulated markets, the Bank of
Italy may provide for the use
independent experts and request
their intervention even in the purchase
and sale of goods by the operator.
44
INFORMATION SUPERVISION
 Art. 8 TUF
The Bank of Italy and Consob may request,
within their respective competences, to
authorized entities the communication of data
and information and the transmission of records
and documents.
 Information duties towards control bodies
 The regulation powers of Consob and Bank of
Italy - MiFid Dir.
45
INFORMATION SUPERVISION (2)
 It consist of the obligation imposed on
intermediaries to provide the Bank of Italy a series
of information (quantitative and qualitative) that
represent the primary source of knowledge through
which it is evaluated the technical situations of
banks and financial companies.
 They are instrumental in the evaluation of the
technical and operational conditions of
intermediaries and verification of compliance.
They form a necessary tool for Information
Supervision.
46
INFORMATION SUPERVISION (3)
 This power can be exercised essentially in two
ways: the request for information may be formulated
in a general way (through, for example, regulations
requiring reporting requirements or reporting,
periodically or episodic) or they may be made
specific requests on a case-by-case basis.
 The rule does not limit the power of the supervisory
authorities and shall, therefore, makes a qualified
entity absolutely "transparent" with regard to any
data, information, information.
47
INFORMATION SUPERVISION (4)
 The power is attributed to the Bank of Italy and
Consob in matters of their respective competence: it
follows that each Authority may request information
and data relating to matters falling within their sphere
of competence. For issues which are regulated
jointly, the exercise of supervision is regulated by art.
6, par. 2-ter, TUF.
 The Bank of Italy and Consob may exercise its
powers to request data, information, records and
documents to the company's auditors (Art. 8, par. 2,
TUF).
48
INFORMATION SUPERVISION (5)
 In implementation of Dir. 95/26/EEC, aimed at strengthening the
prudential supervision, the same Art. 8, par. 3, now provides that
internal auditing (auditors, or - depending on the business model
adopted - the supervisory board or audit committee on
operations) promptly inform the Bank of Italy and Consob all acts or
facts which may constitute an irregularity in the management, or a
violation of the rules governing the activities of SIM, the asset
management company or the Fund.
 A similar formula - relating to the auditing firm - is finally provided for
in par. 4 of Art. 8, according to which auditors "inform the relevant
facts which may constitute a serious violation of the rules governing
the activities of the audited companies, or which may affect the
continuity of the company or result in an adverse opinion on the
financial statements or on periodic statements”.
 The same tasks are finally provided in the bodies of internal control
and external auditors of the entities that control the intermediaries.
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INTERNAL CONTROL BODIES AND
AUDITORS
 For the internal control bodies and auditors, the rules are not
formulated in the same way: there are, in fact, obvious
differences between the scope of the obligations of auditors
than those of the reviewers.
 In particular, while the auditors are required to inform the
supervisory authorities of the facts that "may constitute"
irregularities in the management, or violation of rules
governing the activities of intermediaries, the auditor is
required to report only the facts "relevant“ that would
constitute a "serious violation“ of the rules governing the
activities of the companies subject to this review. In addition,
the reporting obligations of auditors also affect the facts that while not constituting fraud or violations of laws - may affect
the continuity of the company.
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INSPECTION SUPERVISION
 Consob may request the company's
auditors to conduct audits (Art. 10, par. 1bis, TUF).
 The rule, however, says nothing about time
and manner of carrying out the inspections
by the independent auditors, nor regulates
the formalization of the results of audits
and / or to transmit Supervisory Authority.
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INSPECTION SUPERVISION (2)
Art. 10 TUF
The Bank of Italy and Consob may, in accordance
with their respective competences and with the EU
provisions, order and make directly inspections and
require the submission of documents and the
adoption of measures deemed necessary.
Consob may require the person carrying out the
audit of the accounts of to initiate additional audits.
The costs involved, the fairness of which is assessed
by the Consob, are charged to the subject inspected.
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INSPECTION SUPERVISION (3)

It is important to ensure coordination between
the activities carried out by the two authorities. In
this case, the objective is pursued not only
reaffirming the principle of the division of
functions between the Bank of Italy and Consob,
but also establishing the possibility that the two
authorities to exchange roles, and perform
investigations on the profiles within their
respective areas of expertise (Art. 10 TUF)
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INSPECTION SUPERVISION (4)
Subjects and methods
The inspections – Reports
The cooperation between
Italian and foreign Authorities
The coordination between
Consob and Bank of Italy
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SUPERVISION INSPECTION (5)
 Art. 10 TUF. Each authority shall inform the inspections it undertakes other
authorities, which may request assessments of their competence profiles.
The Bank of Italy and Consob may request the competent authorities of a
Member State to carry out inspections at branches of SIM (Securities
company), of asset management companies and banks established in
territory of that state or agree on other methods of verification.
The competent authorities of another EU country, after informing the
Bank of Italy and Consob, may inspect, including through their
representatives, branches of companies investment, community banks and
harmonized management companies by the same, established in the Italian
territory.
 If the authorities of another EU country the require, the Bank of Italy and
Consob, within their respective competences, shall directly to the findings or
agree on other methods of verification.
The Bank of Italy and Consob may agree, within their respective
competences, with the competent authorities of non-EU countries the
procedures for the inspection of branches of investment firms and banks
established in their respective territories.
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SPECIFIC ACTIONS ON THE
ENTITIES
 As a consequence of the the surveillance of the safety rules,
regulation and inspection, there are more specific actions to be taken
ie "interventions on qualified entities" and the supervision of
groups financial.
 As to the first, it is a profile already set for the banks in the TUB, and
is governed - with some changes - in the TUF with reference to the
areas covered by this measure. The overall objective of the legislator
aims is to recognize the supervisory authorities specific powers,
which have a direct impact on the activities of the governing bodies
of the supervised entities.

According to Art. 7 TUF, the Bank of Italy and Consob may then:
(A) convene the directors, auditors and managers of authorized
persons;
(B) order the convening of the governing bodies, setting the agenda;
(C) proceed directly to convene the governing bodies, when the
bodies have not complied with the provisions of the letter.
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SPECIFIC ACTIONS ON THE
ENTITIES (2)
 The power of Supervisors is limited to, at least on a
formal level, convening of the governing bodies, but
taking of decisions is, however, entrusted to the
competent bodies.
 However, it is inevitable that, in most cases, the fact
that a given deliberation has been requested by the
Supervisory represents a strong incentive for the
adoption of the same, by virtue of the moral
suasion exerted by the intervention of the
supervisory.
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THE SPECIFIC ACTIONS ON THE
ENTITIES (3)
 Art. 7 TUF states that the authorities exercise their
competencesc, only "within their respective powers“.
Thus applies the principle of functional division of
tasks between Consob and the Bank of Italy (as
provided in general by Art. 5 TUF).
 A specific power is finally assigned to the Bank of
Italy in order to guarantee the stability of the
system: the Bank of Italy may issue provisions of a
special nature, relating to the matters listed in Art. 6,
par. 1, TUF and impose restrictive measures
concerning the services and activities carried out by
authorized persons (Art. 7, par. 2, TUF).
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AUTHORISED INTERMEDIARIES
In order to ensure the observance of the obligations
of transparency and correctness and the proper
performance of negotiations in financial instruments,
CONSOB may:
 ask the intermediaries to report figures and news
and to send deeds and documents, also on a
periodical basis;
 acquire news and clarification from company
exponents to ascertain the exact and complete
nature of the figure and news reported or published;
 carry out inspections.
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POWERS OF CONSOB
CONSOB may:
 order the intermediaries to put a stop to irregularities
committed in the performance of investment services and
forbid them from entering into new transactions when the
breaches committed may influence general interests or
when it there is an urgent need to protect the interests of
investors.
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POWERS OF CONSOB (2)
 Consob may urgently suspend the
administrative bodies of investment firms and
asset management companies when there are
situations of danger for clients or the markets
and nominate a commissioner to manage cases
in which there are serious irregularities with
regard to administration or serious breaches of
regulations.
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POWERS OF CONSOB (3)
CONSOB may:
 inflict financial penalties upon company members
and employees of companies failing to observe
the rules governing the provision financial
instrument investment services;
 propose to the Ministry of the Economy and
Finance that the intermediaries be subject to
extraordinary administration or coercive
administrative liquidation.
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CONDUCT OF AUTHORIZED
INTERMEDIARIES
 CONSOB checks that the conduct of
authorized intermediaries with investors is
diligent, correct and transparent.
 It enforces cautionary measures against them
(suspension of activity for a maximum of 60
days or, in specific cases, for as long as a
year) and inflicts different sanctions (ranging
from warning to disqualification from the
register).
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THE SUPERVISION OF
FINANCIAL GROUPS
 Art. 12 TUF provides for the supervision of financial
groups, taken from the TUB, which establish a
comprehensive legislation on consolidated
supervision of banking groups. It is not surprising
that, even in this context, it is established a very
strong influence on the formulation of the TUB of the
statutory provisions referred to in TUF.
 This rule has, inevitably, been inspired by the more
detailed rules on the subject, ie, the banking
legislation, extending in part to the non-banking
groups.
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THE SUPERVISION OF
FINANCIAL GROUPS (2)
 Art. 11 TUF gives to Bank of Italy the power to "define"
the notion of group relevant for the regulation at issue.
 With regard to the content of the framework, the Bank of
Italy may issue to the SIM, the asset management
company or financial institution located on the summit,
provisions related to all the entities in the same group (as
determined by art. 61 TUB). Always modeled on Art. 61
TUB, is the further provision (Art. 12 TUF) according to
which the parent company, in the exercise of
management and coordination, issues to members of the
group so that they carry out the instructions issued by the
Bank of Italy.
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THE SUPERVISION OF
FINANCIAL GROUPS (3)
 The Bank of Italy and Consob:
 1) may request, as regards matters within their competence, the entities in
the group, the transmission, periodic data and information. Information
necessary for exercising supervision may be required also to persons who,
while not performing investment services, asset management services, as
well as related and instrumental activities or other financial assets, are linked
to the SIM (Securities company) or the company's asset management
indicated in the shareholders' equity (Art. 11, par. 1, lett. b), TUF).
2) may have against the persons belonging to the application of the
provisions of the TUF in the fields of auditing, and
3) may, as regards matters within their competence, carry out inspections of
persons belonging to the group.
 This power may also be exercised - for the exclusive purpose of verifying
the accuracy of the data and information provided - at persons who, while
not performing investment services, asset management services, as well as
related and instrumental activities or other financial assets, are linked to the
SIM or the company's asset management by investment relationships
indicated in Art. 11, par. 1, lett. b) TUF.
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INFRINGEMENTS
 In cases of infringement of both laws and secondary level regulations
by supervised entities, the Bank of Italy has a wide range of powers
of intervention and sanction.
 Supervision authorities, and in particular the Bank of Italy, mainly
enforce laws and regulations by the following means (in rising order
of seriousness):
1. Written warnings,
2. Notice of infringement by the Bank of Italy (upon receiving such
notice a full hearing of the parties starts, in which the entities
involved may file with the Bank of Italy a written defence and
potentially block the adoption of a sanctioning resolution),
3. Administrative pecuniary fines on persons and banks, companies
or other bodies involved, should the written defence not be
accepted.
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SERIOUS IRREGULARITY
 If a serious irregularity is found in the management
of the supervised entities or in case of a serious
breach of the law or of regulatory or statutory
provisions, the Bank of Italy may propose that the
Minister of Economy and Finance to withdraw the
licence.
 If the Minister considers the motivation and
reasoning of the Bank of Italy well founded, it may
order, by means of ministerial decree, the withdrawal
of the licence and the commencement of the
administrative forced liquidation procedure against
the supervised entity.
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MOST COMMON ENFORCEMENT ISSUES
 From 2009 and 2010 annual report on supervision issued by the Bank of
Italy shows that the on-site inspections carried out by the supervisory
authority were 205 in 2009 and 138 in the first five months of 2010.
 In 2009 and during the first five months of 2010, 234 cases of irregularity
were investigated.
 The most common infringements relate to the internal structure of
supervised entities and to the inadequacy in the management of
lending activity. Several procedures regarded non-compliance with the
rules providing periodical information duties towards the Bank of Italy or
breach of the rules in the matter of transparency in contractual terms and
conditions.
 As a consequence the supervisory authority were issued 55 orders for
cancellation against financial intermediaries during 2009; issued 88 orders
for cancellation of financial intermediaries investigated in the first few
months of 2010; started 11 extraordinary administration procedures against
banks, during 2009; and investigated 15 cases of forced administrative
liquidation during the first half of 2010.
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Thank you for your
attention !
Prof. Maurizio Mensi
Academy of Economy and Finance - SSEF
Ministry of Economy and Finance – Rome – Italy
[email protected]
Mobile: +39 335 5623327
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