The post Parmalat reforms do not consolidate Italy‘s five financial regulators into one, unlike Britain‘s FSA and Germany‘s BaFin.212 The post Parmalat reforms according to many, have been disappointing as the central bank, Bank of Italy had still managed to retain many of its powers whilst CONSOB has not been afforded as much power as was previously expected. According to the draft law of February 2004, a new regulator, provisionally called the Authority for the Protection of Savings was to replace CONSOB, the securities market watch dog.213 This new CONSOB is to be more powerful than its predecessor and would take over the supervision of debt issuance from the Bank of Italy.214
The Italian financial regulatory framework went through a major overhaul in 2005 through the Law 262 of December 12th 2005 on Protection of Savings and Financial Markets Discipline.215 This overhaul was triggered by the financial scandals relating to Cirio and Parmalat, two major Italian food companies.216 The new legislation came into effect on the 10th January 2006 – however, due
212 See 'Italian Financial Regulation: Not So Super Consob‘ The Economist (Feb 5th 2004)
213 ibid
214 ibid
215 'Banks: Bank Regulators' Economist Intelligence Unit – Country Finance (Volume 7 No 2) 23 August 2006
216 ibid
to some provisions requiring secondary legislation, these provisions were not implemented straightaway. The legislation affects the Bank of Italy, CONSOB, the Competition Authority (Autorita Garante della Concorrenza e del Mercato), the Pension Fund Supervisory Committee (Commissione Vigilanza Fondi Previdenza) Covip, and the Institute for Supervision of Private and Collective Interest Insurance (Istituto per la Vigilanza sulle Assicurazioni Private e di Interesse Collettivo) Isvap.
A major impact of the new legislation on the Bank of Italy will be to increase the transparency of its operations and to transfer powers it holds in deciding upon the concentration (as opposed to the prudential implications) of mergers and acquisitions. These powers will be assigned to the Guarantee Authority for Competition and Markets (Autorita Garante della Concorrenza e del Mercato). Large crossborder bank mergers come under the jurisdiction of the European Commission. Transparency should be improved as a result of the following measures namely:
Through requirements that board decisions having implications outside the central bank be taken by consensus, that written records be kept of board meetings and that the Bank of Italy report semi-annually on its activities to both the parliament and the government. The Bank of Italy and CONSOB will share strengthened powers over conflicts of interest.
Law 262 of December 12th 2005, resulted in distinct changes apart from those in the area of competition. Those that affect the Bank of Italy mainly involve requirements for greater transparency in its decision-making and more formal co-operation with insurance and financial-market regulators. New rules on avoiding conflicts of interest in financial-financial-market operations will be the joint responsibility of the Bank of Italy and CONSOB. Bank of Italy rules on banks‘ exposure to associated groups acquired direct force of law, and the Bank of Italy has acquired the ability to impose administrative fines. A new system of arbitration of consumer disputes with banks is to be set up under Bank of Italy auspices to be funded by a levy on all banks. This had not yet been set up as of July 2006.
Both Banca d’Italia, Italy‘s central bank and the National Financial Markets Commission (Commissione Nazionale per le Societa e la Borsa, CONSOB) had been criticised for their inability to foresee the impending scandals.217 There have been a lot of suggestions that the Bank of Italy has been entrusted with too much power and that CONSOB‘s powers need to be enforced and
217 ibid
increased.218 This resulted to suggestions for reforms which would leave the basic form of supervision in its original form but replace CONSOB with a Financial Markets Authority which had more powers.219 Even though it was later decided in the course of Parliament, not to replace CONSOB,220 CONSOB now has more investigative powers and more personnel. Powers which relate particularly to issuance of financial instruments and companies established where company law is not transparent have been increased.221
Lack of close cooperative relationship between Banca d’Italia (Bank of Italy) and CONSOB was one of the reasons attributed to the Parmalat scandal. During the early months of 2002, financial analysts had voiced concerns about Parmalat‘s management‘s unwillingness to provide explanations of its financing strategy. 222 Apart from the failure of CONSOB to investigate Parmalat before it was apparent that market forces were discounting Parmalat‘s stock in reaction to its practices,223 the Bank of Italy was criticised for failing to share with Consob vital information on distressed and defaulted debt apparent in the central bank records.224
The Italian public opinion favoured an Italian ―Sarbanes Oxley‖ and even though work commenced rapidly on the reforms, Parliamentary work was delayed as a result of several factors which included the resignation of Italy‘s finance minister, Giulio Tremonti, who had campaigned tirelessly to reduce the central bank‘s powers.225 In April 2005, Parliament through approval of the Legge Comunitaria 2004 permitted implementation of the EU Market Abuse Directive 2003/6/CE.226 These rules aimed at safeguarding transparency and fairness on financial markets came into force
218 See 'Italian Financial Regulation: Not So Super Consob‘ The Economist Feb 5th 2004; See also S Delaney 'Parmalat Spurs Call for Reform in Business: Italian Government Plans To Strengthen Oversight' The Washington Post (January 20 2004) <http://www.washingtonpost.com>
219 'Banks: Bank Regulators' Economist Intelligence Unit – Country Finance (Volume 7 No 2) 23 August 2006
220 ibid
221 Ibid; This latter measure is aimed at ensuring that another Parmalat-type abuse of corporate governance through the use of companise based in offshore tax havens is avoided.
222 M Tonello, 'Have Governance Reforms Spurred on by Parmalat's Collapse Given Investors a False Sense of Security?' Novemeber 14 2006
223 These practices involved the need to raise capital through complicated and expensive bond placements rather than using the ―so-called‖ large amounts of cash falsely reported on its balance sheet; for more information on this see M Tonello, 'Have Governance Reforms Spurred on by Parmalat's Collapse Given Investors a False Sense of Security?' Novemeber 14 2006
224 ibid
225 See M Moriconi, ' Italy: Changes to the Legislative and Regulatory Framework post-Parmalat – Some Faster than Others!' Hill and Knowlton's Financial Services Newsletter Number 5 May 2005 ; 'Italian Financial Regulation : Not So Super Consob‘ The Economist Feb 5th 2004;
226 See M Moriconi,' Italy: Changes to the Legislative and Regulatory Framework post-Parmalat – Some Faster than Others!' Hill and Knowlton's Financial Services Newsletter Number 5 May 2005
on 12 May 2005.227 The Italian financial regulatory framework went through a major overhaul in 2005 through the Law 262 of December 12th 2005 on Protection of Savings and Financial Markets Discipline. CONSOB‘s powers have been re-inforced in many ways including:228 Additional investigative powers; the capacity to directly apply sanctions; a new internal framework comprising 150 new officers and a new framework for collaboration with the ―Guardia di Finanzia‖ (financial police) in order to carry out their surveillance activities. National implementation of the EU Market Abuse Directive has therefore strengthened CONSOB‘s powers. The Market Abuse Directive not only permits greater sanctions for abuse of privileged information and stock manipulation but also introduces new regulations on confidential communications, public communications and international cooperation between financial authorities.229
However, the reform on savings has been put on hold by the Senate.230 However, reforms are not just sufficient on their own – better enforcement procedures need to be put in place. There is also need for better protection of smaller investors.231 Where possible, many investors decided to sue Parmalat's lending banks and external auditors in US courts – US courts being perceived as having more expertise in corporate financial issues, providing more certainty of outcome and being more likely to provide more recovery of damages.232 These are litigation facilities which are not available under Italian or many other European jurisdictions.233
According to the president of the Association of Italian banks, Maurizio Sella,234 Italy would benefit from adopting an Act similar to that of Sarbanes Oxley. The need for external auditors to be more independent was also highlighted. As part of the post Parmalat reforms, Giulio Tremonti called for clearer demarcation between company and external auditors.235
Differences between the US and Italian systems would still need to be taken into account when considering whether or not to adopt certain Sarbanes Oxley measures. Differences between Italy
227 ibid
228 See M Moriconi, ' Italy: Changes to the Legislative and Regulatory Framework post-Parmalat – Some Faster than Others!' Hill and Knowlton's Financial Services Newsletter Number 5 May 2005
229 ibid
230 ibid
231 M Tonello, 'Have Governance Reforms Spurred on by Parmalat's Collapse Given Investors a False Sense of Security?' Novemeber 14 2006
232 ibid
233 ibid
234 S Delaney, 'Parmalat Spurs Call for Reform in Business: Italian Government Plans To Strengthen Oversight' The Washington Post January 20 2004 <http://www.washingtonpost.com>
235 ibid
and the US include the fact that no established procedures in civil law exist to help investors who lose money in such cases to regain their losses; there are also no class-action lawsuits in Italy, contingency fees to lawyers helping in case of investors who cannot afford lawyers are illegal, no common rules about what businesses are required to write in prospectuses or what recourse investors have if a prospectus turns out to be false exist.236