The Bank of Italy's banking and financial supervisory powers have their legal basis in the Consolidated Law on Banking (TUB), in harmony with European Union Law, and are exercised with the aim of: protecting sound and prudent management on the part of financial intermediaries; overall stability; the efficiency and competitiveness of the financial system; the transparency and fairness of the transactions and services provided by banks, banking groups, financial firms, EMIs and payment institutions.
An effective supervisory system must be based on rules and control instruments that cover the entire financial system. The first line of defence consists of clear rules that are similar for all intermediaries performing the same kinds of activities; the second is providing appropriate supervision of individual intermediaries, i.e. microprudential supervision, and of the risks to the financial system overall, known for this reason as macroprudential supervision.
- Microprudential supervision
- Macroprudential supervision
- Preventing money laundering and terrorist financing
- Preventing usury
The European Central Bank and the Bank of Italy maintain financial stability, drawing upon their powers and duties arising under EU and national law to oversee individual financial intermediaries and the financial system as a whole.
In essence, the ECB - in collaboration with the Bank of Italy - is responsible for supervising Italian banks and banking groups to varying degrees based on their importance. On a practical level, the ECB focuses on 'significant' Italian banking groups, identified according to specific criteria, by regularly assessing their financial situation, verifying their compliance with prudential requirements, taking any supervisory measures necessary, and performing stress tests. All of these tasks are carried out by the Joint Supervisory Teams (JSTs), mainly composed of Bank of Italy staff and led by a coordinator appointed by the ECB and by an Italian sub-coordinator. The JSTs of cross-border banking groups also include staff from other national competent authorities. The JSTs are in charge of day-to-day supervision and represent the main forum for dialogue and interaction between the ECB and the national authorities, as well as the first point of contact for banks. 'Less significant' Italian banks and banking groups are supervised directly by the Bank of Italy, which provides harmonized supervision guided by the general policies and instructions issued by the ECB. The category of less significant banks includes those classified as 'high priority', which are the subject of a more active exchange of information between the Bank of Italy and the ECB.
The Bank of Italy maintains full, autonomous competence in the fields of consumer protection, anti-money laundering and counter-terrorism financing, monitoring of payment services and markets in financial instruments, and supervision of non-banking entities and the Italian branch offices of non-EU banks. With regard to securities investment firms (SIMs) and managers of collective investment undertakings, the Consolidated Law on Finance (TUF) tasks the Bank of Italy with supervising risk control, stability, and sound and prudent management. Consob is responsible for ensuring that these entities offer investment products in a fair and transparent manner.
The controls applied by the Bank of Italy take due account of the entrepreneurial nature of the supervised entities, which autonomously establish their own strategies, organizational models and investment policies within the framework of a system of general prudential rules.
The Bank of Italy monitors securities investment firms (SIMs) and groups of SIMs, managers of collective investment undertakings, financial intermediaries, electronic money institutions (EMIs) and payment institutions by performing analyses and taking measures designed to promptly uncover signs of anomalies in technical and organizational structures and to require appropriate corrective action. These controls cover all aspects of the various entities' operations and focus on the coherence of their organizational structures, management quality, risk control, capital adequacy with respect to any losses, transparency and fair treatment of customers.
To safeguard the integrity of the financial system and to prevent illegal practices, the Bank of Italy carries out specific controls in accordance with anti-money-laundering and usury regulations.
This is done through document analysis (gathering, processing and systematically analysing statistical, accounting and administrative data) and on-site inspections at intermediaries' offices to check the quality and accuracy of the data submitted and gain a better understanding of their organization and operations.
Inspections are tailored to the characteristics, size and complexity of the intermediary being monitored and they focus on material risks, governance and internal controls. The frequency and type of inspections are determined annually and can be divided into 'broad spectrum' inspections that cover the corporate situation overall; 'targeted' inspections that focus on particular parts of the business, risk areas or governance profiles; 'thematic' inspections on issues of general importance for the entire credit and financial system; and 'follow-up' inspections that are carried out to gauge the progress made in implementing corrective measures required by the Bank of Italy or proposed by the intermediaries themselves. 'Compliance' reviews are conducted to verify compliance with consumer protection, usury and anti-money-laundering regulations.
If management irregularities or regulatory violations are discovered in the course of supervision, sanction procedures are initiated against the intermediaries and/or their corporate officers that could result in the imposition of administrative penalties.
Specific measures are taken when a crisis arises concerning the entities' financial situation. First of all, a board or shareholders' meeting is convened or certain activities are restricted, the closure of branch offices is ordered, the distribution of profits or the payment of interest on financial instruments is prohibited, limits are imposed on the total amount of variable compensation (or the total remuneration of corporate officers of banks receiving special public support), and individual senior managers are removed when their tenure is detrimental to sound and prudent management.
Should the bank's situation deteriorate significantly or serious regulatory violations or management irregularities emerge, early intervention measures can be taken, such as requiring the implementation of recovery plans or the removal of all members of the management and control bodies and one or more senior managers. In the most serious cases, the Bank of Italy can order special administration to remedy the irregularities encountered and can advocate solutions to protect depositors.
When the crisis does not appear to be otherwise avoidable, the bank (or the SIM that assumes the risks and manages multilateral trading systems) can be ordered to devalue its shares and other regulatory capital instruments or to convert them into equity. If despite this the crisis persists, the Bank of Italy can initiate the resolution or the compulsory administrative liquidation procedure.
Financial intermediaries that provide financing to the public and are entered in the register maintained pursuant to Article 106 of the Consolidated Law on Banking (TUB); payment institutions and electronic money institutions are exempt. Where the Bank of Italy uncovers management irregularities, regulatory violations or losses of capital, it can - based on their severity - order provisional administration or revoke authorization to operate. See the Table 'Supervisory, early intervention and special measures by type of financial intermediary' at the bottom of this page.
More limited controls, not involving verification of capital stability and sound and prudent management, are being carried out by the Bank of Italy on small-loan guarantee consortiums and microcredit institutions until the relevant registers are eliminated once the self-regulating bodies provided for by the TUB have been established. Professional gold dealers are assessed only to ensure they meet the requirements for conducting their business.
Finally, the Organismo di Agenti e Operatori (OAM), which maintains the registers and exercises control over the registered entities, is now fully operational under the supervision of the Bank of Italy.
The sound and prudent management of individual intermediaries and the stability of the financial system as a whole are complementary objectives: a crisis for an intermediary that is systemically important or that plays a crucial role in payment and settlement systems can have an impact on other sector operators, giving rise to contagion effects; aggregate real and/or financial shocks can have an impact on the entire system and affect the stability of individual intermediaries due to their common exposure to certain risk factors.
Macroprudential analysis identifies the risk factors and vulnerabilities of the financial system that could threaten its stability in order to prevent or constrain/limit their effects on the real economy. It has a number of distinctive features:
- a focus on the financial system as a whole;
- concentration on mechanisms that increase risk arising from operators' collective adverse practices, interconnections and interdependence among intermediaries or exposure to common risk factors (the cross-sectional dimension of macroprudential analysis);
- analysis of the pro-cyclicality of the financial system, i.e. the set of mechanisms through which the financial system can amplify cyclical fluctuations (the temporal dimension of macroprudential analysis).
Macroprudential analysis, carried out through targeted, in-depth study of important topics that affect more than one intermediary, an entire sector or the market as a whole, also provides wide-ranging support for the microprudential supervision process. The analyst takes into account the systematic vulnerabilities identified through macroprudential analysis so as to proactively guide microprudential supervision.
Money laundering and terrorism financing are a serious threat to the economy and can have destabilizing effects on the financial system.
Given the transnational nature of these phenomena, there is significant momentum towards the international harmonization of the rules on and supervision of money laundering in order to prevent those who transfer funds of illegal origin from exploiting loopholes in the safeguards set up by various countries.
The guiding role taken on by the Financial Action Task Force, or FATF, is fundamental, as it lays down and promotes standards for the fight against money laundering, making a decisive contribution to coordination between States. The FATF has drawn up a set of standards, the 40 Recommendations, adopted in February 2012 and regularly updated.
The European anti-money laundering rules are provided by the Fourth AML Directive (No. 2015/849), as amended by the Fifth Directive (No. 2018/843), and are supplemented by the Guidelines and Regulations of the European Commission.
Initiatives have been taken at European level to increase the effectiveness of actions to combat money laundering and terrorism financing. As part of the reform of the founding regulations of the European Supervisory Authorities (ESAs), the role of the European Banking Authority (EBA) has been strengthened in this area and, in particular, the EBA has been entrusted with certain coordination and monitoring powers over national authorities.
Further measures are envisaged to increase the degree of harmonization of the rules and to reinforce the supervisory system by centralizing some supervisory tasks at European Union level. Specifically, work is under way at European level to transpose certain provisions of the anti-money laundering directive into a directly applicable European regulation and to assign to a European authority the task of directly supervising a set of intermediaries to be identified based on their risk profile.
At national level, Legislative Decree 231/2007 (and subsequent amendments) established the Financial Intelligence Unit (UIF), which operates autonomously and independently within the Bank of Italy and has the task of collecting suspicious transaction reports, analysing them and communicating them to the competent authorities. It also grants the Bank of Italy the power to lay down provisions, applicable to the supervised financial intermediaries, in the following areas:
- organization, procedures and internal controls, including the rules on central contact points;
- customer due diligence;
- record keeping and sharing of documents, data and information;
For the implementation of the amendments made to Legislative Decree 231/2007, the Bank of Italy issued the regulations referring to the abovementioned four areas between 2019 and 2020.
The Decree tasks the Bank of Italy with verifying the compliance of the supervised entities with the obligations envisaged by Level 1 and Level 2 regulations and the adequacy of the relative organizational and procedural set-ups. AML supervision is carried out through analyses and interventions designed to swiftly identify weaknesses in the technical and organizational anti-money laundering set-ups and to prompt their removal by adopting appropriate corrective measures. Action consists of off-site supervision - based on the analysis of the intelligence gathered, including from financial intermediaries - and inspections, mainly to verify the adequacy of the anti-money laundering organization and of the procedures followed by intermediaries.
In the event of management irregularities and of serious, repeated, systematic and multiple violations of the rules, sanctions procedures are initiated against financial intermediaries and/or their corporate management that may result in the application of administrative sanctions.
Specific measures are adopted when criticalities arise involving operators. These measures include convening the administrative, management and supervisory bodies of the intermediaries as well as prohibiting new transactions. In addition, the sanctions system - above all for intermediaries and, under certain circumstances, also for natural persons - has been considerably strengthened by raising the maximum limits for the imposition of financial penalties and by widening the range of non-financial sanctions that can be imposed on natural persons (such as the 'temporary ban' on the activities performed by the intermediaries), or on an entity (such as the 'cease and desist' order).
In order to implement the international obligations for the combating of financial flows that sustain programmes for developing weapons of mass destruction (nuclear, chemical and bacteriological weapons), the Bank of Italy calls upon supervised financial intermediaries to implement the anti-money laundering internal controls and procedures envisaged by the abovementioned provisions to prevent the involvement, even unwitting, in such proliferation programmes.
The law on usury (Law 108/1996) sets a ceiling on the interest rates chargeable on loans and establishes that exceeding this limit constitutes usury. In order to assess whether rates are usurious, it is necessary to look at the moment in which the interest terms are offered or agreed regardless of when payment is made (Law 24/2001).
Since 14 May 2011 the ceiling rate has been calculated by raising the average overall effective rate (AOER) by one quarter and adding a margin of an additional 4 percentage points. The difference between the ceiling rate and the average rate cannot exceed 8 percentage points (see Treasury Department Communication of 18 May 2011). This method of calculation was introduced by Decree Law 70/2011, which amended Article 2(4) of Law 108/96 setting the ceiling rate at the AOER plus 50 per cent.
The Bank of Italy:
- issues the instructions for measuring the AOER, which take account of the technical characteristics of the various lending operations;
- measures on a quarterly basis the average overall effective rate applied by banks and financial intermediaries to set usury ceiling rates;
- in exercising supervisory controls, checks that banks and financial intermediaries comply with the calculation criteria set out in the instructions and respect the usury ceiling rates.
In order to combat usury, Law 108/1996 created the Solidarity Fund for Victims of Usury (Article 14) and the Usury Prevention Fund (Article 15).
The Solidarity Fund was set up under the aegis of the Government's Special Commissioner to coordinate the Ministry of the Interior's anti-racketeering and anti-usury initiatives. It grants zero-interest loans of up to 10 years to owners of small businesses, retailers and wholesalers, or people engaged in other economic or professional activities who declare that they are victims of usury and have been identified as the injured party in criminal proceedings. It has two objectives: to support victims of usury financially and to encourage them to cooperate with law enforcement by reporting the usurer.
The Bank of Italy assists the local law enforcement agencies in assessing the damages suffered by applicants for loans from the Solidarity Fund.
The Prevention Fund distributes two types of grants:
- the first is for the benefit of special funds formed by loan guarantee consortiums specifically to guarantee banks and financial intermediaries that lend to high-risk small and medium-sized enterprises;
- the second is for recognized foundations and associations for the prevention of usury (registered with the Ministry of Economy and Finance) and serves to protect banks and financial intermediaries that lend to persons who, although creditworthy, have difficulty in accessing credit.
On 31 July 2007 all the entities engaged in preventing usury and racketeering, including the Bank of Italy, stipulated a Framework Agreement to improve cooperation between banks, trade and industry associations, loan guarantee consortiums, anti-usury foundations and associations that benefit variously from the special anti-usury funds.
An observatory has been set up within the Ministry of the Interior to monitor the implementation of the Framework Agreement and anti-racketeering and anti-usury activities in Italy. The Bank of Italy is also part of the observatory.