The sources of the legal framework for banking supervision are:
- International law
- European Union legislation
- National legislation - primary sources
- National legislation - secondary sources
- Bank of Italy rules and regulations
The uniform framework of supervisory rules and methods is constantly updated to ensure financial stability, to improve the functioning of markets and reduce systemic risk, and to encourage the exchange of information and international cooperation between the different supervisory authorities.
The Financial Stability Board, the Basel Committee on Banking Supervision, the European System of Financial Supervision, and the International Organization of Securities Commissions (IOSCO) operate independently in this field on the advice of the Group of Twenty (G20), a forum for the discussion of financial and economic issues among the most economically powerful nations. Starting with the 2007-08 financial crisis, the G20 focuses on the action needed to continue reinforcing financial system regulation and supervision, including the management of crises involving global systemically important banks.
The principal source of rules and regulations for the banking and financial sector is EU legislation.
The tools used by the European Union – regulations, directives, decisions, recommendations and opinions –vary depending on whether or not they are binding and on how they are applied in the member states as described in Article 288 of the Treaty on the Functioning of the European Union.
Regulations have general application, are binding in their entirety and are directly applicable in the member states without transposition. They are therefore the preferred tool for achieving full harmonization and for limiting national discretion, in part to avoid distortions in competition caused by differences in legislation across member states.
Directives are binding on member states as to the results to be achieved, but leave the choice of forms and methods to the national authorities.
Regulatory and implementing technical standards play an increasingly important role in banking and financial regulation. They are developed by European supervisory authorities and adopted by the European Commission via regulations. The standards seek to harmonize the most complex and detailed aspects to create a complete, homogeneous and unified system of rules for the single market.
The main European legislation governing the supervisory duties of the Bank of Italy is Regulation (EU) No. 575/2013 (the Capital Requirements Regulation - CRR) and Directive 2013/36/EU. The CCR contains prudential supervision rules directly applicable to all European banks and investment firms. The Bank of Italy's regulatory powers in matters governed by the CRR (capital, minimum capital requirements and public disclosure) are confined to those areas where the Regulation allows very limited discretion to ensure the necessary integration with local law and specific national features.
Directive 2013/36/EU (the Capital Requirements Directive IV - CRD IV), transposed in Italy by Legislative Decree 72/2015, stipulates the requirements for engaging in banking activity; the freedom of establishment of banks in the European Union and freedom to provide services; prudential control; additional capital buffers; and bank corporate governance. The Bank of Italy has broader regulatory powers under this directive, although it is still required to achieve the stated objectives.
All European Union legislation, including that on supervision, is available on the EUR-Lex website.
The key banking and credit law is Legislative Decree 385/1993 (as amended), referred to as the Consolidated Law on Banking (TUB).
The TUB, built on principles and the allocation of powers, sets out the basic rules and standards and defines the competences of the credit authorities (Interministerial Committee for Credit and Savings - CICR, the Ministry of Economy and Finance and the Bank of Italy). Specifically, it allocates authority to issue secondary rules and regulations on technical matters and to adopt prudential measures.
Legislative Decree 58/1998, referred to as the Consolidated Law on Finance (TUF), is the fundamental law governing the financial markets.
Other significant rules on the organization, competences and operations of the Bank of Italy and other supervisory authorities are found in Articles 19 to 29 of Law 262/2005, the so-called 'Savings Protection Law'.
Secondary sources include resolutions of the CICR which, acting on Bank of Italy proposals, establishes the guidelines and standards for supervisory activity based on ministerial regulations and Bank of Italy circulars, regulations and supervisory rules.
The Consolidated Law on Banking and the Consolidated Law on Finance empower the Bank of Italy to regulate numerous aspects of banking and financial activity in order to guarantee stability, efficiency and competition in the financial system.
Bank of Italy legal instruments can take many forms (supervisory rules, regulations, circulars) and are usually of a distinctly technical and financial nature. The Bank of Italy also issues communications on specific issues pertaining to regulated subject matter, which are not to be included in legal instruments but may contain additional information and clarifications.
Under Law 262/2005 for the protection of savings, the Bank of Italy must perform regulatory impact analysis (RIA) to assess the costs and benefits of proposed regulations for affected persons and entities and must conduct a public consultation that allows those interested to offer their observations, comments and proposals. For an explanation of the general principles applicable to regulatory impact analysis within the Bank of Italy regulatory process and for more information on RIA methods and phases, see Circular no. 277 (only in Italian). The standards and procedures for conducting public consultations are set out in the Regulation of 24 March 2010 (only in Italian). Law 262/2005 provides that legal instruments must explain their purpose and are subject to periodic revision.
The supervisory rules and regulations of the Bank of Italy are published on this website and in the Gazzetta Ufficiale della Repubblica Italiana when they contain provisions aimed at persons and entities other than those usually subject to supervision.
Bank of Italy legal instruments govern matters that are essential to the sound and prudent management of intermediaries, such as organizational structure, corporate governance processes, risk management systems, contractual transparency and fair practices.
If any irregularities are discovered in the course of supervision, the Bank of Italy has the power to impose financial penalties, which are paid to the appropriate provincial office of the State Treasury. The exercise of such power complements other supervisory instruments and helps to deter practices that are contrary to the principles of sound and prudent management, transparency and fair treatment of customers. The imposition of sanctions is governed by the measures of 27 June 2011 and 18 December 2012.
The Bank of Italy also has the power to adopt regulations and impose sanctions relating to the format of financial statements, which are the key tools for making transparent disclosure to all those interested in the business or who enter into its scope of operation: investors, shareholders, employees, customers, suppliers, etc., as well as the Bank of Italy itself in the performance of its supervisory duties. Within the scope of these powers, the Bank issues specific measures relating to the financial statements of the banks and financial intermediaries it supervises, in accordance with international accounting standards (IAS/IFRS).
In addition to the information reported in the financial statements, the Bank of Italy processes and interprets an enormous amount of data, documents and information, usually obtained through regular, structured prudential and statistical-accounting reporting. Using this information, it monitors the risk level and capital adequacy of the entities it supervises to promptly detect signs of anomaly and to forestall crisis situations.
Given the significant impact of a crisis on the various persons and entities involved (markets, depositors, users of investment services, other creditors, employees, shareholders, borrowers), the law provides for special crisis management procedures with the primary aim of protecting savings. More specifically, through the special administration process, the Bank of Italy ascertains the intermediary's situation and implements solutions to protect depositors. When the crisis is irreversible, the intermediary is subject to compulsory administrative liquidation. The Italian deposit insurance scheme, in which Italian banks and Italian branches of non-EU banks are required to participate unless they are covered by an equivalent foreign deposit insurance scheme (depositors of Italian branches of EU banks are protected by similar protection schemes in these banks' home countries), guarantees deposits of up to € 100,000 per depositor if no alternative source of reimbursement is available. The special bodies and liquidators operate under the supervision of the Bank of Italy, which also has the power to authorize acts of particular importance.