PROPOSED ECONOMIC/FINANCIAL SYSTEM REGULATORY

UNCLAS SECTION 01 OF 02 ROME 000860 SIPDIS DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA STATE PASS CEA STATE PASS FRB FOR GUST TREAS FOR OASIA -HARLOW, JONES FRANKFURT FOR MCCOWN UNCLASSIFIED PAGE 02 ROME 00860 01 OF 02 210650Z SENSITIVE E.O. 12958: N/A TAGS: EFIN PGOV ECON IT EFIN PGOV ECON IT ITALIAN POLITICS SUBJECT: PROPOSED ECONOMIC/FINANCIAL SYSTEM REGULATORY CHANGES REF: 01 ROME 2847 ¶1. (SBU) SUMMARY: THE ITALIAN PARLIAMENT IS CONSIDERING DRAFT LEGISLATION TO CHANGE THE NATURE OF ITALY'S INDEPENDENT GOVERNMENTAL AUTHORITIES. WHILE ONLY IN ITS EARLIEST STAGES WITHIN THE PARLIAMENT, THE PROPOSAL WOULD TURN THE BANK OF ITALY (ITALY'S CENTRAL BANK) INTO A RESEARCH INSTITUTION AND TRANSFER ITS FUNCTIONS TO INDEPENDENT AUTHORITIES. THE ITALIAN SECURITIES, INSURANCE AND PENSION FUND REGULATORS WOULD BE ABOLISHED AND REPLACED BY INDEPENDENT AUTHORITIES. THIS COULD MEAN A DANGEROUS WEAKENING OF REGULATORY OVERSIGHT, IF APPROVED, AND HAVE IMPLICATIONS FOR U.S. BANKS AND OTHER FIRMS. WE WILL WATCH CAREFULLY AS THE PROPOSAL DEVELOPS. END SUMMARY. PARLIAMENTARY PROPOSAL -------------- ¶2. (SBU) ON JANUARY 24 BRUNO TABACCI, PRESIDENT OF THE PRODUCTIVE ACTIVITIES COMMISSION (AND MEMBER OF CCD- CDU: DEMOCRATIC CHRISTIAN CENTER/UNITED CHRISTIAN DEMOCRATS - PART OF THE GOVERNMENT COALITION) PRESENTED DRAFT LEGISLATION TO REFORM ITALY'S INDEPENDENT UNCLASSIFIED PAGE 03 ROME 00860 01 OF 02 210650Z AUTHORITIES. IF APPROVED, THE LEGISLATION WOULD CONSTITUTE A MAJOR REVOLUTION IN THE STRUCTURE OF ITALY'S ECONOMIC REGULATORY SYSTEM. ARTICLE 4 OF THE BILL WOULD ABOLISH CONSOB (ITALY'S SEC EQUIVALENT), ISVAP (THE SUPERVISORY BODY FOR THE INSURANCE SECTOR), COVIP (THE SUPERVISORY BODY FOR PENSION FUNDS) AND CREATE A NEW AUTHORITY TO SUPERVISE FINANCIAL MARKETS. THIS NEW AUTHORITY WOULD STRIP FROM THE BANK OF ITALY (BOI - ITALY'S CENTRAL BANK) ITS BANK SUPERVISION POWERS. THE ANTITRUST AUTHORITY WOULD TAKE OVER THE BOI'S CONTROL OF FINANCIAL SECTOR COMPETITION. THE BANK OF ITALY WOULD EXIST ONLY AS A RESEARCH OFFICE. ¶3. (SBU) THE SAME BILL PROPOSES THE TRANSFER OF COMMUNICATIONS AUTHORITY FUNCTIONS TO A NEW AUTHORITY FOR INFORMATION AND THE TRANSFER OF ENERGY AUTHORITY FUNCTIONS TO A NEW AUTHORITY FOR NETWORK SERVICES. POLITICAL DEBATE -------------- ¶4. (SBU) TABACCI'S PROPOSAL TRIGGERED STRONG OPPOSITION FROM THE PARTY OF DEPUTY PRIME MINISTER FINI (NATIONAL ALLIANCE (AN) - ALSO WITHIN THE GOVERNMENT COALITION). THE PRESIDENT OF THE PUBLIC WORKS COMMISSION, PIETRO ARMANI (AN),TERMED THE PROPOSAL "UNACCEPTABLE". THE DEPUTY MINISTER OF PRODUCTIVE ACTIVITIES ADOLFO URSO (AN) OPPOSED ANY CHANGE IN BOI FUNCTIONS AND POWERS. FORMER PRESIDENT COSSIGA SAID THAT EFFECTIVE OVERSIGHT IS A CRUCIAL ISSUE AND IT WAS GOOD THAT TABACCI RAISED IT. COSSIGA NOTED, HOWEVER, THAT ONLY IN SIX OF THE 12 UNCLASSIFIED PAGE 04 ROME 00860 01 OF 02 210650Z COUNTRIES OF EURO AREA (GREECE, IRELAND, ITALY, NETHERLANDS, PORTUGAL AND SPAIN) DO CENTRAL BANKS EXERCISE FULL BANK SUPERVISION POWERS. COSSIGA SUGGESTED THAT THE BOI (RATHER THAN NEW AUTHORITIES) MIGHT TAKE ON OVERSIGHT AUTHORITY FOR BANKS, INSURANCE COMPANIES AND OTHER FINANCIAL CORPORATIONS. ¶5. (SBU) CENTER-LEFT LEADERS ENRICO LETTA (FORMER MINISTER OF FOREIGN TRADE) AND GIULIANO AMATO (FORMER PRIME MINISTER) PRESENTED A SIMILAR BILL IN JANUARY. THEY COULD POSSIBLY, THEREFORE, BECOME SUPPORTERS OF THE TABACCI PROPOSAL AND CONVINCE OTHER CENTER-LEFT PARLIAMENTARIANS TO SUPPORT IT AS WELL. ¶6. (SBU) MINISTER OF PUBLIC ADMINISTRATION FRATTINI NOW HAS THE RIGHT TO PROPOSE ALTERNATIVE LEGISLATION. HE COULD INSIST THAT THERE BE NO CHANGE IN THE POWERS OF THE BANK OF ITALY. BY THE END OF FEBRUARY, THE GOVERNMENT COMMISSION IN CHARGE OF REFORMING THE AUTHORITIES WILL PRESENT ITS FINAL REPORT. BACKGROUND: THE BANK OF ITALY AND CONSOB -------------- ¶7. (U) THE BANK LAW OF 1990 ESTABLISHES THE AUTHORITY UNCLASSIFIED UNCLASSIFIED PTQ1009 PAGE 01 ROME 00860 02 OF 02 210651Z ACTION EUR-00 INFO LOG-00 NP-00 AGRE-00 AID-00 CEA-01 CIAE-00 COME-00 CTME-00 DODE-00 ITCE-00 DOTE-00 SRPP-00 DS-00 EB-00 EXME-00 E-00 FAAE-00 UTED-00 VC-00 FRB-00 H-01 TEDE-00 INR-00 ITC-01 L-00 VCE-00 AC-01 DCP-01 NSAE-00 NSCE-00 OMB-01 OPIC-01 PA-00 PC-01 PM-00 PRS-00 ACE-00 P-00 SCT-00 SP-00 SSO-00 STR-00 TEST-00 USIE-00 FMP-00 EPAE-00 SNIS-00 NISC-00 PMB-00 DSCC-00 DRL-02 G-00 NFAT-00 SAS-00 /010W -------------- 69A38A 210651Z /38 R 210622Z FEB 02 FM AMEMBASSY ROME TO SECSTATE WASHDC 2299 INFO DEPT OF TREASURY WASHDC USEU BRUSSELS 2555 AMCONSUL MILAN AMCONSUL FLORENCE AMCONSUL NAPLES AMCONSUL FRANKFURT UNCLAS SECTION 02 OF 02 ROME 000860 SIPDIS DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA STATE PASS CEA STATE PASS FRB FOR GUST TREAS FOR OASIA -HARLOW, JONES FRANKFURT FOR MCCOWN UNCLASSIFIED PAGE 02 ROME 00860 02 OF 02 210651Z SENSITIVE E.O. 12958: N/A TAGS: EFIN PGOV ECON IT EFIN PGOV ECON IT ITALIAN POLITICS SUBJECT: PROPOSED ECONOMIC/FINANCIAL SYSTEM REGULATORY CHANGES AND POWERS OF THE BANK OF ITALY (BOI). THE BOI MUST AUTHORIZE BANKING ACTIVITY IN ITALY, MERGERS AND ACQUISITIONS IN THE BANKING SECTOR, PURCHASES OF MORE THAN FIVE PERCENT OF THE CAPITAL ASSETS OF A BANK, AND TRANSFORMATIONS OF BANKS INTO CORPORATIONS. THE BOI CAN INSPECT BANKS. WHEN A BANK IS IN TROUBLE, THE BOI MUST PROPOSE SOLUTIONS TO THE FINANCE MINISTER. ULTIMATELY, THE BOI HAS THE AUTHORITY TO LIQUIDATE A BANK OR FINANCIAL CORPORATION WHEN NECESSARY. THE BOI IS ALSO RESPONSIBLE FOR FINANCIAL INTERMEDIARIES, BUT LEAVES TO CONSOB (THE ITALIAN SEC) SUPERVISION OF THE OPERATIONS OF THESE INTERMEDIARIES. THE BOI IS ALSO RESPONSIBLE FOR ENSURING COMPETITION IN THE BANKING SECTOR, IN COORDINATION WITH THE ANTITRUST AUTHORITY. ¶8. (U) CONSOB REGULATES AND CONTROLS SECURITIES MARKETS, REGULATION OF SECURITIES INVESTMENT BUSINESS AND BROKERAGE FIRMS, OVERSIGHT OF PUBLIC OFFERING OF SECURITIES AND ACCOUNTING AND AUDITING MATTERS. COMMENT -------------- ¶9. (SBU) AT FIRST GLANCE, THIS PROPOSED TRANSFER OF UNCLASSIFIED PAGE 03 ROME 00860 02 OF 02 210651Z REGULATORY AUTHORITY FROM THE BANK OF ITALY, CONSOB, AND OTHER ENTITIES TO NEW (OR EXISTING) AUTHORITIES SEEMS A DANGEROUS WEAKENING OF REGULATORY OVERSIGHT. OUR OBSERVATION OF ITALY'S INDEPENDENT AUTHORITIES (REF A) HAS SHOWN A SERIOUS LACK OF ENFORCEMENT POWER AND LITTLE PUBLIC CREDIBILITY. IF THIS PROPOSAL BECOMES LAW - AND IT IS TOO EARLY TO PREDICT THE OUTCOME - THERE COULD BE IMPLICATIONS FOR U.S. BANKS AND OTHER FIRMS OPERATING IN ITALY. WE WILL CONTINUE TO MONITOR CLOSELY THE EVOLUTION OF THIS PROPOSAL. SEMBLER UNCLASSIFIED > 2002ROME00860 - Classification: UNCLASSIFIED