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

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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
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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
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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
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7. (U) THE BANK LAW OF 1990 ESTABLISHES THE AUTHORITY

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UNCLASSIFIED PTQ1009

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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
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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

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2002ROME00860 - Classification: UNCLASSIFIED