US embassy cable - 02ROME860

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, 
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 
 
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 2002ROME00860 - Classification: UNCLASSIFIED