CPEffective Insolvency and Creditor Rights Systems
As stated in the 2009 U.S. Department of Commerce Doing Business in Italy report, Italy has consistently enforced commercial and bankruptcy law. According to a report prepared for the European Commission (EC) in 2003, as of 2002 Italy had fully adopted 15 of the 41 principles, almost fully adopted 11 principles, partially adopted 10 principles and not adopted 5 principles. It was highlighted that insolvency procedures at the time were predominantly aimed at the liquidation of insolvent enterprises. Since then however, Italy’s insolvency framework has undergone numerous changes and revisions. Several reports, including that of the International Bank for Reconstruction and Development/World Bank’s 2008 Doing Business Case Studies report, observe that insolvency legislation was starting to place more emphasis on debt restructuring as an alternative to liquidation. The Marzano Law of December 2003 for instance, which was passed in the wake of the Parmalat insolvency case, aimed to streamline extraordinary administration proceedings outlined in the 1999 Prodi Law. Further amendments to the Marzano Law, in the form of Law No. 166 of 2008 were passed in October of that same year, prompted by the insolvency of Alitalia, which created a necessity for an insolvency procedure suitable for more systemically significant corporations. Both the Prodi and amended Marzano Laws are still in effect today, with the Prodi Law applying to medium-and-large insolvent companies and the amended Marzano Law to larger insolvent corporations. A report by law firm Paul, Hastings, Janofsky & Walker LLP states that Italy intends to eventually merge both the Prodi and amended Marzano Laws in order to simplify and streamline the insolvency framework pertaining to large corporations. However, as of February 2010, there does not seem to be any publicly available information regarding the status of this initiative.
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NCInternational Financial Reporting Standards
In line with the EC's Regulation No. 1606 of 2002, listed companies in Italy are required to use International Financial Reporting Standards (IFRSs) as endorsed by the European Union for the preparation of consolidated accounts. The 2008 EC report on the implementation of Regulation No. 1606 of 2002 asserts that Italy also requires IFRSs in the annual accounts of listed companies. Application of IFRSs is required in the preparation of both annual and consolidated accounts for banks, issuers of widely distributed financial instruments, stockbrokers, fund management companies and regulated financial institutions. Insurance companies are required to apply IFRSs in the preparation of their consolidated accounts, but are prohibited from doing so for annual accounts. However, listed insurance companies that do not prepare consolidated statements are an exception, and are required to use IFRSs in preparing their annual accounts. For unlisted subsidiaries and associated companies of listed entities and other companies that prepare consolidated financial statements, the use of IFRSs is optional in both consolidated and annual accounts. Other companies must follow Italian Generally Accepted Accounting Principles (GAAP), which, according to a number of publications on the subject, differ from their international counterparts. According to a 2009 report by PricewaterhouseCoopers, Italy was planning on achieving partial convergence with IFRSs in the second half of 2009.
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ENPrinciples of Corporate Governance
The corporate structure of traditional Italian companies is somewhat unusual in comparison to the Anglo-American model or German model. According to a 2005 IMF's report, shareholders of traditional Italian companies elect a Board of Directors, as well as a separate Board of Statutory Auditors. Legislation was enacted in 2004 to give Italian companies greater flexibility in their organizational structure by allowing them to select between unitary board, a two-tier board, or the traditional Italian model. Nevertheless, the IMF report noted that virtually all listed companies at the time continued to follow the traditional Italian model. A 2009 Chartered Financial Analyst (CFA) Institute report however, cites that more changes to existing corporate governance models are expected due to an “evolving market structure”, which suggests the potential for greater engagement of shareholders and a broader distribution of shareholder rights. The corporate governance regime in Italy has undergone considerable legislative reform, including the enactment of the 1998 Draghi Law, which was last amended in 2008. A new Corporate Governance Code was also promulgated by the Italian Stock Exchange (Borsa Italiana) in March 2006, replacing the 1999 Preda Code. According to the 2009 CFA report, compliance with the Corporate Governance Code is on a “comply or explain” basis and companies that have adopted the Code are required to publish annual statements regarding the extent of their compliance. As stated in the same report, a number of companies have disclosed their corporate governance mechanisms and have even modified their systems in order to comply with the Code. On April 9, 2009, in response to financial market volatility, Italy adopted Law No. 33 of 2009 in order to protect listed companies against speculative hostile takeovers.
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ENInternational Standards on Auditing
The National Commission for Listed Companies and the Stock Exchange (CONSOB) requires the use of Italian Auditing Standards in the audit of listed entities, their significant subsidiaries and holding companies, and other public interest entities (PIEs). These standards are set by the Consiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili (CNDCEC) and have recently become mandatory for non-PIEs as well. A 2010 International Federation of Accountants (IFAC) report states that the Italian Auditing Standards are “strictly” based on International Standards on Auditing (ISAs), with minor exceptions related to national requirements and additional procedures. The IFAC report also states that Italy implemented the EU Directive on Statutory Audit (2006/43/EC) in November 2009. The Directive requires all statutory audits of annual and consolidated accounts to be carried out in accordance with the international auditing standard adopted by the EU. Although such standards are currently pending adoption by the EU, it is widely anticipated that ISAs as issued by the International Auditing and Assurance Standards Board of the IFAC will be adopted.
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CPAnti-Money Laundering/Combating Terrorist Financing Standard
The Financial Action Task Force (FATF) conducted a mutual evaluation of Italy's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the FATF's 40+9 recommendations and special recommendations in 2006. The FATF published its findings that year in a comprehensive report, in which it concluded that Italy was compliant with 17 of its recommendations and special recommendations; largely compliant with 13; partially compliant with 11; and non compliant with 6. The other two recommendations were not applicable to Italy. Italy was partially compliant with three core recommendations, namely Recommendations (R) 5 and 13 and Special Recommendation (SR) IV. For these core recommendations the FATF requires a compliance level of largely compliant or above. In February 2009, the FATF published a follow-up report, which updated the progress made by Italy on the FATF’s recommendations. This report states that Italy is now compliant or largely compliant with 13 of the 17 recommendations for which it had previously been declared partially compliant or non compliant. For the core recommendations, Italy is now considered largely compliant with R 5 and 13, and compliant with SR IV. Progress in all areas is mostly the result of the passage of Legislative Decree No 231 of 2007, a comprehensive bill that consolidated previously existing laws on AML/CFT with new principles and definitions. The Italian Foreign Exchange Office (Ufficio Italiano dei Cambi) was the Italian Financial Intelligence Unit (FIU) until January 2008, at which point it was replaced by the new FIU unit at the Bank of Italy. Legislative Decree No. 231 of 2007 implements elements of the European Union's Third Money Laundering Directive. This Directive contains the requirement that all EU member states implement the FATF's recommendations and special recommendations.
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FCCore Principles for Systemically Important Payment Systems
Until recently, Italy’s systemically important payment system was known as BI-REL, which was Italy's component of the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) system, the Euro area payment system. However, in November 2007 TARGET2 replaced TARGET and payment services in the Euro area were harmonized under a single shared platform across its member countries. Italy joined TARGET2 with the third and final wave of countries in May 2008. As a result, BI-REL was deactivated. According to a 2009 ECB assessment of TARGET2 against the Core Principles for Systemically Important Payment Systems (CPSIPS) promulgated by the Committee on Payment and Settlement Systems, TARGET2 observes all CPSIPS. Despite the single shared platform nature of the new system, national legislation and national central banks still maintain primary supervision for their national components of TARGET2. The IMF in its 2004 assessment of Italy's payment systems concluded that the Bank of Italy (BoI), the country's central bank, only largely observed Central Bank Responsibility D as the BoI did not have formal arrangements for exchange of information with non-EU countries. Subsequently, a 2006 IMF report noted that Italian authorities, at the time, were engaged in formalizing cooperation with the U.S. Federal Reserve. Similarly, a 2008 World Bank report on payment systems indicates in its appendix that Italian cooperation with other relevant authorities is ensured through a formal mechanism, such as a Memorandum of Understanding, or is required by law.
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