Changes to Italian Banking Law Following the Cirio and Parmalat Cases
One of the first responses of the Bank of Italy to the Cirio and Parmalat scandals has been an immediate tightening of the procedures regulating the disclosure of offers of securities within the Italian market. In order to achieve this goal, the Bank of Italy, rather than modifying the existing regime, has adopted a more rigid approach and will scrutinise more closely and strictly offers of securities using the tools already provided by article 129 of the Italian Banking law. The following is an analysis of these procedures.
According to article 129 of the Italian Banking Law (1) and the Regulations of the Bank of Italy implementing such law (2), issues of securities by Italian entities and offers of foreign securities in Italy for an amount exceeding €50 million (or €150 million, where the relevant securities are listed on a regulated market (3)) must be notified in advance to the Bank of Italy. The same notification requirement applies to issues and offers of securities that, whatever the size of the issue, are considered by the Bank of Italy as ‘not standard’. Whether securities are ‘standard’ or not is dependent on their adherence to a set of characteristics established by the Bank of Italy as further described below.
Conversely, the article 129 notification is not required (among other things):
The rationale of article 129 of the Italian Banking Law lies in the Bank of Italy’s function as market regulator. In fact, the Italian central bank has the primary task of assuring the stability and the efficiency of the market. Specifically, if the Bank of Italy deems an offer of securities incompatible with the conditions and the dimensions of the market at any given moment (for instance, because many similar offers are being made at the same time), it might agree with the issuer to postpone such offer (to a maximum of three months) or, if no such postponement or segmentation of the offer can be agreed, the bank can prohibit the offer outright.
In practice, upon receipt of an article 129 notification, the Bank of Italy may either:
Accordingly, the issuer or the investment bank arranging and managing the issue should notify the Bank of Italy of the relevant issue well in advance of the expected issue date. In order to avoid the risk of unscheduled postponements of the issue, it is strongly recommended that the notification documents are filed at least 40 to 45 days before the issue date. The lack of certain information in the notification form does not represent a real issue, since the Bank of Italy normally permits the disclosure of certain information such as the spreads, the size or the nominal amount of the issue at a later stage (five to ten days before the issue date).
According to the Regulations of the Bank of Italy, for securities to be considered ‘standard’, the following criteria shall apply:
Finally, asset backed securities are never considered ‘standard’ securities and, consequently, the article 129 notification to the Bank of Italy is always required regardless of the size of the issue. In addition, in the case of asset backed securities, the silenzio assenso rule does not apply since the Bank of Italy shall always notify in writing the issuer that it has been authorised to issue such securities.
In order to offer securities in Italy, either the issuer or the lead manager (or even a third party, provided that it specifies its role and the relationship with the issuer) must provide the Bank of Italy with a form,4 which includes certain information
on the offered securities. Such information relates mainly to the features of the offered securities (eg, size, financial information, terms and conditions of the notes, calculation of the interest), the transaction (eg, timetable, duration of the offer and structure, reference to the parties thereof, including the financial institutions members of the placement syndicate), the underlying assets (eg, type, nature, amount, evaluation criteria) and the risks involved (identification, management and hedging). Such form, to which the terms and conditions
of the notes must be attached, must be drafted in Italian.
In the case of an issuer that is an Italian or a foreign bank, a further document (the Foglio Integrativo Analitico or FIA) must always be filled in and attached to the article 129 notification form. The FIA, a standard document containing the characteristics of the issue, will be distributed among the investors should the securities be offered to the public in general.
Lastly, if the issuer is a foreign bank, the issue of the securities will only be authorised provided that the issuer is an institution authorised by the Bank of Italy to conduct banking activity in Italy.
The Regulations of the Bank of Italy also provide for the following alternative notification procedures:
(a) The ‘procedure with abbreviated term’ (comunicazione abbreviata). This procedure can only be used in the instance where: (i) the issuer has already issued securities duly notified to the Bank of Italy; and (ii) the characteristics
of a subsequent issue are identical to those of the securities already notified and authorised by the Bank of Italy, provided that the relevant issue does not exceed €250 million
(c) The ‘cumulative notification’ (comunicazione di tipo cumulativo). This procedure can only be used in the case where the issuer has in mind several subsequent drawdowns of securities within a period of six months, provided that the relevant securities can be qualified as ‘standard’ and the amount of each drawdown does not exceed €250 million
This article was co-authored by Federico Vermicelli, a lawyer in Norton Rose’s Milan office. He specializes in corporate finance and securities and has advised Italian companies in connection with IPOs and listings on the Italian Stock Exchange.
1 Legislative Decree n. 385 of 1 September 1993.
2 Chapter IX of the ‘Istruzioni di Vigilanza per le Banche’.
3 The computation of these amounts shall include all issues carried out by the same entity in the previous twelve months.