Moving on to examining the ADR initiatives coming from law, Law No. 262 of 2005 is of marked significance. In predetermining the organization and areas of jurisdiction of the supervising authority of the financial system, it dedicates two laws to the introduction of mechanisms for ADR in the banking and finance sector.
More precisely, we should remember :
Art. 27 of Law No. 262/2005 and the relevant implementa-
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tion (Italian Legislative Decree No. 179/2007 and the Consob Regulations, approved with resolution no. 16763 of 29 December 2008 and replaced, on 19 July, with resolution no. 18275, in effect from 1 August 2012), which established a Conciliation and Arbitration Chamber established by the Consob, with the task of hearing disputes arising from the performance of investment services, ancillary services and joint savings management, and for violations, on the part of financial intermediaries, of the obli- gations of information, good practice and openness required of contractual relationships with their customers.
Art. 29 of Law No. 262/2005, which, introducing Art. 128
● b in the
Consolidated Law on Banking, provided for the establishment of a further instrument of out-of-court protection with the task of resolving disputes concerning banking and financial activity and with respect to circumstances of consumer credit subject to category VI in the Consolidated Law on Banking. In conformity with the criteria established by the decision of the CICR, 29 July 2008, No. 275, the Bank of Italy subsequently released the provi- sion, on 18 June 2009, containing “Regulations on Systems of Out of Court Dispute Resolution in Matters of Operations and Financial and Banking Services” (the Bank of Italy, Dispositions on Systems of Extrajudicial Disputes Resolution in Matters of Operations and Financial and Banking Services,), concerning the Financial and Banking Ombudsman (ABF).
The aforementioned Regulations of the Bank of Italy have been successively modified, the last with the provision of 13 December
2012, to allow for various types of legal intervention, including the Legislative Decree of 27 January 2010, no. 11, accepting Directive 2007/64/EC on payment services, the Legislative Decree of 4 March 2010, no. 28, concerning civil and commercial mediation, in turn accepting Directive No. 2008/52/EC. 10
Here we have procedures that can be carried out only after a complaint has been placed by the customer (Section VI, para. 1, Regulations of the Bank of Italy) or the investor (Art. 11, clause 1, letter b, of the Consob Regulations). The decisions are binding for the participating bank and financial intermediary while leaving the customer free to involve, at any point, the judicial authority or, where allowed for, an arbitrator or an arbitration board.
In particular, from the formulation of Art. 27 of law 262, the risk of excessive involvement by the Consob in the procedures being exam- ined has emerged, in that it gives the commission, which has the right to exercise supervisory powers and sanctions as covered by the Consolidated Law on Finance, the role (in contrast to its institutional functions) of “conciliator” or “arbitrator” in the disputes between customers and financial intermediaries.
The Italian Legislative Decree of 8 October 2007, no. 179, imple- menting Art. 27, has tried to limit the dangers connected with this particular legal context by forming the Conciliation and Arbitration Chamber established by the Consob, in which conciliators (now mediators) 11 and arbitrators operate. These are chosen from persons of proven impartiality, independence, professionalism and good reputation, registered in a list for the purpose.12 Furthermore, when more efficient, from the very beginning it has been possible for the chamber to use the bodies for conciliation, first and for mediation, second. 13 In this case, they must operate according to the procedural rules of the chamber.
These uncertainties have been taken in hand by the Consob, which in the consultation document on the implementation regulations of Legislative Decree 179/2007 concerning Consob Conciliation and Arbitration Chamber and the procedures concerned underlines the need to avoid “direct involvement in the procedures of conciliation and arbitration” so as to maintain and ensure its position as an inde- pendent authority. This, however, specifies that the chamber is “a body of a public nature, devoid of legal aspects and that, by explicit will of the legislator, must make use of resources such as structures identified by the Consob”.
The Consob, therefore, has not been granted any jurisdictional power, simply managing the conciliation and arbitration procedures in the same manner as already happens with the arbitration chamber for public contracts. This too is formed at an authority (the Authority for Vigilance over Public Contracts for Work, Services and Supply) with its own staff.
This consideration is also supported by the rule of “separation” and autonomy between the conciliation procedures and the role of vigi- lance, a rule expressly sanctioned in Art. 4, clause 7 of Legislative Decree no. 179/2007, where it is established that “the declarations given by the parties in the conciliation process cannot be used in any process regarding the same violations in which the financial inter- mediaries could be sanctioned by any supervising authority with the power to punish”. The Consob, therefore, is limited to managing the Conciliation and Arbitration Chamber, the body charged with recon- ciling and/or deciding on the aforementioned disputes; an action which should in any case be held distinct from the institutional role.
In more detail, the new regulations confirm the presence of two alternative processes (conciliation and two types of arbitration) but also introduce some new points. Those which concern us here are the internalization of the chamber (and its configuration as a technical organ of the Consob made up exclusively of its employees)14 and the institution of a consultative committee (made up of five members, two appointed by the customers’ and financial intermediaries’ asso- ciations and three chosen by the Consob), which, being called to ensure through the issue of non-binding opinions, trained high-level consultancy support on the aspects requiring this in the concilia- tion and arbitration (Art. 39 of the regulations), should ensure that it operates according to criteria of independence and with autonomous judgement.
It should be specified that the resolution which modified the regulations took into account the opinion of 20 October 2011, by which the General Assembly of the Council of State clarified the legal nature of the Consob Conciliation and Arbitration Chamber, stating in particular that it “ ... is free of subjectivity, qualifying [ ... ] as a tech- nical body, instrumental to the Consob, but not distinct from this”.
The conciliation brought about by the chamber goes into effect only if the financial intermediary decides to comply. It is regulated
by Arts 4 to 16 of the Consob Regulations, which cover the condi- tions of admissibility for the conciliation request (presented exclu- sively by the investor), that other procedures of reconciliation have not been initiated, also on the initiative of the financial intermediary the investor has been involved with, that a complaint has already been presented to the financial intermediary, who has provided a timely response, or the deadline for the financial intermediary to deal with the complaint has passed without the investor having received a response.
Moving on to an evaluation of the subjective frame of reference, good practice and openness laid out in contractual relationships in investment services are applied to the disputes arising between
“investors” (excluding expert counterparties and professional customers) and “financial intermediaries” who have violated their obligations regarding information. We are dealing with particularly current disputes arising from the failure of promised returns to mate- rialize or from a loss in value of investments made. The literature has underlined that reference (in a legal context) to the financial intermediaries of responsibility for violations of their obligations excludes the involvement of parties potentially responsible (such as, for example, the issuers of damaging financial products, auditors or rating agencies).15 This leads to a risk of piling too much responsi- bility upon the financial intermediaries, who could become an easy
“target” for investors who have suffered losses in their investments.
It is a situation of “moral hazard” which, as has already been seen in other cases, tends to profit from a distorted interpretation of the obli- gations applying to a credit entity based on the principle of diligent execution of professional responsibilities. 16
For the organization and functioning of the chamber, we refer back to the Consob Regulations mentioned above. More specifi- cally, from this it emerges that the area of application is extended to collective investment management. This is in as much as the companies involved in the collective management of investments can be considered to be “authorized subjects” and, as such, called to answer for (also in a conciliation context) the consequences of their failure to adhere to their responsibilities of information and openness required by law (see the introduction to the consultation document as well as Art. 32c of Consolidated Law on Finance). The chamber comprises three members: the president and two current
members of staff, nominated by the Consob. It has management roles (it keeps the lists of conciliators/arbitrators, it establishes their professional integrity, it organizes the conciliation/arbitration serv- ices, etc.), and it does not intervene in the conciliation/arbitra- tion processes regarding the disputes. If, in the province where the investor is based, there is no conciliator (or it is not for some reason possible to use them), the chamber can apply the means of media- tion to the dispute registered as in Art. 16 of Legislative Decree No.
28/2010 which have indicated their availability, through agreements to that purpose.
There is express provision that the conciliation process follow prin- ciples based on immediacy, concentration, spoken communication (without the need for recorded minutes) and privacy. It completes its task within 60 days of the request or any additions or requests to it. The conciliator can propose to the parties, in particular cases, an extension of a further 60 days. The parties must recompense the chamber for the expenses of initiating the procedure and, only when the case has a positive outcome, pay half of the compensation to the conciliator. If this is not the case, the conciliation chamber will cover the costs and pay them using “the resources available to Consob”
from the contributions coming from those covered by its supervisory role (as covered in Art. 40, clause 3, of Law No. 724 of 1994).
It should also be underlined that Art. 27, clause 1, letter b, of Law No. 262/2005 allows for an indemnity for the customers and the investors, apart from professional investors, by the banks or the financial intermediaries responsible in cases in which, through the conciliation and arbitration procedures, the Consob has confirmed failure to comply with the obligations of information, good practice and openness laid out in the contracts with the customer. In precise terms, Legislative Decree No. 179/2007 recognizes the indemnity in favour of the investor only at the outcome of an arbitration process, given that the conciliator, as said previously, cannot impose a solu- tion but is rather limited to proposing a conciliatory idea, confirmed by the Consob Regulations on the subject in question.
Conveniently, based on Art. 4 of Legislative Decree No. 179 (and now also on Art. 11 of the regulations), the fact that the case has not already been referred to another conciliation body (by the investor, or by the financial intermediary with the participation of the investor) is a condition for the case to be taken before the conciliation chamber
(apart from an appeal to the financial intermediary which has failed to have a satisfactory outcome). Thus, the chamber does not have an exclusive role in the conciliation and arbitration process regarding violations by financial intermediaries of the obligations of informa- tion, good practice and openness, but rather concurrent with that of other bodies called on to perform this function regarding disputes arising in the financial market (see Legislative Decree No. 28/2010 regarding the Banking Ombudsman).
In any case, being one of several conciliation options available, the work of the chamber should be particularly suited to accommodating and resolving disputes coming from the customer who claims to have suffered unjust damage (deriving from unsatisfactory conduct on the part of the financial intermediary),17 and this is also in relation to the strong relationship maintained with the Consob, a relationship ensuring profound technical knowledge of the subject and, therefore, an elevated level of quality in the service offered. 18
In this sense, it overthrows the explanatory memorandum of Legis- lative Decree No. 28/2010, which underlines the intent to endorse both the conciliation process provided for by Legislative Decree No.
179/2007 and by the Consob Regulations, and the process laid out in Art. 128 b of the Consolidated Law on Banking (see below), “raising them, in the respective subjects of reference (banking and finance contracts), to a condition of a possible alternative” relative to those before the bodies, on the presupposition that the organs therein organized already now offer suitable guarantees of impartiality and efficiency. From another angle, this consideration is confirmed by the provision contained both in the Legislative Decree, Art. 4, clause 8, and in the regulations, Art. 13, clause 5, for the chamber to be able to delegate the performance of its conciliatory processes to other conciliation bodies (or better, mediation) as a form of outsourcing.
This comes perhaps from a fear of an excess of disputes, with a conse- quent overload of work at its offices, to the detriment of its efficiency, more than problems in the cooperation between different resolution bodies.
For the sake of completeness, it should be remembered that Art. 8 of Legislative Decree No. 179 in 2007 established the “Security Fund for Customers and Investors referred to in Art. 27, clause 2, of the law of 28 December 2005, no. 262”. As a result of this law, the customer can now obtain compensation from this fund.