A defining trait of the Italian financial legal system is the existence of an authority with regulatory powers, supervisory and sanctioning authority for each segment of the system.4 The analysis of the sanc- tioning system cannot oversee this fact.
The issue one has to emphasize is that these authorities have both the power issue regulations binding the entire area of their respective jurisdiction and the power to impose penalties for violation of the regulations they issued. 5
A framework comes from having a shape, where the primary source, that is, the law, determines the general rule and the criteria for its actual content by an act having secondary nature. The regulation complements the rule, and finally, a further provision holding the rank of law imposes the sanction in case of the violation of the whole legal framework, the rule coming from the law as supplemented by the regulations issued by the administrative authority.
The scheme – which delegates to an independent authority the regulation of certain matters and grants it the power to sanction the violation of the rules the authority itself issued – is particularly evident in the discipline of the sanctioning power granted to the Bank of Italy.
Art. 144 of the CBA, for instance, provides, inter alia, that the Bank of Italy apply a fine (from 2,580 to 129,110) in the event of violation (a) of Art. 26 of the CBA, which requires that the persons performing administrative, management and control activities in banks do not meet the standards of competence, integrity and inde- pendence identified by the Bank of Italy and set forth by the Ministry of Economy and Finance; (b) of Art. 49 of the CBA, which requires the banks authorized to issue cashier’s checks to not comply with the Bank of Italy regulations on the amount the extent, composition and arrangements for payment of the deposit that the issuing banks are required to make at the Bank of Italy; (c) of Art. 51 of the CBA, which requires in the banks to notify the Bank of Italy, “according to the terms and conditions it established”; (d) of Art. 53 of the CBA, which governs the so-called regulatory supervision, requiring the banks to comply with “the general provisions relating to capital adequacy, risk containment, the equity interests in corporate governance,
administrative and accounting, internal controls, systems remunera- tion and incentive”.
Of course, with reference to the Consob6 or Ivass,7 the framework would be similar.
The circumstance leads us to reflect on the link between the regula- tory function and the sanctioning power that exists both in banking law and in finance law (due to the fact that they are supervised by independent authorities). The link causes an exception from the principle of separation of powers, which states that the ruler cannot enforce, and a limitation of the rule of law, resulting from the fact that the regulator not only sanctions but also takes over the task of defining the extent of what constitutes an offence.8 The exception and the limitation are inherent to the model of the independent authorities and are functional to an enhanced effectiveness of regula- tion. As the disciplines contain a high level of technicality, the regu- lators are deemed the ones best placed to sanction the violation of the rules they themselves introduced. 9
The sanctioning power being an enforcement tool of the regulation does not impact on the afflictive character typical of the administra- tive sanctions set forth by the CBA, the CFA and the CAP, although some aspects indicate – or have indicated in the recent past – a conno- tation in the sense that the sanctioning power of financial markets watchdogs is not purely punitive. 10
The assignment to the same authority of both the tasks of regu- lation and supervision, and to sanction, has the effect that the regulatory function tends to attract the sanctioning activity. The authorities, that is, the Bank of Italy, the Consob, Ivass and Covip, threatening and applying the sanction pursue the goal of rendering effective the values of the regulation. This does not modify, vis à vis the offender, the punitive nature of the sanctions. The punitive aspect is the more emphasized one in the latest EU directives on the subject matter.11
Before the amendments to the CBA and the CFA introduced by the Law 262/2005, a clue to infer the regulatory nature of the sanc- tions in these areas was the procedure itself. The concentration in the hands of a single body of both the power to inquire and to impose the sanctions suggested that the sanctioning function was a step in the more complex monitoring/supervising activity carried out by the authority.
The point is no longer valid under Art. 24 of Law 262/2005. The monitoring procedures having a contentious nature as well as the sanctioning procedures instituted by the Bank of Italy, the Consob, Isvap and Covip are carried out in compliance with, among other things, the principle of distinction between investigative and decision- making functions when it comes to the imposition of the penalty.
As mentioned above, the usual reaction by lawmakers to any crisis is to tighten the sanctions system and increase the powers granted to the regulatory authorities. The Italian law system recently experi- enced this behaviour when the Law 262/2005, the so-called Savings Protection Act , was enacted.
This law, which in principle is dominated by the stubborn confi- dence in the public regulation, not only multiplied and tightened the sanctions hypotheses, but also tried to find a solution to the problem of enforcement in the regime of self-regulation. Searching for a balance between public intervention (and control) and the space left to the private autonomy, between regulation and self-regulation, the law entrusted the Consob with the task of verifying the accuracy of the information provided in compliance to the self-regulatory disci- pline sanctioning any related violations. This approach, however, has been the target of such criticism and unfavourable opinions that a few months after its enactment, that particular power of supervising and sanctioning originally attributed to the Consob was eliminated with a new decree “Amendments to the Savings Protection Act”
(Legislative Decree 29 December 2006, No. 303).
The story of self-regulation not only quickly ended in our system, but generally speaking, it seems outdated in the current post-2007 crisis climate, in which the trust in self-regulation and in the effec- tiveness of the codes of conduct, based on the comply or explain rule and, therefore, without rules or principles of mandatory nature, looks at its minimum level. The effort is instead to strengthen the system through appropriate sanctions and harmonized rules.
The Law 262/2005 has had a profound effect both from a substan- tive and from a procedural point of view on the sanctioning system in the financial market. In view of effectively protecting the savings and the investors, it modernized the system of sanctions of both criminal and administrative natures, creating new criminal offences and toughening penalties for those already originally defined by the law.12
In terms of procedure, the law marked the beginning of a standard- ization process of the sanctioning procedures for the various authori- ties, a process leading, inter alia, to granting the supervisory authority the power, even formal, to assess the sanction, whereas beforehand it was an act of the minister upon proposal of the authority. 13 The law established some leading principles, which, admittedly, were intended to obtain a more effective protection of the investors and to align the matter with the European guidelines. 14
Art. 24, para. 1 of the Law 262/2005 foreshadowed an overall strengthening of procedural safeguards with regard to the sanc- tioning procedures of the Bank of Italy, the Consob, Isvap (now Ivass) and Covip. The law provides for the application in such proceed- ings of the general principles laid by the Law of 7 August 1990, No.
241 on the transparency of the administrative procedure, including the obligation to provide adequate reasons to the adopted action.
This rule, obviously intended to encourage greater transparency of the regulatory decisions, is extremely important not only because it allows the members of the market to defend themselves before the court, unequivocally introducing the adversarial principle, but, most of all, because all market participants will be able to better under- stand the decision criteria of the authorities and can adopt adequate behaviour.
The law also imposed the principles “of the full knowledge of acts of investigation, of the adversarial process, and of verbali- zation” especially in view of impartiality and objectivity of the final decision. This rule introduced the obligation to implement a
“distinction between investigative and decision-making functions with respect to the imposition of the sanction” in order to ensure the impartiality of the body in charge of adopting the sanction toward the offices that have investigated the case and instituted the proceeding.
Arguably, we are still far from a full conformation of these sanction proceedings to the principles developed by the Strasbourg jurispru- dence in interpreting Art. 6 of the European Convention on Human Rights of 4 November 1950, 15 but undoubtedly, the Law 262/2005 has drastically reduced the scope of the so-called moral suasion in favour of more formalized forms of regulatory intervention/sanctions in the interest of transparency of the conduct surveillance (with the consequent possibility to challenge it).