CICR Deliberation No. 692 of 23 March 2004

Interministerial Committee for Credit and Savings

SECRETARIAT

No. 692

DELIBERATION 23 March 2004

Amendment of CICR Deliberation of 2 August 1996 regarding "Administrative and Accounting Organization and Internal Controls".

THE INTERMINISTERIAL COMMITTEE FOR CREDIT AND SAVINGS

HAVING REGARD TO Article 53, paragraph 1, letter d) of Legislative Decree No. 385 of 1 September 1993 (Consolidated Act of Laws on Banking and Credit - TUB), which assigns to the Bank of Italy, in accordance with the deliberations of the CICR, the task of issuing provisions of a general nature concerning administrative and accounting organization and internal controls;

HAVING REGARD TO Article 67, paragraph 1, letter d), TUB, which, in order to achieve consolidated supervision, assigns to the Bank of Italy, in accordance with the deliberations of the CICR, the power to issue to the parent company, through provisions of a general or specific nature, directives concerning the banking group as a whole or its components, concerning administrative and accounting organization and internal controls;

HAVING REGARD TO its own Deliberation of 2 August 1996, by which, in implementation of the aforementioned provisions, a unitary and organic regulatory framework was outlined regarding "Administrative Organization and Internal Controls";

CONSIDERING the need to establish criteria to allow operations in sectors characterized by a high degree of complexity and innovation only to intermediaries that present suitable organizational structures and use effective methodologies for assessing risk profiles;

NOTING the need to make the consequent amendments to the aforementioned Deliberation of 2 August 1996;

ON THE PROPOSAL formulated by the Bank of Italy;

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Interministerial Committee for Credit and Savings

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SECRETARIAT

D E L I B E R A T I O N

1. The following amendments are made to the first paragraph of the CICR Deliberation of 2 August 1996 indicated in the preamble:

a) the words from "connected" to "derivatives" are suppressed;

b) in the second paragraph:

1. after the word "selection", the word "and" is replaced by a comma;

2. after the word "monitoring", the words "and management" are inserted;

3. the words from "assumed" to "clients" are suppressed;

c) in the third paragraph, the words from "and" to "innovative" are suppressed;

d) after the third paragraph, the following is inserted:

• "with reference to the activity carried out in operational sectors characterized by a high degree of complexity and innovation, the Bank of Italy issues provisions to define the minimum conditions for operating in the sector, with particular regard to organizational requirements and methodologies for assessing risk profiles;".

2. As a result of the amendments made, the text of the Deliberation is reformulated as follows:

"The Bank of Italy, taking into account the recommendations provided in the international context on risk management by banks, issues supervisory instructions concerning minimum organizational requirements for the following sectors and based on the general principles indicated for each of them. In particular:

• with regard to corporate internal controls, the Bank of Italy issues instructions aimed at ensuring that banks establish internal control, auditing, and administrative-accounting review units that, operating according to criteria of functionality and efficiency, contribute to the correct conduct of corporate management;

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Interministerial Committee for Credit and Savings

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SECRETARIAT

• given the centrality that credit granting activity assumes for banking intermediaries, the Bank of Italy issues provisions so that banks define internal methods for the selection, monitoring, and management of credit risks. With specific reference to financing operations in favor of subjects internal to the corporate structure, banks are required to adopt procedures aimed at preventing the occurrence of conflict of interest situations; in particular, in the elaboration of such procedures, banks adhere to the principle according to which the aforementioned financing cannot be approved by a subordinate subject;

• with reference to the expansion of banks' activity in the field of securities and currency intermediation, the Bank of Italy issues instructions aimed at ensuring that banks establish organizational structures capable of measuring, controlling, and managing market risks;

• with reference to the activity carried out in operational sectors characterized by a high degree of complexity and innovation, the Bank of Italy issues provisions to define the minimum conditions for operating in the sector, with particular regard to organizational requirements and methodologies for assessing risk profiles;

• with reference to foreign branches, the Bank of Italy sets rules on the operations of such dependencies, with particular regard to the strategic guidelines adopted by them, as well as on the type and frequency of related controls;

• with reference to the issuance and management of payment instruments, including electronic ones, the Bank of Italy indicates the precautions that banks are required to observe in this field. In particular, banks refrain from acquiring post-dated checks as collateral for credit facilities or, in any case, from trading securities of this kind, except for immediate collection.

The Bank of Italy issues provisions to the parent companies of banking groups so that the supervisory instructions implementing the provisions of the preceding points are observed within the group, considered as a whole, or at the companies composing it.

The Bank of Italy may establish minimum organizational requirements aimed at safeguarding the correctness and transparency of banks' relationships with clients. Minimum requirements may also be established where connected to prudential supervisory instruments or necessary for the performance of securitization or inspection supervisory activities."

3. This Deliberation shall be published in the Official Gazette of the Italian Republic.

Rome, 23 March 2004

THE PRESIDENT G. Tremonti