Deliberations of the CICR and Urgent DM - Deliberation of 2 August 1996

Rome, dated Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

DELIBERATION 2 August 1996

Implementation of Article 53, paragraph 1, letter d) and Article 67, paragraph 1, letter d) of Legislative Decree 385/93 (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 1 September 1993, No. 385 (Consolidated Text of Laws on Banking and Credit Matters), which assigns to the Bank of Italy, in conformity with the deliberations of the CICR, the task of issuing provisions of a general nature concerning the administrative and accounting organization and internal controls;

HAVING REGARD to Article 67, paragraph 1, letter d) of the same decree, which, in order to achieve consolidated supervision, assigns to the Bank of Italy, in conformity 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 the administrative and accounting organization and internal controls;

CONSIDERING the relevance of the organizational variable in ensuring the competitiveness of the intermediary and its ability to manage risks efficiently, preserving its reputation in the markets and contributing to ensuring and maintaining its stability over time;

CONSIDERING the importance that the autonomy of banking intermediaries assumes in adopting the organizational choices most suitable for their managerial needs;

CONSIDERING the guidelines followed so far by the Bank of Italy in providing banks with general indications to guide their choices in matters of organizational and accounting structures and internal controls;

CONSIDERING that the matrix reporting of accounts that banks are required to submit already entails compliance, by the same, with minimum requirements in matters of accounting organization;

DEEMING it necessary to outline a unitary and organic regulatory framework in matters of administrative organization and internal controls;

ON PROPOSAL formulated by the Bank of Italy;

D E L I B E R A

The Bank of Italy, having taken into account the recommendations provided in the international context on the management of risks related to the granting of credit and the operation in derivative instruments by banks, issues supervisory instructions concerning minimum organizational requirements with reference to the following sectors and based on the general principles indicated for each of them. In particular:

• regarding 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;

• in relation to the centrality that the activity of granting credit assumes for banking intermediaries, the Bank of Italy issues provisions so that banks define internally methods for selecting and monitoring credit risks assumed towards customers. 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 conflicts of interest; in particular, in elaborating such procedures, banks adhere to the principle according to which the aforementioned financing cannot be approved by a subordinate subject;

• in relation 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

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Rome, dated 2 Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

suitable for measuring, controlling, and managing market risks and, more generally, risks related to operations in the sector of derivative instruments and innovative products;

• 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 negotiating securities of this kind, except for immediate collection.

The Bank of Italy issues provisions to the parent companies of banking groups so that the implementing instructions of the provisions referred to in the previous 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 the relationships between banks and customers. Minimum requirements may also be established where connected to prudential supervision instruments or necessary for the

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Rome, dated 3 Ministry of the Treasury Via XX Settembre, 97

Interministerial Committee for Credit and Savings

SECRETARIAT

performance of supervisory or inspection activities related to securitization.

This deliberation will be published in the Official Gazette of the Italian Republic.

Rome, 2 August 1996

THE PRESIDENT C.A. Ciampi [Signature]