Deliberations of the CICR and Urgent DM - Deliberation of 25 July 2000

Interministerial Committee for Credit and Savings SECRETARIAT

DELIBERATION OF 25 JULY 2000

Administrative and accounting organization and internal controls of financial intermediaries registered in the special list referred to in Article 107 of the Consolidated Act on Banking and Credit Legislation.

THE INTERMINISTERIAL COMMITTEE FOR CREDIT AND SAVINGS

HAVING REGARD TO Article 107, paragraph 2, of Legislative Decree No. 385 of 1 September 1993 (hereinafter "Banking Consolidated Act"), which assigns, among other things, to the Bank of Italy, in accordance with the deliberations of the CICR, the task of issuing provisions to intermediaries registered in the special list regarding administrative and accounting organization and internal controls;

HAVING REGARD TO the Decree of the Minister of the Treasury of 13 May 1996, which establishes the conditions under which financial intermediaries registered in the general list referred to in Article 106 of the Banking Consolidated Act are required to also register in the special list;

HAVING REGARD TO Article 18, paragraph 3, of Legislative Decree No. 58 of 24 February 1998 (hereinafter "Finance Consolidated Act"), which recognizes financial intermediaries registered in the list provided for in Article 107 of the Banking Consolidated Act the possibility of professionally providing to the public, in the cases and under the conditions established by the Bank of Italy after consulting CONSOB, the services provided for in Article 1, paragraph 5, letter a) of the Finance Consolidated Act, limited to financial derivative instruments, as well as those provided for in Article 1, paragraph 5, letter c) of the same Finance Consolidated Act;

HAVING REGARD TO Articles 2, paragraph 6, and 3, paragraph 3, of Law No. 130 of 30 April 1999 (containing provisions on credit securitization), according to which, respectively: the services of collection of assigned credits and cash and

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Interministerial Committee for Credit and Savings SECRETARIAT

payment are carried out by banks or financial intermediaries registered in the special list; the provisions contained in Title V of the Banking Consolidated Act apply to the assignee company and the securities-issuing company;

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;

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

CONSIDERING that the multifunctionality of financial intermediaries, resulting in the accumulation of risks of different nature, makes it necessary to set up organizational safeguards capable of addressing the different types of risk connected with the operational scope chosen by the intermediaries themselves;

ON THE PROPOSAL formulated by the Bank of Italy,

DELIBERATES

The Bank of Italy, also taking into account the provisions applicable to other supervised intermediaries and the principles defined at the international level, issues instructions regarding minimum organizational requirements with reference to the following sectors and based on the general principles indicated for each of them:

• with regard to corporate internal controls, the Bank of Italy issues instructions aimed at ensuring that financial intermediaries registered in the special list referred to in Article 107 of the Banking Consolidated Act adopt adequate organizational structures for the activity carried out and, in particular, control units, auditing units, 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 SECRETARIAT

• with regard to the activity of granting financing in any form, the Bank of Italy issues provisions so that financial intermediaries define internally methods for selecting and monitoring credit risks assumed towards clients, also with reference to groups of clients, and, in the case of credit purchases, towards the assigned debtors;
• with regard to the activity of assuming participations, the Bank of Italy issues provisions so that financial intermediaries adopt organizational structures functional to the choice of investments and their constant monitoring, also in relation to liquidation prospects;
• with regard to the activity of foreign exchange intermediation, the Bank of Italy issues instructions aimed at ensuring that financial intermediaries adopt organizational structures and tools, including IT tools, suitable for managing risks arising from such operations;
• with regard to the activity of issuing and managing credit and debit cards and, more generally, fund transfers, the Bank of Italy indicates the precautions that intermediaries are required to observe;
• with regard to the exercise towards the public of investment services, where permitted under the Finance Consolidated Act, the Bank of Italy issues instructions aimed at ensuring that financial intermediaries adopt organizational structures capable of measuring, controlling, and managing market risks, particularly those connected with operations in the sector of derivative instruments and innovative products;
• with regard to the activity of credit securitization, the Bank of Italy issues provisions so that the assignee company or the securities-issuing company, if different from the assignee company, as well as the financial intermediary entrusted with the collection of assigned credits and cash and payment services, adopt organizational structures that allow - within the scope of their respective tasks - to ensure the patrimonial separation and the correct execution of each securitization operation;
• with regard to non-quantifiable risks (operational, legal, etc.), the Bank of Italy issues provisions so that financial intermediaries adopt detection and control methods adequate to the activity carried out.

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

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

Rome, 25 July 2000

THE PRESIDENT (V. Visco) V. Visco

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Interministerial Committee for Credit and Savings SECRETARIAT