Secretariat of the Interministerial Committee for Credit and Savings

REPUBLIC OF ITALY

The Minister of Economy and Finance

President of the Interministerial Committee for Credit and Savings

MM 1419

HAVING REGARD TO Legislative Decree 1 September 1993, No. 385 (Consolidated Act of Laws on Banking and Credit Matters – TUB);

HAVING REGARD TO Article 53, paragraph 1, letter d), of the TUB, which assigns to the Bank of Italy, in accordance with the resolutions 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 TUB, which, in order to achieve consolidated supervision, grants the Bank of Italy, in accordance with the resolutions of the CICR, the authority 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;

HAVING REGARD TO Article 107, paragraph 2, of the TUB, which assigns to the Bank of Italy, in accordance with the resolutions of the CICR, the task of prescribing to intermediaries listed in the special register provisions concerning the administrative and accounting organization and internal controls;

CONSIDERING the discipline of administration and control contained in Book V of the Civil Code, which allows companies to choose statutorily between a system providing for a board of directors and a board of statutory auditors (traditional model), a system providing for a management board and a supervisory board (dualistic model), and a system providing for a board of directors, within which a committee dedicated to internal control over management is established (monistic model);

CONSIDERING the discipline of controls contained in the same Book V of the Civil Code, which establishes a subjective distinction between control over administration and accounting control entrusted to an external auditor;

HAVING REGARD TO Articles 52, paragraph 1, and 112, paragraph 1, of the TUB, pursuant to which the articles of association of banks and financial intermediaries listed in the special register, regardless of the system of administration and control adopted, assign to the body performing the control function the tasks and powers necessary for reporting to the Bank of Italy irregularities in management and violations of the rules governing banking activity or the activity of financial intermediaries;

HAVING REGARD TO Article 114-quater of the TUB, pursuant to which Articles 52 and 53 of the same Consolidated Act apply, among other things, to electronic money institutions (IMEL);

HAVING IN VIEW the resolutions of the Interministerial Committee for Credit and Savings of 25 July 2000 and 23 March 2004 regarding the administrative and accounting organization and internal controls of banks and financial intermediaries listed in the special register, as well as the resolution of 4 March 2003 regarding regulatory supervision of IMEL;

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;

DEEMING it necessary to issue provisions regarding the tasks and powers of the corporate bodies of banks, financial intermediaries listed in the special register, and IMEL, for the purpose of sound and prudent management and in respect of the entrepreneurial autonomy of supervised entities;

ON THE PROPOSAL formulated by the Bank of Italy;

DEEMING it urgent, pursuant to Article 3, paragraph 2 of the TUB;

D E C R E E S

The organizational structure and the allocation of tasks and powers of the corporate bodies of banks and banking groups must be suitable for pursuing the sound and prudent management of the aforementioned intermediaries in a context of transparency of behavior. In this perspective, banks (hereinafter also: companies) shall adopt an organizational structure and corporate governance such that:

• the chosen administration and control model guarantees management efficiency and control effectiveness. Such model must be consistent with: the ownership structure and the degree of openness of the company to the equity capital market; the size, complexity, and corporate strategies; the organization of the bank and the group in which it is eventually included;

• managerial, executive, and control tasks are distributed in a manner that favors internal dialogue within the company, ensuring the balance of powers among the different corporate bodies;

• information flows are suitable to enable each corporate body and its members to have access, also at the group level, to the information necessary for the effective and informed performance of their assigned tasks;

• risk management by the competent corporate bodies is conscious and consistent with the chosen strategies;

• powers and responsibilities at every decision-making level are precisely defined, also through a clear system of internal delegations;

• the composition of the corporate bodies is quantitatively and qualitatively adequate to the managerial and control needs of the individual bank and such as to allow the efficient fulfillment of tasks;

• remuneration and incentive mechanisms for directors and management do not encourage management choices inconsistent with corporate interests and the long-term strategies of the bank;

• the accounting control system is adequate to the size, operational complexity, and technical situation of the bank, with regard both to the professionalism and experience of the chosen auditor and to the linkage and coordination of the latter with the control body and functions.

With reference to administration and control models other than the traditional one, in order to pursue the effectiveness and actuality of the control functions entrusted to corporate bodies as well as the substantial equivalence of tasks and powers aimed at fulfilling the function of reference for the Supervisory Authority, banks must:

• adopt suitable statutory, regulatory, and organizational safeguards aimed at preventing possible prejudicial effects on the correctness and regularity of management resulting from the coexistence in the same body of managerial and control functions;

• expressly assign to the control bodies the tasks and powers, even additional to those provided for in ordinary cases, necessary for the full and effective fulfillment of the obligation to detect irregularities in the management of the bank and violations of the rules governing banking activity;

• ensure a composition of the corporate bodies, in terms of number and professionalism, that allows, in respect of the peculiarities of alternative organizational models, the effective fulfillment of managerial and control tasks.

The Bank of Italy shall issue instructions for the implementation of this decree, providing, among other things, that banks and parent companies of banking groups prepare a project concerning their overall corporate governance structure.

For financial intermediaries listed in the special register provided for in Article 107 of the Banking Consolidated Act and for IMEL, the Bank of Italy may issue, taking into account the peculiarities of the individual categories of intermediaries, Supervisory Instructions consistent with the general principles established by this decree.

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

Rome, dated 05 AUG. 2004

THE MINISTER