Guarantee funds in Italy
(By Associazione Consumatori Piemonte )

GUARANTEE FOUNDS ABOUT: DEPOSITS, INVESTMENTS AND INSURANCES

In an overlook on Investments Guarantee Founds in Italy, it is mandatory to refer at first to the notorious Cirio and Parmalat financial cracks, which pointed out the poor effectiveness of Article 47 of the Italian Constitution – “Republic encourages and protects saving in all its ways”.
While pirate-managers handled millions of Euros through empty-box-like companies, set up to dodge budget transparency regulations, Italy’s lawmakers paradoxically acted to weaken legal protection for savers-consumers .
As Cirio and Parmalat scandals broke out, the same Cabinet born under the star of liberalism and previously blind toward the hardest financial disasters in Italy’s +economic history, inevitably followed the harsh pressure of public opinion and media and made up some arrangements in defence of savers.
A Parliamentary Commission set a first draft for the reformation of the Financial Regulation, (d.lgs. 24 February 1998 n. 58 – the so-called “T.U.F.” or “Legge Draghi”).
This drafted, given out in may 2004 by the Lower House’s Commissions for Productive Activities and Finance, laid some interventions and law changes as to corporate governance, transparency for companies established in legal and/or fiscal paradises, and a strict regulation for conflicts of interests of budget reviewing companies, banks and companies. More, there were in it some criminal and administrative rules, either new or made heavier as to minimal and maximal sanctions.
That regulations also included the reorganisation of Control Authorities (National Bank, ISVAP, COVIP e CONSOB) through the establishment of an Authority for Financial Markets (AMEF), as a supervisor of markets where banks and financial operators are active. This was because such authorities were deeply involved in the financial scandals – particularly, the National Bank (Banca d’Italia), founded by the Act 443 of august 10, 1893 after Italy’s troublesome unification, and CONSOB, founded by the Act 216 of June 7, 1974. Both had been accused of not fulfilling their institutional role, in spite of National Bank present chairman Mr. Antonio Fazio’s and even of WMF’s opinions, that have deemed National Bank’s past role “high-profiled”.
National bank itself should have worked more effectively as a supervisor of banks and financial mediators, accountable toward Italian savers who purchased Cirio’s and Parmalat bonds and shares. CONSOB too, control Authority for Companies and Stock Markets, an independent body with regulation powers as to organisation and working of the markets, should have acted like that.
The same Act also foresaw a means of “after-defence”, with an “Investors and Savers Guarantee Fund”, for the refunding of patrimonial damages produced by the violation of investments regulation, ascertained through a definitive sentence of TUF.
Art. 57 of the reform draft delegated the Cabinet to adopt, within six months since the final Act was in force, a legislative decree to start this Fund. This would have been financed by a part of the amount of each economic sanction regarding TUF, and directly run by the new Authority for Financial Markets.
Yet, presently this draft, repeatedly modified, has not been passed.
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Today, as a protection for possible victims of financial markets, other Found are available, which do not make possible to refund holders of bonds which proved not refundable after their expiration (as in Cirio and Parmalat cases).

1) The Found of contracts guarantee. It has been made to guarantee a good working of stock market contracts on shares, convertible bonds, warrant, covered warrant, certificates and shares on savings collective management companies before their expiration. It is active in case of potential bankruptcy of a negotiator.
Established by Borsa Italiana S.p.A. according to the regulation for organised markets, it collects ratios from all the operators admitted to negotiating in the markets where such contracts are dealt with.
This Found is managed by the Cassa di compensazione e Garanzia (Compensation and Guarantee Found), a Public Company established in March 1992 and charged by the Act 2/1/1991 No. 1 of guaranteeing Italian operations in future and options, as well as the fair conclusion of contracts on Stock shares.
CONSOB and the National Bank issue directives to address the management of this Found.
As for Future and Options contracts, the Found acts as central counterpart for each operation. In the Stock Market, it manages the Guarantee Found itself.

The Found of Liquidation Guarantee, which is managed by Cassa di Compensazione e Garanzia S.p.A. too, is to guarantee compensation and liquidation on stock market contracts on shares, convertible bonds, warrants and covered warrants.
CONSOB and the National Bank set financing for this Fund from cash-liquidations.
The Found was created in June 1999 by the Chairman of the National Bank, as an actuation of Art. 69, par. 2 TUF – “The National Bank, in accordance with CONSOB, can set the creation and the way of working of systems intended to guarantee the fair conclusion of compensation and liquidation of operations shown in Paragraph One, even by issuing regulations concerning creation and management of guarantee Founds fed by participants’ contributions”.
This regulation of the Found of Liquidation Guarantee has been modified by the National Bank on September 8, 2000 and October 22, 2002, both concerning compensation and liquidation of operations of non-derived financial instruments.
According to Art. 3 of this regulation, in case covering obligations of final payments are not fulfilled by a participant, the manager of the compensation services promptly informs the Company managing the Found. This Company covers the uncovered payments with the contributions from that payer, and, when they are not sufficient, with other contributions, proportionally to the amount of each of them.
When the total amount of the Found is insufficient the Company ask the participating Banks integrative contributions, proportional to the amounts of the original ones.
If the Found contributes less than the payer gave, this owes an amount equal to the Found’s intervention.
If the Found contributes more than the payer gave,
a) it takes over the payer’s contractual position as to the contracts to be liquidated in the day of the unfulfilling;
b) it takes over the payer’s contractual position in contracts of delayed shares buying and selling he started, as to the liquidation wherein the unfulfilling takes place, as well as the contracts regulated by art. 6, § d) of CONSOB Regulation approved by the Decree 11768 of December 23, 1998, either if the expiration is in more than five days, or if prices more than 10% more or less than the official ones in the market of reference;
c) it takes over the payer’s debts and credits following the clearing of payments given by him or to him;
d) it enters the possession of financial instruments and means of payment being in the payer’s favour following the closing of the liquidation.

When the amount of the unfulfilling is more than what has been paid by the payer, the management Company promptly informs CONSOB and companies managing the markets.

2) Finally, the National Guarantee Found is a private-law refunding system, recognised according to art. 59 of Decree 58/1998. This is shared by financial mediators allowed to work in investment services.
The Found is recognised as “refounding system” by art. 62, § 1, Legislative Decree 23/7/1996, n. 415.
This refounds investors as to the following investment services:
a) Negotiation in their own name;
b) Negotiation in name if others;
c) Selling with or without precedent signing, or purchasing, or guarantee taking toward the Issuer;
d) Individually oriented management of investment assets in name of others;
e) Order receiving and/or transmitting, as well as mediation;
f) Depositing and managing of financial instruments, insofar as it is linked to investing operations.

The Found is fed by contributions by its sharers, and refunds to the investors, up to the scheduled maximum, credits from investments that they have from mediators, when these undergo a bankruptcy procedure .

As for the protection for the purchasers of bonds issued by banks themselves, a Guarantee Found for Bondholders of Cooperative Credit has been recently created . This is something new for the Italian system and should be operational by the end of 2004, with the goal of protecting the right to credit of bondholders of Banks of Cooperative Credit and Rural Banks. This Found should award a refunding guarantee, with no additional cost, for the case of the Bank’s non-capability to fulfil.
On the other hand, the creation of this Found has led to a rating system for the Banks involved therein, in order to check their solidity and reliability and implement the solidarity policy which is a cornerstone of this “alternative” banking system.

As for the savers’ protection in a tighter sense, given the mandatory nature of deposits guarantee stated by EU (Directive 94/19/CE of 30/5/1994, actuated in Italy by Legislative Decree 659/96), the Inter-bank Found for Deposits Protection has been created . By the way, even before that, Bank Regulation set the obligation to join one of the deposits protection systems working in Italy .
Inter-bank Found for Deposits Protection, created in 1987 as a voluntary consortium, is today a private-law mandatory consortium, recognised by the National Bank. Its goal is to guarantee deposers of all Member Banks – that is, virtually all Italian banks (approximately 300), except those joining the aforesaid Guarantee Found for Bondholders of Cooperative Credit.
Member Banks are committed to provide financial resources for the Found’s goals.
Along with the supervising of banking business, deposits guaranteeing is to be a key role for banking system safety policies. Hereby, the social role of saving and the monetary function of banking mediation are acknowledged, and savers’ aftershocks for banks collapses are avoided.
Directive 94/19/CE sets a minimum guarantee level of €20,000 for each deposer. Italian lawmakers increased it to €100,000.

La Direttiva n. 94/19 CE, sopra citata, prevede un livello minimo di garanzia di 20.000 EURO per singolo depositante.
Il legislatore italiano ha elevato tale protezione minima richiesta dalla direttiva europea fino all'importo di 200 milioni di lire (oltre 100.000 euro).
Tale importo costituisce dunque il limite massimo, richiamato dallo Statuto del Fondo, di rimborso per ciascun depositante.

Moreover, Inter-bank Found protects deposits in abroad locations of Italian banks. For locations in EU countries, this protection can’t be higher than the one given by the hosting country.
The Found Statute, in accordance with Legislative Decree, 659/96, involves in the protection offered to deposers credits regarding Founds acquired by banks with a mandate for restitution, whether in Euro of other currency, as deposits or in any other shape, as well as * cheques and similar means of payment.
Apart of what said before, this refund is also admitted for credits within an forced administrative liquidation, in accordance to the applicable regulation (Legislative Decree 1/9/1993, n. 385).
According to art. 27 of the Found Statute, deposits payable to the holder and some other kinds of titles are non included in the protection.

Generally speaking, protection is given to the so-called unaware saver – that is, the one who does not have access to the information needed to evaluate the reliability of those he commits his savings to.

More, the Italian Government, by a decree of the Minister for Productive Activities, created the Guarantee Found for consumers’ credit. It is a €16m Found for the purchase of durable goods, intended to the families whose income is less than €15,000 per year. This should help the poorest families solve the problem of acceding to credit for consumes. The found covers up to 50% of the cost of the purchased good, and is fed by the sanctions issued by Antitrust Board. This Found has been working “at first request” since December 2004. Its guarantee is proportional to the indebtedness of financers, and is unconditioned and irrevocable.
The guarantee can be requested by banks and financial companies, except those who were definitive sentenced for mafia and money laundering. Financing can be set for 1 to 4 years.

Another Italian Guarantee Found is the Guarantee Founf for Street Traffic Victims.
Its goal is to refund damages made by vehicles or ships either unidentified, or not insured, or insured by companies which find themselves in forced administrative liquidation at the moment of the accident, or later. It is managed by CONSAP (Manger for Public Insurance Services), which acts through local insurance companies for payments, and fed by a no-more-than-4% contribution on car insurance fees.
In case of accident produced by an unidentified vehicle, this Found helps only for personal damages. If the vehicle is identified but not insured, it also helps for real damages, but with a non-payable basis of about €100.
In case of damages made by vehicles insured by companies in forced administrative liquidation, both kinds of damages are refunded.
In any case, refunds cannot be more than the maximum set by law at the time of the accident.

On the other hand, the Central Guarantee Found (created by Act 662/96) does not regard Consumers’ Protection. Indeed, it is intended to help small and medium enterprises, through guaranteeing medium-term financings, sharing loans, and shares by banks, financial mediators and financial companies.

Another form of guarantee of consumers’ assets is the the Guarantee Found for the Protection of Travellers.
Created by a Decree of Ministry of Industry n. 349/99, it works for refunding the traveller and returning him home from abroad, in case of unfulfilling or bankruptcy of the tour operator, as well as an immediate money availability in case of forced return from non-EU countries due to emergencies, whether the operator can be blamed for them or not. It is presided by the Head of Tourism Department of the Prime Minister Division.
This Found is operational only for official operators – not for self-made travels, or travels organised by abusive operators, and is fed by contributions by some tour operator nationwide.
Italy is the only country when such a Found is State-run.

In the other European Countries, similar founds exist. In France, the Association Professionnelle de Solidarité des Agences de Voyage was created in 1975. It is a private association, working in case of unfulfilling, with guarantees and other similar services.
In the UK, several found have been created by local sector associations. The Common Found, for example, has been operational since the 60s. They provide specific insurances and guarantees. The guaranteed amount must be at least 25% of their budget.
In Germany, an insurance-based guarantee system was created in 1997. Each tour operator must be guaranteed by a bank for at least a 0.5% of his annual budge, and pay and insurance price of at least 0.25% of it. The consumer is given a certificate granting the insurance coverage for the sold tourist service.
On the other hand, in Denmark travellers are the direct financers of the Found by paying something like €0.75 for each travel purchased. As each year about two millions of tours are sold, the amount of the Found is approximately €1.25m.

Avv. Marco Gagliardi