Opinion of the European Central Bank of 8 December 2023 on the liability of Banca d’Italia and the members of its decision-making bodies and staff, and the cooling-off/in rules applicable to the members of its management bodies and top managers (CON/2023/41)
OPINION OF THE EUROPEAN CENTRAL BANK of 8 December 2023 on the liability of Banca d’Italia and the members of its decision-making bodies and staff, and the cooling-off/in rules applicable to the members of its management bodies and top managers (CON/2023/41) Introduction and legal basis
On 23 November 2023, the European Central Bank (ECB) received a request from the Italian Ministry of Economy and Finance for an opinion on a draft law on measures to support the competitiveness of capital markets (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third and sixth indents of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to a national central bank, rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets, and the specific tasks conferred upon the ECB concerning the prudential supervision of credit institutions under Article 127(6) of the Treaty. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the ECB, the Governing Council has adopted this opinion.
1. Purpose of the draft law
1.1 The draft law reforms, inter alia, the liability regime applicable to the Banca d’Italia (BdI), the Commissione Nazionale per le Società e la Borsa (CONSOB, National Commission on Companies and Stock Exchange), the Istituto per la Vigilanza sulle Assicurazioni (IVASS, Institute for Insurance Supervision) and the Commissione di vigilanza sui Fondi Pensione (COVIP, Supervision of Pension Funds) (hereinafter together referred to as the ‘supervisory authorities’). The draft law also amends the cooling-off/in rules applicable to the members of the management bodies and managers of the supervisory authorities. Reform of the liability regime applicable to the Banca d’Italia, the members of the Banca d’Italia’s governing bodies and the Banca d’Italia’s staff in the supervisory context 1.2 The current liability regime applicable to the supervisory authorities, the members of their governing bodies and their staff provides that they are liable for damages caused by acts or conduct carried out in the performance of their supervisory duties in case of wilful misconduct or gross negligence .
1 Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).
2 See Article 24(6-bis) of the Law on public savings and financial intermediation (Legge 28 dicembre 2005, n. 262, Disposizioni per la tutela del risparmio e la disciplina dei mercati finanziari, pubblicata nella Gazzetta Ufficiale n. 301 del 28 dicembre 2005). 1.3 The draft law introduces an amendment to the liability regime, in line with the recommendations of the Organisation for Economic Co-operation and Development (OECD) , in order to make investigation processes more efficient and to improve enforcement activities. In particular, the draft law introduces a provision according to which third parties may bring civil liability actions against supervisory authorities only where damages are directly attributable to (i.e. a direct and immediate consequence of) infringements of laws or regulations, compliance with which is part of the supervisory authorities’ respective mandates. Under this provision, evidence of wilful misconduct or gross negligence on the part of the supervisory authority is required. Reform of the cooling-off/in rules 1.4 The draft law also introduces legislative amendments to the cooling-off/in rules applicable to members of the management bodies and managers of the supervisory authorities. According to the OECD, cooling-off periods can create distorted incentives to limit the attractiveness of expert positions in public institutions. With specific reference to Italy, the OECD suggests reassessing the 4 5 current cooling-off period , which it considers to be penalising . 1.5 In this respect, the draft law shortens the cooling-off period to which members of the governing bodies and managers who have ceased to hold office are subject from two years to a maximum of one year. A decree of the President of the Council of Ministers, which is to be adopted within one hundred and eighty days from the date of entry into force of the draft law, will contain the implementing rules. 1.6 Furthermore, the draft law amends the cooling-in rules by reducing the period of incompatibility from two years to one year. According to the current cooling-in rules , those who, in the previous two years, have (i) held positions in private law entities, (ii) held positions in entities financed by the government or a public body which is offering the position, or (iii) performed professional activities that are regulated, financed or otherwise remunerated by the authority or entity offering the position, cannot be appointed to: (a) carry out top-level administrative tasks in the State, regional or local governments; (b) directorships of public sector bodies at a national, regional or local level; or (c) external management positions in government and public bodies that are related to the specific sectors financed and regulated by the abovementioned public entities. 1.7 In addition to reducing the cooling-off period of two years to one year, the new rules under the draft law would limit the cooling-off obligations to cases of collaboration, consulting and employment relationships entered into directly with ‘regulated entities’ or their subsidiaries. Under the current Italian legal framework an indirect relationship is sufficient for cooling-off obligations to apply.
3 See paragraph 2 of the OECD Capital Market Review of Italy 2020: Creating Growth Opportunities for Italian Companies and Savers, OECD Capital Market Series, available on the OECD’s website at www.oecd.org (hereinafter the ‘OECD Capital Market Review of Italy 2020’).
4 See Article 29-bis of the Law on public savings and financial intermediation (Legge 28 dicembre 2005, n. 262, Disposizioni per la tutela del risparmio e la disciplina dei mercati finanziari, pubblicata nella Gazzetta Ufficiale n. 301 del 28 dicembre 2005).
5 See paragraph 3 of the OECD Capital Market Review of Italy 2020.
6 Legislative Decree on the unappointability and incompatibility of positions within public administrations and private bodies under public control (Decreto Legislativo 8 aprile 2013, n. 39, Disposizioni in materia di inconferibilita' e incompatibilita' di incarichi presso le pubbliche amministrazioni e presso gli enti privati in controllo pubblico, a norma dell'articolo 1, commi 49 e 50, della legge 6 novembre 2012, n. 190, pubblicato nella Gazzetta Ufficiale n. 92 del 19 Aprile 2013). 1.8 In addition, the draft law amends the rules on appointment. Under the draft law, the type of assignment carried out previously must be considered. Where the previous assignment is of low relevance (e.g. as a result of the fact that no executive or organisational powers were held) it is sufficient to provide for organisational and transparency measures to be implemented after the appointment. The draft law further specifies that these organisational safeguards will also apply to the members of the governing bodies of the supervisory authorities.
2. Liability of the Banca d’Italia and the members of its decision-making bodies and staff
2.1 The ECB understands that the current liability regime applicable to the members of the BdI’s governing bodies and the BdI’s staff, as amended by the draft law, is relevant in the context of the BdI’s supervisory mandates under Italian law, and does not set out the liability regime for the activities carried out by the BdI in its capacity as a Eurosystem and European System of Central Banks (ESCB) national central bank (NCB). 2.2 Liability of the Banca d’Italia The ECB welcomes the fact that, under the draft law, the BdI’s liability remains limited to cases of wilful misconduct and gross negligence and, in addition, is now explicitly restricted to damages that are directly attributable to infringements by supervised entities of laws or regulations that fall within the BdI’s supervisory mandates under Italian law. Therefore, the ECB understands that the mere infringement by a supervised entity of laws or regulations, compliance with which is part of the supervisory authorities’ respective mandates, is not sufficient to trigger the abovementioned liability provision. Under Italian law, for liability to be triggered, specific evidence of wilful misconduct or gross negligence on the part of the supervisory authority is required. Gross negligence has been interpreted by the jurisprudence as the situation where the supervisory authority, while being aware, omits to act in the face of serious, specific and repeated infringements . The limitation of the civil liability of supervisors – and specifically the authority entrusted with the functions of banking supervision and bank resolution – is consistent with the development of international standards in these fields. This highlights the need to protect the exercise of discretion in these fields, especially (a) in view of the complexity of the decisions that the authority takes and (b) having regard to the planning of the supervisory activities, which is an exclusive prerogative of the relevant authority.
7 See Article 24 of the Law on public savings and financial intermediation (Legge 28 dicembre 2005, n. 262, Disposizioni per la tutela del risparmio e la disciplina dei mercati finanziari, pubblicata nella Gazzetta Ufficiale n. 301 del 28 dicembre 2005).
8 See Cass. civ., sez. III, 5.9.2019, n. 22164 and Cass. civ., 12.4.2018, n. 9067.
9 See Basel Committee on Banking Supervision, Core Principles for Effective Banking Supervision (September 2012), Principle 2, Essential Criterion 9, available on the website of the Bank for International Settlements at www.bis.org (hereinafter the ‘Basel Core Principles’). On resolution and crisis management of credit institutions, see Financial Stability Board, Key Attributes of Effective Resolution Regimes for Financial Institutions (October 2014), Key Attribute 2.6, available on the website of the Financial Stability Board at www.financialstabilityboard.org. Liability of the members of the BdI’s governing bodies and staff 2.3 As concerns the liability of the members of the BdI’s governing bodies and staff, the ECB notes that from the perspective of the independence of an NCB, an NCB may not be put into a position where it has limited control or no control over its staff, or where the government of a Member State can influence its policy on staff matters. In this regard, any legislative provisions affecting the members of an NCB’s decision-making bodies and its employees should be decided in close and effective cooperation with the NCB , taking due account of its views, to ensure the ability of the NCB to independently carry out its tasks . 2.4 The ECB takes note of the BdI’s memorandum to the Italian Senate, in which the BdI states that the introduction of a provision in the draft law whereby actions for civil liability may be brought by third parties against supervisory authorities, but not against the members of their governing bodies or their employees, seems important in order to prevent judicial actions aimed at influencing assessments and decisions and, therefore, ultimately, to protect the independence of the government bodies and employees of supervisory authorities in the exercise of the discretion assigned to them, especially in view of the complex nature and the multiple interests to be balanced in these areas . In this regard, the BdI points out that significant limitations on the possibility of bringing actions for damages by third parties directly against natural persons acting on behalf of the supervisory authorities are applied in most Member States, which is also relevant in the context of the ECB’s Single Supervisory Mechanism (SSM). 2.5 The ECB highlights that the current liability regime, as amended by the draft law, may have a particular impact on the members of the BdI’s governing bodies and staff performing supervisory tasks given that the adoption of individual supervisory decisions is connected to the risk of litigation actions against the supervisor by the supervised credit institution or by other affected stakeholders. Such actions may relate, for example, to an alleged reduction of profit, the loss of a business opportunity, injury to commercial reputation, etc. Litigation of this kind may be initiated irrespective of the correctness of any prudential measures adopted, especially where several categories of stakeholders with competing interests, e.g. the creditors of a failing bank, are involved. 2.6 In order to address this litigation risk, which is inherent to the prudential supervision, Principle 2 of the Basel Core Principles states that: (a) laws should protect the supervisor and its staff against lawsuits for actions taken and/or omissions made while discharging their duties in good faith; and (b) the supervisor and its staff should be adequately protected against the costs of defending any actions and/or omissions they make while discharging their duties in good faith . Therefore, the ECB
10 See Opinion CON/2019/19. All ECB opinions are published on EUR-Lex.
11 See Opinions CON/2010/42, CON/2010/51, CON/2010/56, CON/2010/69, CON/2010/80, CON/2011/104, CON/2011/106, CON/2012/6, CON/2012/86 and CON/2014/7.
12 See the Memorandum of the Banca d’Italia, Draft law: Measures to support the competitiveness of capital (Disegno di legge “Interventi a sostegno della competitività dei capitali” AS 674 Memoria della Banca d’Italia, 27 Giugno 2023).
13 Principle 2, essential criterion 9, of the Basel Core Principles. suggests that the draft law should be amended in order to introduce a liability regime that is also aligned with the Basel Core Principles in this respect . 2.7 While, in principle, it is a matter for national law to determine the scope of liability connected with the performance of the tasks of national competent authorities (NCAs) in the SSM, including the BdI, it is also important for the functioning of the SSM that national liability regimes offer standards of legal protection commensurate with the Basel Core Principles. If the legal protection offered to the staff of the BdI is inadequate, the position of any of the BdI’s staff members involved in joint supervisory teams (JSTs) within the SSM may be compromised given that instructions given to such staff by the JST coordinator in line with Article 6(1) of Regulation (EU) No 468/2014 of the European Central Bank may lead to personal liability claims against such staff. 2.8 In this context, the ECB notes that Basel Core Principle 2 requires that banking supervisors possess operational independence which implies, in particular, that: (i) there is no government or industry interference that compromises the operational independence of the supervisor and (ii) the supervisor has full discretion to take any supervisory actions or decisions regarding the banks and banking groups under its supervision . 2.9 The current liability regime, as amended by the draft law, may have a particular impact on the members of BdI’s governing bodies and the BdI’s staff also in the context of crisis management, when the BdI may need to act effectively and swiftly in order to protect the stability of the Italian financial system . 2.10 Finally, the ECB also takes note of the possibility to ensure that the abovementioned principles are duly considered in the context of the preparation of the legislative decree to be adopted by the Government, which could address the question of the civil liability of the members of the BdI’s governing bodies and the BdI’s staff , which obviously does not affect the BdI’s right of redress against them, if such is the case. In this respect, the ECB would appreciate being consulted on the legislative decree.
3. Reform of the cooling-off/in rules
3.1 As far as cooling-off/in rules are concerned, the draft law does not make an explicit distinction when it comes to its application to the different mandates or capacities of the BdI. However, in light of the title of Title II of the draft law , the ECB understands that this approach has been chosen in order to adopt rules applicable to the members of the governing bodies and the relevant staff of all of the supervisory authorities.
14 See paragraph 2.8.2 of Opinion CON/2019/19.
15 Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (ECB/2014/17) (OJ L 141, 14.5.2014, p. 1).
16 See paragraph 2.8.3 of Opinion CON/2019/19.
17 See paragraph 2.8.4 of Opinion CON/2019/19.
18 See Article 19(2), letter i) of the draft law. 19 Title II of the draft law, which includes Articles 20 and 21, is entitled ‘Regulation of national supervisory authorities’. 3.2 The ECB’s Code of Conduct for high-level ECB officials (hereinafter the ‘Single Code’) applies to the members of the Governing Council and the Supervisory Board of the ECB when exercising their functions as members of a high-level ECB body. It also applies to persons replacing the members in meetings of the Governing Council or the Supervisory Board (hereinafter the ‘alternates’) in the performance of their duties and responsibilities relating to these high-level bodies where explicitly provided for in the Single Code. The reduction of the cooling-off period from two years to one year is less restrictive compared to the requirements of the Single Code. In addition, the Single Code sets limits on the establishment of post-employment relationships not only directly with significant or less significant credit institutions or other financial institutions, but also with ‘any entity engaged in lobbying in relation to the ECB, or consultancy and/or advocacy for the ECB or for any [supervised] institution’ . It should also be considered that the Single Code, insofar as it refers to the members of the Supervisory Board, is to be seen as implementing Council Regulation (EU) No 1024/2013 (hereinafter the ‘SSM Regulation’), which requires the ECB, in cooperation with the NCAs, to: (a) establish and maintain comprehensive and formal procedures including ethics procedures and proportionate periods to assess in advance and prevent possible conflicts of interest resulting from subsequent employment within two years of members of the Supervisory Board; and (b) provide for appropriate disclosures. The procedures are without prejudice to the application of stricter national rules. Against this background, the ECB highlights that the draft law should be interpreted without prejudice to the Single Code and must ensure, for the members of the BdI’s governing bodies who fall within the scope of application of Article 31(3) of the SSM Regulation, the possibility of imposing and extending a cooling-off period of a maximum of two years in line with the Single Code . The cooling-in regime under the draft law appears to introduce more restrictive rules than those contained in the Single Code. In this respect, the Single Code is without prejudice to stricter ethical rules applicable to members and alternates by virtue of national law . 3.3 NCBs and NCAs, including the BdI, are also required to take the necessary measures to implement and comply with Guideline (EU) 2021/2253 of the European Central Bank (ECB/2021/49) and Guideline (EU) 2021/2256 of the European Central Bank (ECB/2021/50) (hereinafter the ‘Guidelines’), informing the ECB of any obstacles for their implementation. As for the cooling-off period, the Guidelines require NCBs and NCAs to have mechanisms in place to assess and avoid possible conflicts of interest arising from post-employment occupational activities undertaken by their members of staff and the members of their bodies, including appropriate cooling-off periods . The ECB highlights that the draft law should be interpreted without prejudice to the Guidelines and should
20 See the Code of Conduct for high-level ECB officials (OJ C 478, 16.12.2022, p. 3). 21 See Article 17.3, point (b), of the Single Code. 22 See Article 31(3) of Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63). 23 See Article 17.3, point (b), of the Single Code. 24 See Article 2.2 of the Single Code. See also Opinions CON/2010/54, CON/2015/42 and CON/2019/19. 25 Guideline (EU) [2021/2253] of the European Central Bank of 2 November 2021 laying down the principles of the Eurosystem Ethics Framework (ECB/2021/49) (OJ L 454, 17.12.2021, p. 7). 26 Guideline (EU) 2021/2256 of the European Central Bank of 2 November 2021 laying down the principles of an Ethics Framework for the Single Supervisory Mechanism (ECB/2021/50) (OJ L 454, 17.12.2021, p. 21). 27 See Article 6(3) of the Guidelines. not interfere with the implementation of the Guidelines. In this respect, the scope of application of the draft law seems narrower than that of the Guidelines, as the draft law seems to refer only to the BdI's upper management (dirigenti), resulting in a partial implementation of the Guidelines. While this is not expressly stated in the draft law, the ECB understands that the Guidelines may be fully implemented by BdI through its own regulations. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 8 December 2023. [signed] The President of the ECB Christine LAGARDE