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THE ROLE AND TASKS OF THE ROLE AND TASKS OF THE DIFFERENT AGENCIES THE DIFFERENT AGENCIES INVOLVED IN REGULATION INVOLVED IN REGULATION

AND SUPERVISION OF AND SUPERVISION OF SOEs.SOEs.

THE ITALIAN EXPERIENCETHE ITALIAN EXPERIENCE

Presentation by Roberto Ulissi, Presentation by Roberto Ulissi, Director General, Ministry of Director General, Ministry of

Economy and Finance, Head of Economy and Finance, Head of Directorate “Bank and Financial Directorate “Bank and Financial

System. Legal Affairs”System. Legal Affairs”

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The SOEs in ItalyThe SOEs in Italy

Large privatization program in Italy, Large privatization program in Italy, started in 1993started in 1993

Present situation: still many SOEsPresent situation: still many SOEs• 26 directly owned; some are 100% controlled26 directly owned; some are 100% controlled• large groups: many indirect shareholdingslarge groups: many indirect shareholdings• diversified sectors diversified sectors • listed and non-listedlisted and non-listed

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ENTITIES INVOLVED IN ENTITIES INVOLVED IN REGULATION AND REGULATION AND

SUPERVISION OF SOEsSUPERVISION OF SOEs

Ministry of Economy and FinanceMinistry of Economy and Finance Other MinistriesOther Ministries National Commission for Corporations and National Commission for Corporations and

Stock Exchange (CONSOB, the Securities Stock Exchange (CONSOB, the Securities and and FinancialFinancial Market Regulator) Market Regulator)

Other Independent AuthoritiesOther Independent Authorities Stock Exchange OperatorStock Exchange Operator Court of AuditorsCourt of Auditors ParliamentParliament

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Ministry of Economy and Ministry of Economy and FinanceFinance

Two separate roles:Two separate roles: OwnerOwner ShareholderShareholder

Two levels of responsibility:Two levels of responsibility: Minister: guidelines and political decisionsMinister: guidelines and political decisions Officers: proposals, implementation of Officers: proposals, implementation of

political decisions, administrative and political decisions, administrative and contractual activitycontractual activity

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……The Ministry of Economy as The Ministry of Economy as ownerowner

MEF is only the formal owner; it is not free to sell MEF is only the formal owner; it is not free to sell sharesshares

Some limited exceptions to MEF ownership existSome limited exceptions to MEF ownership exist Decision to sell and how (political decision): Decision to sell and how (political decision):

• In general: Prime Minister on a proposal by the Minister of In general: Prime Minister on a proposal by the Minister of Economy and the Minister of Productive Activities Economy and the Minister of Productive Activities

• Only for minor shareholdings: the Minister of Economy Only for minor shareholdings: the Minister of Economy alonealone

• Exception for national broadcasting company (RAI): CIPE Exception for national broadcasting company (RAI): CIPE resolution (Interministerial Committee for Economic resolution (Interministerial Committee for Economic Planning); comprehensive resolutionPlanning); comprehensive resolution

Implementation of sale: the Ministry of Economy Implementation of sale: the Ministry of Economy alone (officer level)alone (officer level)

Permanent assistance of an Advisory and Permanent assistance of an Advisory and Transparency Committee, appointed by Transparency Committee, appointed by GovernmentGovernment

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……The Ministry of Economy as The Ministry of Economy as shareholdershareholder

Exercise of rights (political level): Exercise of rights (political level): • in major companies: Minister of Economy with other Ministers in major companies: Minister of Economy with other Ministers

(competent for the specific sector) and according to guidelines (competent for the specific sector) and according to guidelines of Prime Ministerof Prime Minister

• in some cases, Minister of Economy alone;in some cases, Minister of Economy alone;• in some limited cases, competence of other Ministers alonein some limited cases, competence of other Ministers alone

Content of rights: the same as common shareholders, with Content of rights: the same as common shareholders, with limited exceptions:limited exceptions:• non application of ceilings on shareholding established in by-non application of ceilings on shareholding established in by-

lawslaws• golden sharegolden share

No involvement in the management of the company No involvement in the management of the company (company law prescription)(company law prescription)

Only monitoring of management (particularly of non-listed Only monitoring of management (particularly of non-listed companies): monitoring of industrial objectives and to companies): monitoring of industrial objectives and to prevent critical situations (officer level)prevent critical situations (officer level)

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The role of other MinistriesThe role of other Ministries

General role, not specific for SOEs:General role, not specific for SOEs:• regulation of industrial sectors; licences; regulation of industrial sectors; licences; • licence and control of public services managementlicence and control of public services management

Specific role as to SOEs:Specific role as to SOEs:• participation in selling decisions participation in selling decisions • participation in the exercise of shareholder’s rights; for participation in the exercise of shareholder’s rights; for

appointments of directors, actual involvement of whole appointments of directors, actual involvement of whole Government and coalition party leadersGovernment and coalition party leaders

• CIPE guidelines for specific tariffs (e.g. railways) CIPE guidelines for specific tariffs (e.g. railways) • guidelines to specific companies in sensitive sectorsguidelines to specific companies in sensitive sectors

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Securities and Financial Securities and Financial Market Regulator (CONSOB)Market Regulator (CONSOB)

Exclusive competence in supervision and regulation Exclusive competence in supervision and regulation of securities market and listed companiesof securities market and listed companies

Limited exceptions for SOEs in the law:Limited exceptions for SOEs in the law:• non application of provisions on investment solicitation, if non application of provisions on investment solicitation, if

securities issued or guaranteed by the State. No occurance securities issued or guaranteed by the State. No occurance as to SOEs’ shares and not permitted by EU law. Only for as to SOEs’ shares and not permitted by EU law. Only for public debt sec. public debt sec.

• facilitations in reporting indirect shareholding; facilitations in reporting indirect shareholding; • market abuse exemption for public debt transactions market abuse exemption for public debt transactions

(permitted by EU directive)(permitted by EU directive) No exemption for SOEs granted by CONSOBNo exemption for SOEs granted by CONSOB MEF must comply with all regulations and MEF must comply with all regulations and

obligations and it is subject to common supervision obligations and it is subject to common supervision and sanctions; also payment of fees to CONSOBand sanctions; also payment of fees to CONSOB

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Other Independent AuthoritiesOther Independent Authorities

Regulatory and supervisory authorities for Regulatory and supervisory authorities for specific sectors; general competence for specific sectors; general competence for all enterprises: all enterprises: • electricity and gas; telecommunicationselectricity and gas; telecommunications• banking and insurance (Bank of Italy and banking and insurance (Bank of Italy and

ISVAP); some competences shared with ISVAP); some competences shared with CONSOBCONSOB

Antitrust authority (national and EU): Antitrust authority (national and EU): compliance with competition rules (e.g. as compliance with competition rules (e.g. as to sales, assignment of exclusive licences, to sales, assignment of exclusive licences, public procurement); State-aid control; public procurement); State-aid control; actions against monopolies or dominant actions against monopolies or dominant positions positions

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Stock Exchange OperatorStock Exchange Operator

Listing and delistingListing and delisting Regulation of transactionsRegulation of transactions Disclosure of pricesDisclosure of prices No specific rules for SOEsNo specific rules for SOEs

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Court of AuditorsCourt of Auditors

Control of financial management of State-Control of financial management of State-controlled companies for possible controlled companies for possible damages to public finance; prosecution damages to public finance; prosecution against directors and managers.against directors and managers.

Judge attending board meetingsJudge attending board meetings

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ParliamentParliament

Opinion on sale of State’s controlling Opinion on sale of State’s controlling shareholding in public utilitiesshareholding in public utilities

Opinion on industrial plan in case of sale of Opinion on industrial plan in case of sale of State’s controlling shareholding in national State’s controlling shareholding in national airline (Alitalia)airline (Alitalia)

Specific powers as to the national Specific powers as to the national broadcasting company (RAI): broadcasting company (RAI): • participation in appointment of directors; participation in appointment of directors;

permanent supervisionpermanent supervision• qualified majorities needed: participation of qualified majorities needed: participation of

opposition partiesopposition parties

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Assessment of the allocation Assessment of the allocation of responsibilitiesof responsibilities

Clear distinctionClear distinction No overlapping between Ministry of Economy and No overlapping between Ministry of Economy and

CONSOBCONSOB Some overlapping between Ministries: Some overlapping between Ministries:

overlapping of shareholder’s rights and regulatory overlapping of shareholder’s rights and regulatory competencescompetences

De facto interference in some decisions by other De facto interference in some decisions by other Ministers and coalition party leadersMinisters and coalition party leaders

Statutory political influence by Parliament in Statutory political influence by Parliament in specific companiesspecific companies

More rational distinction of responsabilities More rational distinction of responsabilities between financial sector supervisors is possible between financial sector supervisors is possible (CONSOB, Bank of Italy and ISVAP) and between (CONSOB, Bank of Italy and ISVAP) and between Bank of Italy and Antitrust authorityBank of Italy and Antitrust authority

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ACCOUNTABILITYACCOUNTABILITY

Ministry of EconomyMinistry of Economy

Officers: accountable to MinisterOfficers: accountable to Minister Minister: accountable to ParliamentMinister: accountable to Parliament Minister and officers: to Court of Auditors; Minister and officers: to Court of Auditors;

personal liability for damages to public finance; personal liability for damages to public finance; formal control, inadequate to market formal control, inadequate to market transactions; it may affect decision making transactions; it may affect decision making

General principles of administrative action: rule of General principles of administrative action: rule of law, due process, transparency, justiciability, law, due process, transparency, justiciability, possible liability for individual damagespossible liability for individual damages

Accountability to the market: decisions may Accountability to the market: decisions may affect market value and further salesaffect market value and further sales

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ConsobConsob

To Parliament through MEF: annual report and information To Parliament through MEF: annual report and information on major eventson major events

To Parliament and Government:To Parliament and Government:• appointment of Commissioners appointment of Commissioners

To the Prime Minister and the Minister of EconomyTo the Prime Minister and the Minister of Economy• approval of internal regulations (formal control) approval of internal regulations (formal control) • removal of Commissioners, only in exceptional casesremoval of Commissioners, only in exceptional cases

To the Minister of EconomyTo the Minister of Economy• annual report; regular reporting of major events and duty to annual report; regular reporting of major events and duty to

submit info requested submit info requested To the Court of Auditors: control of accounts and personal To the Court of Auditors: control of accounts and personal

liabilityliability General principles of administrative actionGeneral principles of administrative action To the market: consultations (now mandatory)To the market: consultations (now mandatory) To CESR (Council of European Securities Regulators)To CESR (Council of European Securities Regulators)

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Other AuthoritiesOther Authorities

To ParliamentTo Parliament• appointment of governing bodiesappointment of governing bodies• annual reportannual report

To the Court of AuditorsTo the Court of Auditors Bank of Italy: accountability to be better definedBank of Italy: accountability to be better defined

Stock Exchange OperatorStock Exchange Operator

To CONSOBTo CONSOB To the marketTo the market

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CONFLICTSCONFLICTS Internal conflicts within MEFInternal conflicts within MEF

Different roles and functions of Ministry of EconomyDifferent roles and functions of Ministry of Economy• owner and shareholder; multiple shareholdings; owner and shareholder; multiple shareholdings;

responsibility for State budget; responsibility for general responsibility for State budget; responsibility for general economic policyeconomic policy

• possible conflicts in decision to sell, dividend policy, possible conflicts in decision to sell, dividend policy, intercompany transactions, economic and tax policy intercompany transactions, economic and tax policy measuresmeasures

• statement in prospectuses to protect shareholders’ value statement in prospectuses to protect shareholders’ value in his role as shareholderin his role as shareholder

Conflicts between Minister and officers: formal Conflicts between Minister and officers: formal independenceindependence

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Conflicts between competent Conflicts between competent entitiesentities

..Conflicts between MinistriesConflicts between Ministries

On sale (timing and modalities) and On sale (timing and modalities) and exercise of shareholder’s rightsexercise of shareholder’s rights

On tariffs, within CIPEOn tariffs, within CIPE Different approaches and different Different approaches and different

interests protectedinterests protected Resolution at Government level (Council of Resolution at Government level (Council of

Ministers)Ministers) Conflicts on board appointments: often Conflicts on board appointments: often

general political compromise general political compromise

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Conflicts between Ministry of Conflicts between Ministry of Economy and CONSOBEconomy and CONSOB

CONSOB is an independent authority; it can CONSOB is an independent authority; it can not be forced to take a decisionnot be forced to take a decision

No fiduciary relationshipNo fiduciary relationship The supervision of MEF over CONSOB does The supervision of MEF over CONSOB does

not affect the institutional activitynot affect the institutional activity Possible conflicts on sanctions, in the pastPossible conflicts on sanctions, in the past Judicial review availableJudicial review available Possible effect on re-appointmentPossible effect on re-appointment In fact, CONSOB is cooperative; smooth In fact, CONSOB is cooperative; smooth

relationshiprelationship

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Conflicts between MEF and Conflicts between MEF and other independent authoritiesother independent authorities

Possible conflicts in particular with the Possible conflicts in particular with the Authority for electricity and gas (e.g. on Authority for electricity and gas (e.g. on tariffs), the Authority for tariffs), the Authority for telecommunication (concerning the telecommunication (concerning the national broadcasting company, RAI) and national broadcasting company, RAI) and the Antitrust authoritythe Antitrust authority

Independence of the authoritiesIndependence of the authorities Judicial review availableJudicial review available No leverage as to re-appointmentNo leverage as to re-appointment More formal relationshipMore formal relationship

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Conflicts between Ministry of Conflicts between Ministry of Economy and ParliamentEconomy and Parliament

Parliament opinion not binding; MEF may Parliament opinion not binding; MEF may override it, disclosing reasonsoverride it, disclosing reasons

Conflict may involve political confidenceConflict may involve political confidence Conflicts on the national broadcasting Conflicts on the national broadcasting

company (RAI):company (RAI):• conflicts and uncertainty on political orientations conflicts and uncertainty on political orientations

may affect the regular management of companymay affect the regular management of company• possible internal conflicts preventing the possible internal conflicts preventing the

formation of qualified parliamentary majorities; formation of qualified parliamentary majorities; delaydelay

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PROSPECTIVE REFORMPROSPECTIVE REFORM

Bill on the protection of saving. Issues being Bill on the protection of saving. Issues being discussed, concerning financial sector discussed, concerning financial sector authorities:authorities:

Strengthnening of CONSOB (partly achieved)Strengthnening of CONSOB (partly achieved) Clearer distinction of responsibilities (by Clearer distinction of responsibilities (by

objectives)objectives) Stronger independenceStronger independence Stronger accountability to Parliament and Stronger accountability to Parliament and

transparency; regular consultation of markettransparency; regular consultation of market CoordinationCoordination