i Sources of law
EU law is the primary source of regulation that directly, or through implementation in national law, shapes the Italian legal framework, and this is also the case in the area of securities law.
Among the most important EU regulations in this context are, inter alia, Directive 2003/6/EC (MAD), Directive 2004/39/EC (MiFID I), Directive 2003/71/EC (the Prospectus Directive), Directive 2014/57/EU (MAD II). Regulation (EU) No. 596/2014 (MAR), Directive 2014/65/EU (MiFID II) and Regulation (EU) 600/2014 (MiFIR).
Given the primacy of European law in the Italian legal framework, decisions of the European Court of Justice are also of paramount importance in the interpretation and application of EU law and of domestic law implementing EU law.
At a domestic level the main corpus of financial regulation is contained in the Consolidated Financial Act of 1998 (CFA),2 the Consolidated Banking Act of 1993 (CBA),3 and in several provisions of the Civil Code, the Criminal Code and, with respect to procedural rules, the Code of Civil Procedure and the Code of Criminal Procedure. With respect to insurance companies and financial products distributed through the insurance market, the Code of Private Insurance and regulations issued by the Italian Insurance Supervisory Authority (IVASS) are also relevant.
Among the secondary sources of law, the most important are regulations issued by the Italian securities and exchange commission (CONSOB) implementing and specifying legal provisions. In addition, CONSOB may also issue guidelines and recommendations.
With the exception of certain Constitutional Court decisions, as in other civil law systems, case law is not sensu stricto a source of law, but the judgment of the Supreme Court and, to a lesser extent of lower courts, is of material importance in the interpretation and application of the law.
As we will see hereafter, decisions of the European Court of Human Rights may also have a relevant impact on the law.
ii Regulatory authorities
CONSOB is the supervisory authority over investment intermediaries and issuers and is responsible for regulating the Italian securities market and for ensuring compliance with the rules of transparency and proper conduct to protect investors. CONSOB is vested with broad powers to sanction the entities and persons subject to its monitoring authority and, in general, those who may have infringed financial regulations; its powers also extend to the imposition of administrative sanctions in cases of market abuse.
Banca d’Italia is the supervisory authority over Italian banks and financial intermediaries, such as investment firms and collective investment undertakings.
IVASS is the regulatory and supervisory authority over insurance companies and intermediaries and it also has competence for the supervision of the distribution of financial products when performed through typical insurance channels, such as insurance brokers or agents, or directly by the insurance companies.
The Ministry of Economy and Finance (MEF) is also competent to adopt regulations, after consultation with the other regulatory authorities, concerning the experience, integrity and independence requirements for persons in charge of the administrative, management and audit functions in Italian investment companies and asset management companies, and it sets the integrity requirements for the shareholders in such companies.
Italian stock exchange management company Borsa Italiana SpA, which is part of London Stock Exchange Group, is responsible for the management of the exchange market and, as part of its role, monitors the conformity of negotiations on the market and compliance with its rules.
With respect to judicial authorities, civil cases are delegated to local civil courts at first instance, courts of appeal for second instance decisions, and the Court of Cassation (hereinafter also the Supreme Court) as the last recourse for violations of law. For criminal proceedings, the system is more complex. Public prosecutors are in charge of conducting investigations and pleading cases before the criminal courts. The criminal court of first instance has subdivisions that are competent for each particular step of the proceedings: with a judge for the preliminary investigations, a judge for preliminary hearings and, of course, the court itself (see Section III.ii, infra).
iii Common securities claims
Civil claims concerning securities include claims brought by small or institutional investors against issuers and their representative bodies for non-compliance with financial regulations, and are normally aimed at obtaining restitution of the investment or damages. More frequently, small investors’ claims are addressed to financial intermediaries and banks responsible for placement and distribution of securities in respect of lack of compliance with information obligations or suitability rules. Typical claims include requests for annulment or termination of investment contracts and restitution of lost investment or damages. Insurance companies – in particular foreign companies operating under the freedom-to-provide-services regime – are also often defendants in cases of substantial losses of securities to which life insurance products are linked (such as unit-linked or index-linked products).
Credit rating agencies are also targeted by claimants for their responsibility in monitoring and rating issuers.
Investors, typically represented by associations, may participate in criminal proceedings to claim civil damages.
II PRIVATE ENFORCEMENT
i Forms of action
The CFA establishes the legal basis for the majority of civil claims brought before Italian courts in securities litigation. It provides a cause of action for untrue or omitted statements in prospectuses, as well as for breach of the public takeover bid obligation for shareholders exceeding the 30 per cent shareholding threshold, for violations of disclosure requirements and the duty of care of financial intermediaries on the secondary market.
Investors are also allowed to sue CONSOB and other third parties, such as rating agencies and auditing firms, for liabilities arising out of violation of the relevant laws and negligence in relation to their supervision and control duties.
In broad terms, under corporate law provisions set out in the Italian Civil Code, namely Sections 2395, 2396 and 2407, investors may seek compensation of their losses by bringing liability claims for breach of legal or corporate obligations of issuers’ or other entities’ directors, managers and auditors. Under Section 15 of Legislative Decree No. 39/2010, statutory auditors and auditing firms may be held jointly responsible with the aforesaid persons for their respective violations.
Liability for misstatements or incomplete information in prospectuses
Under Section 94, Paragraph 8 of the CFA an investor may seek compensation in the form of damages from the issuer, the offeror, the guarantor and any other entity responsible for untrue or incomplete statements combined in the prospectus. Investors also have a claim under Section 94, Paragraph 9 against the intermediary responsible for the securities’ placement, where false or incomplete information is capable of influencing a reasonable investor’s decisions.
The Italian Supreme Court has stated in several decisions in recent years that the prospectus liability is a tort that justifies the burden of proof lying with the investor. Nonetheless, alleviations of the burden of proof have been granted for investors by the Supreme Court. In decision No. 14056/2014, the Supreme Court found that the issuer is to be held responsible where the prospectus is incomplete or misleading because of the issuer’s negligence, unless the issuer proves that the defective information did not influence investors’ decisions. Moreover, the issuer may be exonerated from responsibility upon demonstrating that he or she had performed due diligence to make sure that the prospectus statements were accurate and did not contain misleading information or omit information.
In cases of prospectus liability, investors may bring actions against issuers, directors and managers under Sections 2395 and 2396 of the Italian Civil Code and, based on Section 17 of Legislative Decree No. 39/2010, statutory auditors and auditing firms might be jointly responsible with the audited firm directors and managers for their part of any damage caused.
CONSOB may also be held liable for violation of Section 95 of the CFA, according to which the authority is required to approve the prospectus upon the prior positive test of completeness, consistency and comprehensibility of the information provided therein. However, decision No. 23418/2016 of the Supreme Court clarified that CONSOB and its employees are to be held responsible only for wilful misconduct or gross negligence (e.g., when it is particularly evident that the information is untrue).
Breach of the obligation to publish a prospectus may also allow the investor to file a claim against the licensed intermediaries to declare the invalidity of the securities purchase contract and restore the loss suffered through the investment.
Actions for prospectus liability are subject to a short limitation period (five years compared with the standard contractual liability statutory period of 10 years).
Liability for breach of the public takeover bid obligation
Pursuant to Section 106 of the CFA, anyone exceeding the 30 per cent shareholding or the corresponding voting rights of a listed company (or of a controlling company of a listed company) as a result of acquisitions or voting rights increases must launch a mandatory public takeover bid to all the shareholders of the stock admitted to trading on a regulated market.
Over the past five years, claims have been brought from shareholders seeking damages arising from violations of the public takeover bid obligation. In several decisions on these claims, the Supreme Court repeatedly held that breach of the aforesaid obligation raises contractual liability, and the claimant is entitled to be restored upon demonstration that the missed public takeover bid has resulted in a loss of the possibility of making profits. Pursuant to the Supreme Court case law, damages are calculated taking into account the alternative share value had the public takeover bid been launched, as well as other events capable of influencing the share value.
Liability for breach of disclosure requirements and other statutory obligations
In the context of securities litigation, claims regarding contractual relationships between financial intermediaries and retail investors (i.e., investors who do not have sufficient expertise to make informed investment decisions) have been dominating case law over the past 15 years.
The prominence of this kind of dispute is due to different factors, one of which is that the Italian judicial system makes it more likely for investors to obtain monetary compensation on a contractual liability claim against financial intermediaries rather than on claims against issuers or others related to issuers or involved in market placement of securities.
As a matter of fact, the CFA, namely Sections 21 and 23, and the implementing regulations issued by CONSOB, establishes the maximum protection standard for retail investors. These provisions encompass a comprehensive set of disclosure requirements, a general duty of care in the provision of investment services and several obligations concerning the consistency and appropriateness of securities in relation to the investor risk profile (i.e., suitability rule and best-execution rule).
The majority of claims against financial intermediaries have originated from the bankruptcies of well-known Italian firms, such as Cirio and Parmalat, along with the economic collapse of Argentina.
Investors claimed in particular that the intermediaries, on one hand, failed to provide investors with material information on the credit risk of the securities, and, on the other, breached their adequacy-rule obligations, as the securities at stake were not suitable considering the investors’ risk profile. The Supreme Court held that such claims are based on contractual liability but do not affect the validity of contracts between investors and intermediaries. The investor may ask only for compensation for the loss suffered as a result of intermediaries’ breaches. In a recent decision, the Supreme Court also held that the issuer is jointly responsible with the intermediary if the former does not reimburse its bonds, so that the investor is entitled to damage compensation from both the issuer for not reimbursing the bond and the financial intermediary for breach of disclosure requirements or other obligations set out by the law.
According to Section 23 of the CFA, the burden of proving compliance with legal obligations and diligence standards rests with the intermediary. The case law also allows investors to prove causation and damage by mere presumption. Furthermore, no proof at all is requested as to the causation of damage in some cases, such as breaches of the adequacy rule in stock purchase cases.
Investors may also bring claims against subjects other than issuers and financial intermediaries.
Apart from auditors’ liability mentioned above, investors may sue (1) CONSOB for breaches in licensing, supervision and monitoring of firms and individuals authorised to operate on the securities market, and (2) credit rating agencies for violations of law in performing their credit rating assessment.
As to CONSOB liability, claims on prospectuses mentioned above are embedded in the broader provision under Section 24, Paragraph 6 bis of Legislative Decree No. 262/2005, which sets forth CONSOB’s, and its employees’, liability for unduly exercising with intent or gross negligence its supervisory and monitoring powers.
For instance, the Supreme Court held that CONSOB failed in its supervision function by licensing a company that belonged to a larger business group that provided investment services without proper authorisation.
Under Section 35 bis of Regulation (EC) No. 1060/2009 – amended by Regulation (EU) No. 462/2013 – investors and issuers are entitled to seek compensation from credit rating agencies where a credit rating assessment is a result of a violation of legal obligations with wilful misconduct or gross negligence. Credit rating agencies are held responsible if the claimant provides detailed and specific proof both of the breaches committed by the credit rating agency and of the impact of the breaches on the credit rating assessment. There are only two decisions on this subject, both from the Rome Court of First Instance, and both of them rejected the investor’s claim, although they provided useful clarification on how the cause of action applies.
So far, class actions may be brought only by consumers and users, that is, individuals acting for purposes other than professional and commercial ones. Section 140 bis of Legislative Decree 206/2005 (i.e., the Italian Consumer Code) provides that consumers acting through their associations and committees may initiate class actions aimed at obtaining damage compensation and refunds.
Section 32 bis of the CFA allows investors to bring collective-interest claims against financial intermediaries. Only associations included on a specific Ministry of Economic Development list are entitled to bring the aforesaid claims. Under Sections 139 and 140 of Legislative Decree No. 206/2005, the remedies provided for such representative associations’ claims include injunctions and measures aimed at correcting or removing negative consequences for consumers caused by counterparties’ violations.
As to the case law, in 2014, the Florence Court of First Instance rejected a class action brought by shareholders against the issuer. The Court held that the claim was beyond the scope of Section 140 bis of Legislative Decree No. 205/2006 for several reasons, one of them being the fact that shareholders cannot be considered consumers.
On the other hand, the Supreme Court recently held that Section 140 bis is applicable to individual investors. Recently, in decision No. 23304/2016, the Supreme Court also granted the option to investors’ representative associations included on an ad hoc Ministry of Economic Development list to be a supporting party in claims brought by single investors.
The securities litigation claims described above are predominantly common civil claims and therefore subject to civil proceedings rules set out by the Italian Code of Civil Procedure.
Civil proceedings concerning banking, finance and insurance must be preceded by an attempt to settle the dispute through formal mediation proceedings governed by Legislative Decree No. 28 of 4 March 2010. The claimant can then choose either a general civil procedure trial, or, if the claim is relatively simple, to opt for an expedited procedure. The general civil procedure commences with the service of a written statement of claim containing and indicating the hearing for the commencement of the proceedings. The defendant is given a term of not less than 70 days (up to 130 days if the defendant is not resident in Italy) to file his or her written defence. Afterwards, a first hearing takes place, where parties are normally assigned parallel terms within which to submit three corresponding defence briefs containing the definitive presentation of all facts and allegations, and the relevant documents and evidence to support their case. Parties may also request evidence to be produced by the counterparty or third persons, as long as it is assumed that the evidence required is necessary for the claim and may not be achieved otherwise.
As in similar civil law systems, there are no discovery proceedings in the Italian judicial system. A crucial rule in civil proceedings in Italy is that it is up to the parties to select the relevant facts and evidence to be disclosed before the judge. Nevertheless, under Section 210 of the Code of Civil Procedure, parties are provided with the option to request that the judge impose evidence production on the counterparty or others, as mentioned above.
Furthermore, under Section 212 of the Italian Code of Civil Procedure, the judge may request that public bodies file with the court written information on facts and documents that appear necessary for the judgment. Should the judge need assistance to evaluate technical, financial or accountancy issues, an expert of his or her choice may be appointed. This is often the case, for instance, when it is necessary to determine the financial loss suffered by the investor.
Admission and taking of evidence hearings (such as witness hearings) are usually followed by a hearing where parties are invited to make their final requests to the court and followed by a subsequent exchange of final briefs and responses. After this stage, the judge is expected to issue a decision within a short time. A first instance decision becomes definitive if it is not appealed within six months (or in a short term of 30 days if the decision is served on the other party), whereas appeal rulings become definitive if not challenged before the Supreme Court (for law violations) within a year (or in a short term of 60 days if the appeal ruling is served on the counterparty).
As a final remark, injunctions, freezing orders and other interim measure proceedings are also available and treated with simpler and more expeditious proceedings.
Generally speaking, civil procedure rules provide the judge with the option to attempt an amicable settlement of the claim on his or her own initiative (Section 185 bis of the Code of Civil Procedure) or upon the joint request of the parties (Section 185).
Although several provisions on extrajudicial settlement of disputes have been approved by the Italian lawmakers, their application has hardly been successful so far. The most important provisions of this kind – and yet the least effective – are laid down in Legislative Decree No. 28/2010, which introduces in broad terms facultative settlement proceedings for civil and commercial disputes conducted by private conciliation and mediation entities. Along with the facultative conciliation, the aforesaid Legislative Decree establishes mandatory pretrial mediation for disputes falling into some subject categories, one of which is financial contracts.
As to the securities litigation sector, a specific settlement entity has recently been introduced by the CONSOB regulation dated 4 May 2016. The Arbitrator for Financial Disputes (ACF) has competence for claims not exceeding €500,000 and regarding breaches of disclosure requirements and the duty of care of the financial intermediaries in the provision of investment services to retail investors. Subscription to the ACF is mandatory for financial intermediaries licensed or authorised to operate in Italy. Prior to accessing the ACF, the investor must have submitted a complaint against the intermediary that has not been responded to within 60 days or has been responded to in unsatisfactory terms for the investor. The CONSOB regulation provides for interruption of the ACF proceedings if alternative settlement negotiations are attempted by either party. The decision of the ACF, which is based only on documentary evidence, does not have res judicata effect and cannot be enforced in court. However, should the intermediary fail to comply with an award, it will be subject to reputational sanctions, such as the publication of its breach on the ACF website.
As to attorneys’ fees in the event of settlement, under Section 13, Paragraph 8 of Law No. 247/2012, both parties are jointly obligated to pay the attorneys’ fees and expenses if a dispute pending before courts or arbitrators is settled. The joint obligation of the parties may be waived by the attorneys.
iv Damages and remedies
As a general rule, the claimant is entitled to compensation for loss suffered as a consequence of the defendant’s violation.
In prospectus liability cases the damage for the investor is calculated as a difference between the amount the investor has paid and the amount that would have been actually paid in absence of the alleged violation. In cases of claims against financial intermediaries for breach of their law obligations, the damage is quantified as a difference between the securities’ value at the time of the purchase and their value at the time the investor’s claim was filed. Full compensation will be granted in the aforesaid cases if the claimant shows that had the infringement not been committed he or she would have not performed the securities transaction.
In other circumstances, damage consists in loss of opportunity to make profits, namely the higher value of the securities had the breach not taken place, which is the case in the public takeover bid obligation violation.
Indemnification normally encompasses expenses related to the securities transactions. Sometimes, especially in financial intermediary liability claims, judges grant a supplementary compensation for the lost profit of the investor upon demonstration of the alternative use of the amount by the investor or even in a presumptive way.
Punitive damages are not granted, although there is broad debate on the admissibility of this category of damages in the Italian legal system.
Although compensation in the form of damages is the main remedy in securities litigation, even the only one in some cases, other remedies for specific claims are provided by law, such as contract termination for gross violations by financial intermediaries, and contract invalidity provided by Section 100 bis of the CFA where an investor bought securities for which a prospectus was required by law and for which the prospectus was not published.
III PUBLIC ENFORCEMENT
i Forms of action
As a general comment, as a result of the entry into force in July 2016 of MAR (along with the relevant delegated regulations), which is directly applicable and prevails over domestic legislation, a problem arose regarding coordination with domestic legal provisions, in particular those contained in the CFA. In this respect, in a consultation document of 24 October 2016, CONSOB highlighted the relevant domestic provisions – in the CFA in particular – that should be amended or repealed to avoid conflict with MAR and its regulations.
There is a strict connection, and potential overlapping in certain cases, between administrative proceedings and criminal proceedings.
CONSOB is competent for the administrative enforcement of securities law and for imposing administrative sanctions, which are subject to appeal before the judicial authority (courts of appeal). CONSOB is vested with significant investigation powers that, for cases concerning insider trading and market manipulation, may extend to the power to access tax and bank account databases held by other public bodies, to request production of telephone registrations, to seize assets that may then be the object of confiscation, although in exercising certain of these powers, which are typical of the judicial authority, prior authorisation of the prosecutor is necessary.
The prosecutor and CONSOB are mutually bound to cooperate and to inform each other about a possible infraction that might lead to either administrative or criminal sanctions. However, to prevent delays to the administrative actions, the latter are not suspended if a criminal investigation or court proceedings have been commenced with respect to the same conduct. CONSOB is also entitled to participate in criminal proceedings to represent the interest of associations and other investors and market representative bodies, and to be awarded damages.
To avoid double sanctions, a specific rule provides that criminal pecuniary sanctions cannot be added to administrative fines and thus only the amount in excess of the latter must be paid by the convicted party. However, the European Court of Human Rights has highlighted that the Italian sanctions system is likely to infringe the general principle that forbids ‘double jeopardy’4 since it is possible that both the administrative and criminal proceedings may be pursued and reach different outcomes.
After the aforementioned ECHR judgment, the same issue was raised before the Constitutional Court, which, although refusing to examine the case for procedural reasons, considered that the matter is merely procedural in nature, and that it could only be resolved by the intervention of the legislative authority.5 In this respect, Article 30 of MAR allowed states to avoid administrative sanctions procedures if the same market abuse infringement was considered a criminal offence, but Italy has not used this option to resolve the issue.
CONSOB procedure is based on the principle of fair trial, transparency and strict distinction between the office in charge of conducting the fact-finding, and the office in charge of imposing the sanction.
However, the Grande Stevens v. Italy ECHR judgment,6 in addition to the double jeopardy issue, underlined the lack of due process in a procedure that, while formally administrative, is of a substantially criminal nature.
The Italian Council of State also highlighted the insufficient implementation of the due process principle, imposed by the law, in the procedural regulation issued by CONSOB and the latter was thus obliged to revise its rules in 2015 with a view to enhancing defendants’ rights.
The administrative procedure is commenced through a notice letter addressed to the defendant within 180 days (or 360 days if the defendant has its seat abroad) from the moment in which the CONSOB, in the performance of its supervision activity or in any other manner (for instance, through information transmitted by the prosecutor), finds that a violation might have been committed. The procedure must then be closed within 200 days.
Within 30 days from receipt of the notice, defendants are entitled to present written defences, to file documents and to apply for a personal audition concerning the circumstances of the alleged violation. Defendants may also request to access the documents contained in the official file.
After examination of the file, the competent office also submits to CONSOB a final report indicating a proposal for the kind and amount of the sanction to be issued or for the dismissal of charges. This report is also transmitted to the defendants, but only to the extent they had previously presented written defences or applied for an oral audition.
Defendants are allowed to present a written reply to the report within 30 days. Afterwards CONSOB may adopt the measure, which is served to the defendant, and a summary of which is published in CONSOB’s bulletin.
The sanction may then be challenged before the civil court of appeal within 60 days. The court of appeal, in a procedure that does not entail public hearings,7 decides the appeal and issues a decree that may be challenged, only on legal grounds, before the Supreme Court.
As indicated above, charges such as insider trading and market manipulation must8 also be separately pursued by the prosecutor in accordance with the general rules applicable to criminal proceedings. This means that defendants must be informed about the existence of a criminal investigation any time the prosecutor intends to perform an act entailing the participation of the defendant. The investigation phase is conducted under the supervision of the preliminary investigation judge.
When the investigation phase is closed the prosecutor presents a request for trial or dismissal to the preliminary hearing judge. After the preliminary phase, the case is tried before a court of three professional judges – juries are allowed only for the most serious criminal cases, such as murders – and the judgment can be challenged by the defendant or the prosecutor, or both, before the court of appeal. Second instance decisions are always subject to appeal before the Supreme Court for violations of procedural or substantive law.
Even if not concluded, criminal trials are closed without a decision on the merits if the limitation period applicable to the charge elapses.
As a general comment, criminal proceedings are governed by the adversarial principle and grant to defendants much larger guarantees and rights than the administrative procedure described above, and the burden of proof rests entirely on the prosecutor.
Civil claimants, including associations representing investors and CONSOB itself, may participate in the criminal proceedings and be awarded restitution or damages.
Companies may be held liable for market abuse crimes and sanctioned by the criminal court pursuant to Law Decree No. 231/2001 on criminal responsibility of legal entities.
For a limited number of violations – which do not include insider trading and market manipulation – and within a certain time limit indicated in the notice of infraction transmitted by CONSOB, defendants may avoid liability for a breach of securities law by spontaneously paying an amount equal to double the minimum sanction provided for by the law.9
In criminal cases, the defendant is generally allowed to apply for a plea bargain before the trial commences. In such cases, the prosecutor may agree or object to the plea bargain, but the final decision is taken by the preliminary hearing judge.
Since a plea bargain does not entail an admission of guilt, any persons who have suffered damage must start a civil case to obtain damages and restitution.
iv Sentencing and liability
For the most serious offences, such as insider trading and market manipulation, CONSOB may impose fines up to €3 million and €5 million respectively. These amounts may be increased up to 10 times the income or profit derived by the defendant as a consequence of the defendant’s violations whenever the maximum fine applicable does not appear to be appropriate in the circumstances. In such cases, in addition to the fine, managers, directors and shareholders of the sanctioned company temporarily lose their honourability entitlements to conduct financial business as professionals (for instance, as financial intermediaries) or, in the case of listed companies, the ability to be appointed as managers and directors of listed companies or of companies controlled by listed companies.
Criminal penalties may include imprisonment from one to six years for insider trading and market manipulation and entail criminal fines up to €5 million. Criminal fines may be increased up to 10 times the profit or gain obtained, taking into account the seriousness of the violation, the quality of the defendant or the amount of the illegal profit or gain obtained. In the case of false information contained in prospectuses to obtain a profit, the sanction may range from one to five years of imprisonment.10
IV CROSS-BORDER ISSUES
Foreign parties may be subject to the jurisdiction of Italian courts in civil cases (e.g., if, in contractual disputes, a forum selection clause places the competent court in Italy or if the defendant is based in Italy), as well as in the other cases provided for by Regulation (EU) No. 1215/2012 or, when this Regulation is not applicable, pursuant to the general provisions of Italian private international law.11 In disputes involving consumers, however, and in the case of insurance contracts, other grounds to attract jurisdiction in Italy may be invoked (e.g., if Italy is the place of residence of the consumer or of the insured person).
As a general rule (Article 7.2 of Regulation (EU) No. 1215/2012), in tort cases, the competent court is that of the place where the harmful event occurred, which includes also the place where the damage was actually suffered. Based on this rule, to establish their own jurisdiction with respect to a foreign issuer, Italian courts consider it sufficient that the shares of a foreign fund traded in a foreign market be accounted with a depository account of an Italian bank.12
In general, in multiparty cases it is often possible to invoke connection of claims and attract foreign defendants before the Italian courts even if the Italian jurisdiction would be excluded by other criteria. This might be the case, for instance, in situations involving intermediaries based in Italy and in which foreign issuers or intermediaries may also be joined based on a potential link of the claim, a joint liability, counterclaims and requests for joinder raised by other defendants.
Crimes and administrative violations are subject to Italian law even if committed abroad, provided that they concern securities listed on an Italian regulated market or for which a request for listing on an Italian regulated market has been filed. In the case of insider trading and market manipulation, the relevant provisions are also applicable when the facts relate to securities listed on regulated markets of other European Union countries.
V YEAR IN REVIEW
During the past (and current) year the Italian financial market has been significantly affected by the disruption to the financial stability of four regional banks (Banca delle Marche SpA, Banca Popolare dell’Etruria e del Lazio Soc Coop, Cassa di Risparmio di Ferrara SpA and Cassa di Risparmio della Provincia di Chieti SpA), ending with their insolvency.
This led to the adoption of extraordinary measures aimed at protecting investors who purchased securities (shares or bonds) issued by these banks. Law Decree No. 59/2016, as amended by Law No. 15/2017, implemented the provisions of Law No. 208/2015 (known as the Stability Law 2016) and created a solidarity fund for investors.
In particular, investors holding financial instruments of the said banks at the date of their liquidation are entitled, under certain conditions set forth by law, to the payment of a lump sum indemnification or, alternatively, they may have access to special arbitration proceedings subject to the assessment of liability for infringement of information, diligence, accuracy and transparency duties. However, the regulation for the actual implementation of this special arbitration body, to be supervised by the Italian Anti-Corruption Authority, has not yet been approved by the government.
As far as public enforcement is concerned, in July 2016 MAD II, MAR and the relevant delegated regulations entered into force. As pointed out by CONSOB, the Italian legislator will have to intervene to amend and repeal several provisions contained in domestic legislation that might be inconsistent with these regulations, which, in any event, would prevail.
According to the annual index of its bulletin, in 2016 CONSOB imposed 52 administrative sanctions, 17 of which concerned market abuse violations.
VI OUTLOOK AND CONCLUSIONS
The approach of Italian claimants to securities litigation, especially with respect to retail investors, has been predominantly addressed to intermediaries, and this trend is likely to increase after implementation of MiFID II, by January 2018, which provides for additional information protection for investors. However, we do not expect any substantial changes in the case law as to the legal nature of claims and remedies available to investors.
With respect to class actions, however, in 2016, the Italian Chamber of Deputies passed a draft bill, which is currently being discussed in the Italian Senate for final approval.
In its existing version, the bill introduces significant amendments to the class action provision in force, the most relevant being the extension of the personal scope of the legal provision, currently limited to individual consumers, as mentioned above.
The effort to promote alternative dispute resolution systems such as mediation and arbitration has not been particularly efficient so far, but for the semi-adjudicative system of the ACF, which may yet prove to be more successful, especially for small claims.
1 Giuseppe De Falco is a partner and Luigi Cascone is an associate at Ughi e Nunziante Studio Legale.
2 Legislative Decree No. 58 of 24 February 1998.
3 Legislative Decree No. 385 of 1 September 1993.
4 European Court of Human Rights, in the case of Grande Stevens and Others v. Italy, judgment of 4 March 2014 [Section II]. The Court examined the objection raised by the Italian government as to the obligation to adopt administrative sanctions pursuant to the Directive and observed (Section 229) that ‘in so far as the Government submit that European Union law has explicitly authorised the use of a double penalty (administrative and criminal) in the context of combatting unlawful conduct on the financial markets (see paragraph 216 above), the Court, while specifying that its task is not to interpret the case-law of the ECJ, notes that in its judgment of 23 December 2009 in the case of Spector Photo Group, the ECJ indicated that Article 14 of Directive No. 2003/6 does not oblige the Member States to provide for criminal sanctions against authors of insider dealing, but merely states that those States are required to ensure that administrative sanctions are imposed against the persons responsible where there has been a failure to comply with the provisions adopted in implementation of that directive’.
5 Judgment No. 102 of 2016 of the Italian Constitutional Court.
6 See footnote 4, supra.
7 This aspect of the procedure was also criticised by the ECHR in the Grande Stevens v. Italy decision reported above.
8 Under Italian law, the criminal action is not a discretionary decision of the prosecutor, who is obliged to commence it any time the facts appear to amount to a criminal offence.
9 This option was adopted only in February 2016 with the insertion in the Securities Law of Article 194 bis.
10 Article 173 bis CFA.
11 Law 31 May 1995, No. 218.
12 Supreme Court, joint civil sections, 8 April 2011, No. 8034. This interpretation is also consistent with the decision of the European Court of Justice of 28 January 2015 in Case C-375/13.