Annual Report 2016 Rome, 31 March 2017 Annual Report 2016 Rome, 31 March 2017 Chairman Giuseppe Vegas Members of the Commission Anna Genovese Giuseppe Maria Berruti Carmine Di Noia Director General Angelo Apponi Deputy Director General Giuseppe D’Agostino Secretary General Guido Stazi Consob 00198 Roma - Via G.B. Martini, 3 t +39.06.84771 f +39.06.8477612 20121 Milano - Via Broletto, 7 t +39.02.724201 f +39.02.89010696 h www.consob.it e [email protected] printed by www.tiburtini.it All rights reserved. Reproduction for academic and non-commercial use is permitted, provided that the source is acknowledged. ISSN 2281-9460 (online) ISSN 2282-1406 (print) Speech by the Chairman to the financial market 1 Annual Report 2016 21 A Current issues and plans 23 I The economic context 25 II The regulatory framework 29 III Activities in 2016 and plans for 2017 37 B Consob activity 59 I Markets supervision 61 II Supervision of issuers and audit firms 85 III Supervision of corporate disclosure 105 IV Supervision of intermediaries 117 V Inspection activity and sanctions 140 VI Regulatory activity 149 VII Investor protection 155 VIII Back-office activities and international cooperation 171 Methodological notes 187 Contents 191 Speech by the Chairman to the financial market Milan, 8 May 2017 ἄελπτον οὐδέν, πάντα δ'ἐλπἱζειν χρεών «nothing is hopeless; we must hope for everything» (Euripides, Hypsipyle, fragmentary) 1 The general trend in the Eurozone Today’s meeting is an occasion for a brief survey of recent years, that have been intense and troublesome for the financial market and for our country. Among the events that characterized the Italian macroeconomic scene, two in particular, left more of a mark than others. First of all, the Eurozone multifaceted crisis: loss of competitiveness of the production system; low economic growth; budgetary imbalances; transfer of the risks of public finances to the banking system; increase in non-performing loans in banks' balance sheets. Secondly, the launch of the European banking supervision system and the introduction of sectoral legislation, starting with the bail-in, the internal rescue regulation. The combined effect of these events and of the immediately preceding crisis, that of subprime mortgages, has deeply marked the country's economic and financial outlook. The production base has lost ground by about 20 percent since 2008. The banking sector has undergone unprecedented stress, resulting in a restructuring process that is still under way. Given the high weight of banks on the Italian stock market, the decline of banks equity prices resulted in an drop of the whole market. The recovery that has benefited other European markets, with even two-digit increases, did not involve the Italian stock exchange. Between January 2011 and April this year, the FtseMib index remained virtually unchanged (+2.16 percent). While Italy withdrew into a serious domestic crisis, some Eurozone countries experienced robust growth; others have been able to initiate internal restructuring processes that begin to bear fruit. Outside Europe, the world economy is healthy on the whole, even though large areas of underdevelopment remain. Only the interventions of an extraordinarily expansive monetary policy on Europe, which were carried out in recent years by the European 3 Speech by the Chairman Annual meeting with the financial market Central Bank, allowed to counterbalance the structural imbalances in the Eurozone. With its choices, the ECB has contributed decisively in averting the risk of the area’s disintegration. This has given time for the reforms needed to adapt to the single currency, to be implemented. Resulting in reduced pressure on those countries, such as ours, which more than others needed to recover ground regarding competitiveness, stability and convergence. This opportunity was not fully seized. Inflation is progressively nearing the 2% target, while in the US, monetary policy tightening is already under way. Not being able to rely on the external support of monetary leverage, Italy will have to prepare to face the new situation that is unfolding. In a medium-term perspective, Eurozone cohesion can only come from the intrinsic macroeconomic convergence of the member states, a complex goal that can only be attained using a wide range of instruments in addition to monetary policy. Mario Draghi, Chairman of the ECB, reminds us continually. It will be a time of crucial choices for the country. Italy has reaffirmed in all European institutional assembly that making convergence and stability is the compass for its economic and fiscal policies. Our country has adopted significant new legislation, introducing into the Italian Constitution the budget equilibrium goal, but was not able to; remove the deep causes of economic and social divergence with the rest of Europe. In fact, the gap of the early 1990s between the now Eurozone countries persists; in part it has even widened. The Euro could also have favoured the adoption of a virtuous development model for the Italian production system, thanks to the beneficial effect of pressure from external constraints, helping to create the conditions for a general modernization of the country. In reality, over the last twenty years our production system has suffered a 30 percent decrease in competitiveness compared to Germany. It is in this gap that the yield spread between Eurozone government bonds, the indicator that summarizes the divergence between systems and country, is created and grows. The single currency has created an ecosystem where competitiveness can only be defended and increased through the leverage of education, innovation and macroeconomic reform. There are no easy short cuts. Some people are convinced that leaving the Euro could be an easy solution to the evils affecting the national economy. The Italexit scenario would jeopardize the stability, the sound operation of the financial system and the protection of the market, objectives that fall within the institutional mission of Consob. Just the announcement of a return to a national currency would cause an immediate capital outflow by international investors, which would seriously jeopardize Italy's ability to Annual Report 2016 4 Annual meeting with the financial market refinance the world's third public debt. Italexit would also shake up the whole Eurozone. It would put its survival at risk. Today, more than ever, convergence, stability and competitiveness remain the keywords in looking to the future. The need to complete the announced reforms and those already undertaken to create a favourable investment and business environment (even medium to small) and to initiate the necessary infrastructure upgrade in line with European plans, is a priority. Neither can a process of liberalization, that reassesses the scope of public intervention in the economy, be neglected. Nationwide state control is also indispensable: it is the precondition for investment security and free enterprise. Sixty years after the signing of the Treaties of Rome, Europe has almost unanimously reaffirmed the common will not to deflect from the path of integration, both institutional and political. Brexit’s centrifugal thrust makes this choice for cohesion more convincing, even if only in twenty-seven. Europe’s regulatory tightening on banks The Eurozone crisis coincided with a new banking sector regulatory season that, starting with Basel 3, placed the capital adequacy of banks as a priority. The aim was to counteract and prevent the destabilizing effects of the subprime mortgage crisis, which was created in the United States in 2007 - 2008 and spread immediately throughout Europe and the rest of the world. From 2014, it was also interwoven with the adoption of a single banking supervision system. Born out of the need to standardize supervision, the European Single Supervisory Mechanism has partially contributed to causing new sources of tension. The post subprime emergency has been addressed with different solutions from country to country. Most governments in Europe have chosen to resort to massive amounts of public money to shore up the banks’ stability and avoid the risk of bankruptcy. The same route was taken in the United States. We have seen nationalization and injections of new financial resources from taxpayers for sums that amounted to 465 billion Euros in the European Union alone. Also, because of public finance constraints, Italy has preferred to rely on the system's ability to find the resources needed to minimize public intervention. The joint effect of the new regulatory framework and the stability requirements imposed by European supervision has subsequently led Italian banks to put into effect, in an adverse macroeconomic climate, demanding plans for capital increase. From 2014 to date, major banks have realized capital increases for nearly 31 billion Euros. By the end of this year, other 5 Speech by the Chairman Annual meeting with the financial market interventions are scheduled for at least another 16 billion. It was an extraordinary effort, with pro-cyclical and unwanted side effects. From a medium and long-term perspective, these measures can be decisive, but in the short term they have exacerbated the framework of uncertainty and instability. The restructuring of the banking system is made more difficult by the burden of non-performing loans. The European authorities are pushing for a quick solution. But haste makes waste. The impact of non-performing loans (Npl) on bank budgets is reduced the more the time horizon for their management is lengthened. The transaction has margins of profitability for specialized investors, which rise if the pressure to sell increases. A prudent approach should prevent the risk of these assets being sold off. The more the value of Npl’s is impaired, the higher the profit opportunities for the Npl buyers. Italian banks have the capacity and human resources to handle this process internally, without resorting to solutions that would externalize profit to others. Aid may also come from innovative tools, such as the creation of a regulated market for non-profit loans, which favours a transparent meeting between supply and demand.