Italy achieves high overall compliance with international standards and codes, with a score of 66.67 out of 100 in our Standards Compliance Index. As a Euro-member country, Italy's compliance in the area of macroeconomic fundamentals is high. However, some weaknesses in the area of fiscal transparency still persist, such as the paucity of information on financial transactions between the government and public enterprises, and the general lack of data on the operations of larger non-state entities where the state is a shareholder. Italy complies with the majority of institutional and market infrastructure standards; although in the areas of accounting and auditing observance of international standards lags behind; and existing laws and regulations in corporate governance and anti-money laundering need stronger enforcement. Italy's compliance regarding financial regulation and supervision is high, since the banking, securities, and insurance markets underwent regulatory changes in 2005-2007, also suggesting a commitment to ongoing reform.

Macroeconomic Policy and Data Transparency

Italy has been a subscriber to the Special Data Dissemination Standard (SDDS) since August 1996 and met SDDS requirements for its posted metadata in April 2000. The International Monetary Fund (IMF), in 2007, released a Report on the Observance of Standards and Codes (ROSC) on Italy's data module, in which it notes that Italy meets the SDDS' specifications for coverage, periodicity, timeliness, and the dissemination of advance release calendars. However, as noted in the above report and on the IMF's SDDS website, for data on production index and central government operations, Italy avails itself of the timeliness flexibility option. According to a 2007 annual observance report by the IMF, in 2007, Italy met the SDDS requirement on advance release calendars for all months except December. With regards to its integrity dimension, the SDDS website indicates that Italy falls short of its requirements in some respects. For example, Italy's metadata page on the IMF's SDDS website does not provide information on the identification of ministerial commentary for statistical releases for several data categories. Similarly, for a few data categories, Italy only provides notice of major changes in methodology at the time of release and not in advance as required by the SDDS. The 2007 ROSC which assessed the quality of Italian data on national accounts, the consumer price index, the producer price index, and government finance statistics concludes that the data is generally of good quality. Similarly, according to the IMF's 2006 Article IV report, Italy's economic data is generally of high quality and adequate for surveillance purposes. The metadata published by Italy on the IMF's SDDS website also indicates that Italy generally meets both requirements of the SDDS' quality dimension with a few exceptions. More »

Italy adopted the Euro at its launch in January 1999. With this act, Italian monetary policy ceased to be governed by the Bank of Italy. Rather, the Governing Council of the European Central Bank (ECB) determines Italian monetary policy, and the Eurosystem (consisting of the ECB and the central banks of the member states that have adopted the euro) is responsible for policy implementation. According to the IMF, the Eurosystem and the ECB maintain high transparency standards and a commitment to openness. The ECB observes the IMF's codes and standards for monetary policy transparency and pursues an active policy of communication with the public. More »

According to the 2002 IMF ROSC, Fiscal Transparency Module, Italy meets the standards of the IMF Code of Good Practices on Fiscal Transparency in many respects. In particular, the Italian Constitution and the European System of Accounts of 1995 define the roles and responsibilities of general government and clearly set Italy's main government sectors apart from the private sector. The 1978 Accounting Law, along with its subsequent amendments, defines and formalizes budget and financial management. However, the 2002 ROSC concludes that the quality of fiscal data fell short of the Code's standards, especially with regard to the timeliness and quality of data. Also, the 2002 IMF ROSC pointed out that budget documents did not contain a statement of fiscal risks and neither did they contain a systematic presentation of tax expenditures. The IMF reported some progress in its 2003 and 2006 ROSC - Fiscal Transparency Module Updates, especially towards strengthening the integrity of data. For example, the updates note the Italian government has made considerable progress in narrowing the longstanding discrepancy between the two main measures of the fiscal balance (above-the-line and below-the-line fiscal data), and this development has had the expected outcome of boosting the quality and integrity of fiscal data and budget reporting. Also, in October 2005, Italy launched SIOPE, a computerized recording system of cash transactions of all public entities which is expected to augment the monitoring of developments in local pubic finances. Despite these improvements, the 2006 IMF ROSC update notes several remaining shortcomings, such as the paucity of information on financial transactions between the government and public enterprises and the general lack of data on the operations of larger non-state entities where the state is a shareholder. The 2006 IMF Article IV Consultations added that Italy's budget process is still "torturous and non-transparent, with little accountability for results." More »

Institutional and market infrastructure

In its 2005 report titled "Restructuring and Insolvency in Italy," the firm Gianni, Origoni, Grippo & Partners indicates that Italy's insolvency system usually favors creditors over debtors. Several articles, acts, decrees and laws govern insolvency and liquidation in Italy. The Insolvency Act of 1942 was amended by Decree-Law 35 of 2005 and subsequently became Law No. 80 of 2005 leading to the introduction of several important reforms. The new act, according to the IMF's 2005 Article IV Consultation, simplifies insolvency procedures, offers access to the procedures at an early stage, emphasizes the roles of reorganization procedures, and introduces the possibility for debtors to negotiate out of court restructuring agreements. According to a report prepared for the European Commission in 2003, as of 2002, in Italy 15 of the 41 Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank were fully adopted, 11 were almost fully adopted, 10 were partially adopted, and 5 were not adopted. More »

In line with the European Commission's (EC) Regulation No. 1606 of 2002, listed companies in Italy are required to use International Financial Reporting Standards (IFRSs) as endorsed by the European Union for preparation of consolidated accounts. As far as the options available for member states to permit or require international standards in other types of accounts for different types of companies are concerned, the 2008 EC report on the implementation of Regulation No. 1606 of 2002 asserts that Italy requires IFRSs in the annual accounts of listed companies, and in the preparation of both annual and consolidated accounts for banks, financial companies, and listed insurance companies. Application of IFRSs for unlisted insurance companies is mandatory in the consolidated accounts and optional in the individual accounts. For unlisted companies belonging to IFRSs-reporting groups, the use of IFRSs is optional for both consolidated and individual accounts. Other companies must follow Italian Generally Accepted Accounting Principles (GAAP), which, according to a number of publications on the subject, differ from their international counterparts. More »

As highlighted in a 2005 study by Heidrick & Struggles, the Italian corporate governance regime is generally characterized by limited legal protection for investors, poor enforcement of legislation, underdeveloped equity markets, pyramidal groups, and very high ownership concentration with 90 percent of Italian companies being family-owned. The corporate structure of traditional Italian companies is also somewhat unusual, where shareholders elect a Board of Directors, as well as a separate Board of Statutory Auditors. According to the IMF's 2006 Financial System Stability Assessment (FSSA), while, in some areas, the Italian corporate governance framework incorporates more stringent investor protection requirements in comparison to international standards, its benefits are not always fully realized. The IMF report recommends mandating a majority of independent directors, representing minority shareholders on the board, and incorporating some of the provisions of the 1999 Preda Code of Conduct into regulatory requirements. According to the 2005 Organization for Economic Co-operation and Development (OECD) Economic Survey of Italy, there was also a need to strengthen the protection of minority shareholders as stressed by the OECD Principles of Corporate Governance. In the wake of corporate insolvencies, including the Parmalat scandal, the Law on Savings No. 262 of 2005 entered into force in January 2006 to improve corporate governance of listed companies, increase transparency, and enhance consumer protection. A new Corporate Governance Code was also promulgated by the Italian Stock Exchange (Borsa Italiana) in March 2006 to strengthen corporate governance among listed companies. More »

The authority responsible for setting auditing standards for listed and private companies in Italy is the Commissione Principi di Revisione, a joint committee of the Consiglio Nazionale dei Ragionieri e Periti Commerciali and the Consiglio Nazionale dei Dottori Commercialisti (CNDC). These two organizations merged into the Consiglio Nazionale dei Dottori Commercialisti in effect as of January 1, 2008. According to the CNDC self-assessments submitted to the International Federation of Accountants in 2006, at the time of the assessment, Italy was in the process of adopting International Standards on Auditing (ISAs) with the goal of having them implemented by the end of 2007. Being a member of the European Union, Italy has to transpose the Directive 2006/43/EC which requires all statutory audits to be carried out on the basis of ISAs as adopted by the European Commission. Italy will therefore adopt ISAs in the required timeframe. More »

The Financial Action Task Force (FATF) conducted a mutual evaluation of Italy's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the FATF's 40+9 recommendations and special recommendations. The FATF published its findings in a 2006 report, in which it concludes that Italy is compliant with 17 FATF recommendations and special recommendations; largely compliant with 13; partially compliant with 11; non compliant with 6; and two recommendations are not applicable to Italy. The report notes that the overall AML/CFT framework in Italy is extensive and mature, and achieves a high degree of compliance with most of the FATF's recommendations. Nevertheless, there are some areas where Italy's AML/CFT regime could be enhanced. For example, the enforcement of AML/CFT measures in financial institutions needs to be strengthened. The reporting of terrorism financing-related suspicious transaction reports is not explicitly required by Italian law. Furthermore, although the Anti-Money Laundering Law (Legislative Decree No. 143 of May 3, 1991) covers all designated non financial businesses and professions (DNFBPs), the implementing regulations are not in force. As a result, DNFBPs are not obliged to comply with AML/CFT requirements. As reported by the 2008 U.S. DoS report, the Italian Foreign Exchange Office (UIC), was the Italian Financial Intelligence Unit (FIU) until January 2008, at which point it was to be replaced by the new FIU unit at the Bank of Italy. However, there is no further information publicly available regarding the functioning of this new FIU. Legislative Decree No. 231 of November 21, 2007 implements elements of the European Union's Third Money Laundering Directive. This Directive contains the requirement that all EU member states implement the FATF's recommendations and special recommendations. More »

The Bank of Italy's (BoI) Real Time Gross Settlement System for Large-Value Payments (BIREL) was assessed against the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems (CPSIPS) by the IMF. The IMF published the findings of this assessment in a 2004 report in which it concluded that BIREL observed nine of the ten CPSIPS and three of the four corresponding to the central bank's responsibilities. BIREL, at the time of the 2004 IMF report, was the only systemically important payment system in the country. Overall, the report gave a very positive rating to BIREL and the shortcomings it addressed were minor, which according to the Italian authorities (as stated in a 2006 IMF report) were remedied subsequently. BIREL was a participant in the Euro area's Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) system. TARGET was replaced by TARGET2 in November 2007. The migration of the TARGET member countries has taken place in Groups of four. Italy was part of the third group of countries that migrated to TARGET2 on May 19, 2008. While with TARGET, the large value interbank payment systems of member countries were interlinked, TARGET2 provides harmonized payment services under a single shared platform across its member countries. However, there is little information assessing TARGET2's compliance with the CPSIPS except for a statement in a 2008 ECB report on TARGET2, in which it indicates that the system is expected to fully observe all the CPSIPS. Despite the lack of information on TARGET2, it is generally believed that the system is an improvement over its predecessor and its component systems. Therefore, the level of compliance assigned to BIREL by the 2004 IMF assessment is maintained until TARGET2 is fully implemented in all its member countries and assessed against the CPSIPS, which according to the 2008 ECB report, is expected in late 2008. More »

Financial Regulation and Supervision

Since 1990, the Italian banking system has undergone a rapid process of consolidation, involving about 60 percent of total Italian banking assets, as stated in the U.S. Department of Commerce's 2008 Country Commercial Guide. The State has also significantly reduced its direct ownership in the Italian banking system. According to the IMF's 2004 detailed assessment of Italy's compliance with the Basel Core Principles (BCPs) for Effective Banking Supervision, Italy's observance of the BCPs is high. Per the IMF report, the Italian supervisory system was found to be in compliance with twenty-four BCPs; largely compliant with five; and noncompliant with one BCP. In a subsequent (2006) Financial System Stability Assessment, the IMF notes that Italian authorities have addressed some of the recommendations addressed in the 2004 IMF report. The Bank of Italy namely introduced a new reporting requirement for banks to monitor the impact of moving to a 180-day (ultimately 90-day) past-due definition for non-performing loans. The authorities also made some progress in addressing the lack of regulation on lending to related parties. However, weaknesses remain with regards to the legal protection for supervisors, and the independent validation of supervisory information through on-site examination or external auditors. Legislative Decree No. 385 of 1993 (Banking Law), and Legislative Decree No. 58 of 1998 (Consolidated Law on Financial Intermediation) establish the general framework of laws governing the banking and financial system, and clearly identify the powers and tasks of the different authorities involved in supervising the financial sector. More »

The Italian securities market, as other European markets, is a bank-dominated industry. Pursuant to Legislative Decree No. 58 of 1998 (Consolidated Law on Financial Intermediation), the National Commission for Listed Companies and the Stock Exchange (CONSOB) and the BoI share responsibility for securities regulation under a functional approach to supervision. According to the IMF's 2006 Detailed Assessment of Italy's compliance with the International Organization of Securities Commission's (IOSCO) Objectives and Principles of Securities Regulation, securities market regulation and oversight is very strong in Italy. Twenty-five of the IOSCO Principles were found to be fully implemented, three principles were broadly implemented and two were considered to be not applicable. However, the IMF report identifies a few areas that still require action. In particular, the CONSOB and BoI need to include markets and market operators in their on-site inspection plans. The CONSOB should also ensure that information from the wholesale market is timely and effectively integrated with that from the retail market. Furthermore, disclosure requirements should be extended to non-listed debt instruments issued by banks. At the time of the IMF's 2006 assessment, the Italian legal framework needed to be harmonized with the EU Prospectus Directive No. 2003/71/EC. Effective April 24, 2007, the EU Prospectus Directive was implemented in Italy. In addition, the Italian Stock Exchange (Borsa Italiana), which is one of the three market operators in Italy, merged with the London Stock Exchange in 2007. More »

Despite strong growth in the insurance sector in 2003 and 2004, Italy remains relatively under-insured with low market penetration in comparison to the EU average. In 2006, the IMF conducted a detailed assessment of Italy, in which insurance supervisory practices were benchmarked against Insurance Core Principles (ICPs) and the Methodology revised by the International Association of Insurance Supervisors (IAIS) in October 2003. Accordingly, more than two-thirds of the ICPs were assessed as being observed or largely observed. The remaining principles were assessed as partly observed. Shortcomings were identified regarding legal protection of supervisory staff, formal information sharing agreements with non-EU/EEA supervisors, on-site inspections, investment policies, disclosure requirements, and intermediaries. The IMF report noted that improvements in the level of observance in these areas would be facilitated by changes in legislation. The Supervisory Authority for Private Insurance Undertakings and Insurance Undertakings of Public Interest (ISVAP), which acts as the independent supervisory authority for the insurance sector in Italy pursuant to Law No. 576 of 1982, was also encouraged to publish entity-specific financial information on its website. The IMF's 2006 report stated that the ISVAP was moving toward a more risk-based supervisory approach to promote better risk management practices by insurers. Furthermore, a draft consolidated insurance code was expected to be adopted to improve the structure and clarity of the Insurance Law. However, there is insufficient information so far regarding the implementation of the code. More »

Legend:

Credit Ratings

Moody's Aa2/Stable

Fitch AA-/Stable

Standard & Poor's A+/Stable

Macroeconomic Data

2007 GDP (Current Prices): 2,104.67 billion USD (IMF)

2007 GDP (Per Capita): 35,872 USD (IMF)

2008 GDP (Growth Forecast): 0.3% (IMF)

2008 Inflation (CPI): 2.5% (IMF)

2007 Unemployment: 6.7% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 39.159 billion USD (UNCTAD)

FDI (Outward): 42.035 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): 3,641 million USD (OECD)