Italian regulatory reform stalls

An overhaul of Italy's fragmented regulatory system for financial markets, promised by the government after the Parmalat corporate fraud scandal, is looking more remote than ever because of disputes among politicians.

"I am convinced now that the reform is going nowhere," Mr Giorgio La Malfa, chairman of the influential finance committee of the lower house of parliament, said on Wednesday.

In an attempt to salvage something from the reform, the centre-right government this week proposed strengthening Consob, Italy's stock market regulator, by increasing staff, giving it greater investigative powers and stiffening penalties for financial crimes.

Mr Lamberto Cardia, Consob's head, said yesterday he hoped the proposal would become law quickly. But it takes the form of an amendment to a bill designed to incorporate a European Union directive on market abuse into Italian legislation.

The deadline for Italy to adopt the EU's directive passed on October 12, but the bill is still under review with a parliamentary committee. According to several legislators, it will be several weeks before the bill emerges for a vote in the full legislature.

The delays are occurring 10 months after Parmalat collapsed last December under €14.5 billion of debt in what the US Securities and Exchange Commission called one of the greatest frauds in corporate history.

The scandal prompted Italy's finance ministry to unveil a plan in January for a single, all-powerful regulatory agency to supervise all financial activities from stock markets to pensions and insurance.

But the proposal ran into trouble when Mr Giulio Tremonti, the then finance minister, and Mr Antonio Fazio, governor of Italy's central bank, locked horns over the minister's attempt to clip the bank's regulatory powers and impose a fixed-term limit on the governor, who currently serves for life.

Italy's regulatory landscape is thus set to remain as fragmented as ever, with five agencies - the antitrust authority, the central bank, Consob, and the insurance and pensions regulators - each wielding power.

Mr Tremonti was forced out of the government in July, but regulatory reform has been caught up in a dispute between government and opposition over a law on false accounting.

The law, passed in 2002 after prime minister Mr Silvio Berlusconi took power, softened punishments for certain types of corporate false accounting and made it harder to prosecute such offences. Opposition politicians say it helped Mr Berlusconi avoid trial for alleged accounting fraud, and insist that any serious regulatory reform must include changes to the law. The European Court of Justice is expected to issue a formal ruling within three to six months on whether the Italian false accounting law is compatible with EU legislation. - (Financial Times Service)