Resolution no. 21507

Determination for the year 2020 of the parameters provided for in Article 89-quater of Regulation no. 11971/1999 and subsequent amendments

LA COMMISSIONE NAZIONALE PER LE SOCIETÀ E LA BORSA
 [THE NATIONAL COMMISSION FOR COMPANIES AND THE STOCK EXCHANGE]

HAVING REGARD TO Italian Law no. 216 of 7 June 1974, as subsequently amended;

HAVING REGARD TO Italian Legislative Decree no. 58 of 24 February 1998 (“Consolidated Law on Finance”) as subsequently amended;

HAVING REGARD, in particular, to Article 118-bis of the Consolidated Law on Finance, as amended by Italian Legislative Decree no. 101 of 2009, pursuant to which Consob defines with regulations the procedures and terms under which it controls information disclosed to the public pursuant to law, including information contained in accounting documents, by listed issuers and by listed issuers with Italy as their home Member State;

HAVING REGARD, in particular, to Article 1, paragraph 1, letter w), of the Consolidated Law on Finance, pursuant to which Italian or foreign entities, including trusts, which issue financial instruments listed on an Italian regulated market are listed issuers. In case of depository receipts admitted to trading on a regulated market, issuer means the issuer of represented securities, even if such securities are not admitted to trading on a regulated market; and Article 1, paragraph 1, letter w-quater, of the Consolidated Law on Finance, according to which listed issuers having Italy as their home Member State are 1) issuers of shares admitted to trading on regulated markets in Italy or in another Member State of the European Union, having their registered office in Italy; 2) issuers of debt securities with a unit par value of less than one thousand euros, or a corresponding value in a different currency, admitted to trading on regulated markets in Italy or in another Member State of the European Union, having their registered office in Italy; 3) issuers of securities referred to under numbers 1) and 2), having their registered office in a non-EU Member State, who have chosen Italy as their home Member State among the Member States in which their securities are admitted to trading on a regulated market. The choice of home Member State shall remain valid unless the issuer has chosen a new home Member State in accordance with number 4-bis and has communicated that choice; 4) issuers of securities other than those referred to under numbers 1) and 2), having their registered office in Italy or whose securities are admitted to trading on a regulated market in Italy, who have chosen Italy as their home Member State. The choice shall remain valid for at least three years, unless the issuer's securities are no longer admitted to trading on any regulated market in the European Union, or unless the issuer is one of the issuers referred to under numbers 1), 2), 3) and 4-bis) during the three-year period; 4-bis) issuers referred to under numbers 3) and 4) whose securities are no longer admitted to trading on a regulated market in the home Member State, but have been admitted to trading on a regulated market in Italy or other Member States and, where applicable, have their registered office in Italy or have chosen Italy as their new home Member State;

HAVING REGARD to the Regulation adopted by Consob with resolution no. 11971 of 14 May 1999 and subsequent amendments (“Issuers' Regulation”);

HAVING REGARD, in particular, to Article 89-quater of the Issuers' Regulation, under which article 118-bis of the Consolidated Law on Finance was implemented;

HAVING CONSIDERED, in particular, paragraph 3 of Article 89-quater pursuant to which each year, for the purposes of identifying the set of listed issuers whose documents will be checked, Consob establishes the parameters representing the risk referred to in paragraph 2, taking into account inter alia:

a) the economic and financial data of the companies concerned;

b) the reports received from the issuer’s control body and statutory auditor;

c) of the activity on securities;

d) significant information received from other administrations or interested parties;

HAVING CONSIDERED the impact of the effects of the COVID-19 pandemic on the financial reporting of listed issuers, as highlighted by the public statements by ESMA (ESMA 71-99-1290 of 11 March 2020; ESMA 32-63-951 of 25 March 2020; ESMA 31-67-742 of 27 March 2020; ESMA 32-63-972 of 20 May 2020) and the reminders published by Consob on the subject (Consob reminder 6/2020 of 9 April 2020 and Consob reminder 8/20 of 16 July 2020);

HAVING ESTABLISHED, therefore, that the following parameters should be determined for the year 2020:

- with reference to the items relating to point a), the following are considered, including in light of the possible impacts of COVID-19: (i) the trend in operating margin, (ii) information concerning the creditworthiness of issuers, (iii) the ratio of market capitalisation to book equity;

- with reference to the items referred to in point b):

b.1) with regard to the reports received from the control body, the following are considered: (i) communications to Consob on the irregularities found by the statutory auditors in their supervisory activity pursuant to Article 149, paragraph 3, of the Consolidated Law on Finance; (ii) reports sent to Consob on the critical aspects of the suitability of the internal control system contained in the Statement of the audit activity carried out by the boards of statutory auditors, taking into account the fact that they highlight aspects of non-compliance of the organisational structure, of the issuer’s business, of the functioning of its administrative-accounting and internal control system with the reference regulatory framework and the technical principles on the subject;

b.2) with regard to the reports received from the auditors, the following are considered: (i) reports of reprehensible facts pursuant to Article 155, paragraph 2, of the Consolidated Law on Finance; (ii) the qualified opinion or adverse opinion contained in the reports of the audit firms submitted pursuant to Article 156 of the Consolidated Law on Finance; (iii) reports of significant shortcomings in the structure and implementation of the aspects of internal control relevant to the audit highlighted by the auditors in the control sheet on the issuers’ annual financial reports;

- with reference to the items referred to in point c), the following are considered: the trend of the share price, market capitalisation, the volatility of share prices;

- with reference to the items referred to in point d), the following are considered: (i) the information received from the public administrations as defined by Article 1, paragraph 2, of Italian Legislative Decree no. 165 of 2001, from Banca d’Italia and from national and foreign independent administrative authorities as well as from the Judicial Authority; (ii) significant information received from interested parties;

CONSIDERING, furthermore, that, due to the qualified nature of the entities referred to in point (i) hereinabove, and in consideration of the responsibility that each of them assumes in the context of the supervision of the sector for which they are responsible, all the companies that are the subject matter of the information received by them must be included in the list of companies to be audited to check the financial information provided to the public pursuant to Article 89-quater of the Issuers' Regulation;

CONSIDERING that, where the information received from interested parties is significant, i.e. detailed and relating to the financial information over which sampling supervision must be exercised, the companies that are the subject matter of the information received by them must be included in the list of companies to be audited to check the financial information provided to the public pursuant to Article 89-quater of the Issuers' Regulation;

CONSIDERING it necessary, with reference to the elements indicated in point b) of paragraph 3 of Article 89-quater, to distinguish, for the purposes of determining the list of companies to be audited to check the financial information provided to the public, in the context of the opinions expressed by the auditors pursuant to Articles 14 of Italian Legislative Decree no. 39 of 2010 and article 10 of Regulation (EU) no. 537 of 16 April 2014, between the case in which they express an adverse or qualified opinion and the case in which they declare that they are unable to express an opinion, without any other qualification or exception, or make disclosures pursuant to auditing standard no. 570, since only in case of an adverse opinion or one with observations is a greater and independent risk for the correctness of the financial information identified;

RECOGNISING the need in any case to include in the list of companies to be audited to check the financial information provided to the public pursuant to Article 89-quater of the Issuers' Regulation the companies that have been the subject of reports by the supervisory bodies, as well as of reports of reprehensible facts, adverse opinions or with observations, and reports of significant shortcomings in the structure and implementation of the aspects of internal control highlighted by the auditors, taking into account that both of them are professionally qualified persons called upon to perform a primary control function and that for these reasons they hold particularly significant information on the economic and financial situation of the issuers, at the level of suitability of the organisational structure and internal procedures and on the degree of compliance with the relevant rules and technical principles on the subject;

RECOGNISING the need to identify additional parameters with respect to those expressly indicated in paragraph 3 of Article 89-quater;

HAVING DECIDED to also consider as an additional parameter the presence of inspection activity by Consob on a specific company, or the carrying out of investigation activities that have led to the activation of powers of appeal or reports to the Judicial Authority for matters subject to prosecution, or for which Consob has reported or detected critical issues in regard to the completeness or accuracy of the information;

HAVING DECIDED, furthermore, to introduce as an additional parameter the presence of approved or planned significant extraordinary transactions, which are particularly critical or important for the market;

HAVING DECIDED that the events and circumstances in question, given their seriousness and high reporting value, require that the companies subject to such activity or involved in such transactions are all included in the list of companies to be audited to check the financial information provided to the public pursuant to Article 89-quater of the Issuers' Regulation;

HAVING DECIDED to consider the qualitative or quantitative impacts of COVID-19 on the economic and financial position of the issuers;

HAVING DECIDED, finally, to introduce as a further parameter the seniority of analysis of each company in the previous selections pursuantto Art. 89-quater of the Issuers' Regulation in order to facilitate the rotation of the selected companies;

CONSIDERING it appropriate to maintain a margin of flexibility in identifying the list of companies to be audited to check the financial information provided to the public pursuant to Article 89-quater of the Issuers' Regulation to be placed under supervision, by considering the definition of the list at two subsequent moments in time, whilst complying with the constraint of annual determination of all listed issuers whose documents will be subject to scrutiny, as required by paragraph 2 of Article 89-quater;

WHEREAS, moreover, pursuant to paragraph 4 of Article 89-quater, in order to account for the need to check listed issuers for whom there is no significant risk pursuant to paragraph 3 of said article, Consob must establish the criteria on the basis of which a share of no more than a fifth of the total number of issuers shall be determined taking into account random selection models;

WHEREAS, moreover, Article 118-bis of the Consolidated Lawon Finance expressly refers to the international principles on the supervision of corporate information and at European level the latter are contained in the “Guidelines on the enforcement of financial information” published by the European Securities and Markets Authority on 28 October 2014 which entered into force on 29 December 2014;

WHEREAS, finally, the document “European common enforcement priorities for 2019 annual financial reports” published by the European Securities and Markets Authority on 22 October 2019 indicates the thematic areas that will be the subject of particular attention as part of the supervisory activity that will be carried out on the 2019financial statements.

RESOLVES:

A) the parameters envisaged by Article 89-quater, paragraph 3, of the Issuers’ Regulation on financial information disseminated to the public by listed issuers and listed issuers who have Italy as their Member State of origin, for 2020 are:

1. for the economic and financial data of the companies concerned, the following items:

(i) the trend in operating margin,

(ii) information concerning the creditworthiness of issuers,

(iii) the ratio of market capitalisation to book equity;

2. for reports received from the issuer’s control body and statutory auditor, the following indicators:

• communications transmitted to Consob by the control body on the irregularities detected during supervisory activity within the meaning of Article 149, paragraph 3, of the Consolidated Law on Finance;
• reports of reprehensible facts pursuant to article 155, paragraph 2 of the Consolidated Law on Finance;
• qualified and adverse opinions contained in the audit firms’ reports prepared pursuant to article 14 of Italian Legislative Decree no. 39 of 2010 and article 10 of Regulation (EU) no. 537 of 16 April 2014;
• the reports relating to the operation of the internal audit system;

3. for activities on securities, the following elements: the trend of the share price, market capitalisation, the volatility of share prices;

4. for significant information received from other administrations or interested parties, the following indicators:

i) the information received from public administrations as defined by Article 1, paragraph 2, of Italian Legislative Decree no. 165 of 2001, from Banca d’Italia, from national and foreign administrative Authorities and from the Judicial Authority;

ii) the significant information supplied by interested parties;

5. for the additional parameters not expressly identified by Article 89-quater, the following indicators:

i) Consob’s inspection or investigation activities that have led to activate powers of appeals or reports to the Judicial Authority for aspects subject to prosecution or for which Consob has reported or detected critical issues in regard to the completeness or accuracy of the information;

ii) the presence of relevant extraordinary operations;

iii) the seniority of analysis of each company in the previous selections pursuant to Article 89-quater of the Issuers' Regulation;

B) the criterion for random selection is the extraction of a number of companies not exceeding one fifth of the total number of issuers to audit, net of the companies that will be identified on the basis of these criteria as described in the previous point A) and, to promote rotation of the issuers, of the companies already included in the selections in the last five years or in any case that were subjected to periodic reporting obligations pursuant to Article 114, paragraph 5 of the Consolidated Law on Finance. However, in order to ensure that it is always possible for a company to be selected, at least one company will be extracted by excluding only the companies referred to in the previous point A). Issuers will be randomly selected by taking into account the capitalisation of the issuer and/or the counter-value placed, in order to increase the probability of being extracted for those of larger dimensions. A replicable random number generation procedure will be applied.

This resolution shall be published on Consob's website (www.consob.it) and in the Consob Bulletin.

22 September 2020

THE CHAIRMAN

Paolo Savona