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Nature of claims
Common causes of action
What are the most common causes of action brought against banks and other financial services providers by their customers?
A survey of decisions, provided by the arbitration authority in the field of banking and finance, underlines that the most common causes of action are related to disputes concerning management of current bank accounts, loans and mortgages and credit information systems.
- with reference to management of current accounts, proceedings principally relate to breaches of contract terms and allege significant differences between the interest rate, expenses and timing of currency exchange, applied to the account, against those provided by the contract, constituting a unilateral change of terms and conditions;
- with reference to investment services, motions are mostly related to conflicts of interest, inadequacy of the financial product for being too risky, having regard to the risk profile of the investor and insufficient information provided to the investor about the financial product sold;
- with reference to loans and mortgages, proceedings mostly relate to usurious rates, provision of incomplete documentation on the financial terms and conditions, the pre-contractual conduct of the banks, insurance policies and advance repayment of loans; and
- with reference to the credit information system, the majority of legal proceedings relate to unsuccessful notices relating to the communication of personal data, of violations of the code of ethics and good conduct and providing erroneous or unlawful information to the Italian Securities and Exchange Commission (CONSOB).
In claims for the misselling of financial products, what types of non-contractual duties have been recognised by the court? In particular is there scope to plead that duties owed by financial institutions to the relevant regulator in your jurisdiction are also owed directly by a financial institution to its customers?
The law sets out certain criteria that regulate the conduct of financial institutions:
- they have to act diligently, fairly and with transparency in the interests of customers and market integrity;
- they have to obtain all necessary information from their customers and ensure that customers are adequately informed;
- they have to organise themselves in order to minimise the risk of conflicts of interest; and
- they have an overriding duty to ensure transparency and fair treatment of customers.
The financial institutions owe these duties toward both the regulatory authorities and their customers. Moreover, additional duties regarding the provision of information must be complied with in the event that the relevant transactions have generated actual or potential losses, or in the case of reduction of assets because of actual or potential dissemination of sensitive information. The financial institutions must provide this information promptly and in writing to the investors.
If the financial institution breaches these duties in the phase preceding the execution of the agreement or coinciding with the signing of the same, this could give rise to pre-contractual liability whereas, if the breach occurs during the life of the agreement, it would give rise to contractual liability.
Statutory liability regime
In claims for untrue or misleading statements or omissions in prospectuses, listing particulars and periodic financial disclosures, is there a statutory liability regime?
There is no statutory system relating to prospectus liability, and therefore any claim for untrue or misleading statements or omissions must be brought under the common law.
The case law, and most authors who have written on the subject, suggest that prospectus liability should be considered as pre-contractual or ex tort liability because the offence (ie, the breach of the disclosure duty) prejudices the investors’ need to have accurate and complete information on the securities in which they are investing.
The main defendants are most likely to be:
- the financial institutions that induce a third party to buy shares in a company. Courts, in particular, have held banks to be liable in cases where the managing directors induced a third party to enter into the agreement in question, on the basis of negligent information, without which the third party would not have signed the contract or would only have signed it under less onerous conditions;
- the intermediary, who is required to carefully review the information provided by the issuer; and
- the issuer of the securities that provided untruthful or incomplete information.
Duty of good faith
Is there an implied duty of good faith in contracts concluded between financial institutions and their customers? What is the effect of this duty on financial services litigation?
The duty of good faith as a rule of conduct is set out in a number of provisions of the Civil Code. These provisions impose a duty of good faith at all phases of the contractual relationship between the contracting parties, from the initial formation of the contract to its execution.
The current view of the Supreme Court is that a breach of the requirements of fairness and good faith ‘itself constitutes a default and provokes contractual liability, without it being necessary to show the wish to cause intentional prejudice to the counterparty’.
The duty of good faith is one of the general principles implied by the law. For this reason, breach of the duty is alleged in most financial litigation.
In what circumstances will a financial institution owe fiduciary duties to its customers? What is the effect of such duties on financial services litigation?
Under the law, financial institutions have to act diligently, fairly and with transparency in the interests of customers. This duty, in addition to being expressly provided for by the law, applies during the entire relationship between the financial institution and its investors. It follows that the financial services sector automatically stands in a fiduciary relationship to its customers and that the existence of such a relationship cannot be excluded by contract.
A typical example of claim alleging breach of these fiduciary duties is a claim against an intermediary who:
- does not examine data regarding:
- the client’s ‘knowledge and experience in the investment field that is relevant to the type of instrument or service’;
- the client’s ‘financial situation’; and
- the client’s ‘investment aims’; and
- does not consider ‘on the basis of the information received from the customer and taking into consideration the nature and properties of the service provided’ the adequacy and appropriateness of the transaction.
How are standard form master agreements for particular financial transactions treated?
Master agreements must be in writing or they will be declared null and void. This provision has generated a significant volume of litigation between consumers and financial institutions, and many master agreements have been declared null and void because the financial institution either did not send the acceptance to the other party or was unable to prove that it had done so. As these contracts are concluded, first through the submission of the proposal by the consumer and second through the acceptance by the financial institution, the absence of the latter can be considered as a lack of written form and, as a consequence, causes the nullity of those agreements.
Master agreements concluded with consumers usually contain a clause providing for Italian jurisdiction and governing law. Moreover, the rights of the consumers provided for in Legislative Decree No. 206/2005 are not derogable, even if the governing law is not Italian (section 67(g)(i) of Legislative Decree No. 206/2005).
Can a financial institution limit or exclude its liability? What statutory protections exist to protect the interests of consumers and private parties?
A financial institution cannot limit or exclude its liability towards investors since the laws ensure not only the respect for and performance of the individual financial transaction, but also, more generally, support economic public policy. These laws are therefore mandatory.
There are many statutory provisions that protect the interests of consumers and private parties set out in the law and in the CONSOB Regulations.
Freedom to contact
What other restrictions apply to the freedom of financial institutions to contract?
In addition to the limits specifically set out in the above-mentioned statutes, the freedom of financial institutions to contract is limited by general contract law (eg, the judge can reduce excessive penalty clauses).
What remedies are available in financial services litigation?
The decisions of the first instance courts are conflicting on this issue. Initially, the courts declared the contracts to be null and void, and consequently ordered the financial institutions to return the amounts invested by the customers. Later, this approach was abandoned and the courts held the banks liable for their breach of the rules of conduct, ordered the consequent rescission of the contract and the payment by the bank of compensation for damages suffered by the customers.
Have any particular issues arisen in financial services cases in your jurisdiction in relation to limitation defences?
An issue arose with reference to the limitation period in the case of loan instalments. Pursuant to article 2946 of the Italian Civil Code (ICC), the limitation period in the case of loan instalments is 10 years. A dispute arose because article 2948 No. 4 of the ICC also provides for a ‘short’ limitation period of five years in the case of periodical payments. However, the court held that this latter provision does not apply in the case of loan instalments, since the individual instalments cannot be considered to be consideration for the provision of individual, autonomous services, but rather are consideration for the provision of one single service with payment divided into instalments.
Issues regarding the limitation period have also arisen in connection with the date when the period of limitation starts running, with particular reference to interest on credit balances in current accounts that was wrongly withheld by a bank. Following established case law, it was held that the limitation period (10 years pursuant to article 2946 of the ICC) starts running from the date of closure of the current account, since the claim is based on a single agreement and relationship, even if there are numerous transactions by the parties during the relationship.
Do you have a specialist court or other arrangements for the hearing of financial services disputes in your jurisdiction? Are there specialist judges for financial cases?
No. There are no special financial services courts. However, in larger courts, such as in Rome or Milan, financial disputes will be allocated to certain divisions of the court. The appointment of judges to those divisions and the allocation of relevant work is not governed by law and falls within the discretionary powers of the tribunals.
Do any specific procedural rules apply to financial services litigation?
No. The ordinary procedural rules (set out by the Italian Civil Procedure Code) apply to financial services litigation.
May parties agree to submit financial services disputes to arbitration?
Yes. The parties may agree in the contract or in a separate document to submit financial services disputes to arbitration.
Out of court settlements
Must parties initially seek to settle out of court or refer financial services disputes for alternative dispute resolution?
Yes. In particular, the recent law on mediation stated that the following:
[A]nyone who wants to pursue legal action before the court relating to a consumer dispute [... arising from, among other things,] banking and financial contracts, first has to attempt mediation proceedings before a mediation framework or before the Conciliation and Arbitration Chamber or before CONSOB, or, at minimum, before the ABF [Financial Banking Arbitrator]. An attempt at mediation proceedings is considered to be a condition of admissibility of the claim.
Are there any pre-action considerations specific to financial services litigation that the parties should take into account in your jurisdiction?
No pre-action considerations are prescribed in Italian jurisdiction.
Unilateral jurisdiction clauses
Does your jurisdiction recognise unilateral jurisdiction clauses?
Yes. The split clause has been recognised by the Italian Supreme Court. In fact, the court had no hesitation in upholding the validity of the clause, pointing out that the parties’ asymmetrical position with respect to jurisdiction was consistent with Regulation (EC) No. 44/2001.
To date, there has been no conflict between Italian jurisdiction and other jurisdictions as to the treatment of such clauses.
What are the general disclosure obligations for litigants in your jurisdiction? Are banking secrecy, blocking statute or similar regimes applied in your jurisdiction? How does this affect financial services litigation?
There is no obligation on parties to Italian proceedings to provide disclosure of documents. Each party has the right to file the documents on which it intends to rely. If a party wants to introduce into evidence a document that is under the control of the opposing party or a third party, he or she can ask the court to order its production.
The judge will order its production only if it is considered necessary for the resolution of the proceedings. However, the law provides that a customer has the right to all documentation held by banks or financial intermediaries relating to his or her transactions.
Must financial institutions disclose confidential client documents during court proceedings? What procedural devices can be used to protect such documents?
As noted in question 17, financial institutions or financial intermediaries have an obligation to provide all of the documentation concerning their individual transactions to their customers. Except for this obligation, there is no general duty of disclosure on financial institutions that would force them to deposit documents during the proceedings - if the court considers that a specific document is necessary for the resolution of the proceedings, it will order its production and fix the times and conditions.
Disclosure of personal data
May private parties request disclosure of personal data held by financial services institutions?
With reference to personal documents or confidential information, the privacy code requires the consent of the concerned parties as a necessary prerequisite for the disclosure of personal data.
Under the code, consent of the concerned party is not required only where the use of the data is necessary to enforce or defend a right, even though said data does not relate to a party to the proceedings in which the production is made.
Production of the data must be relevant to the defence and not exceed it; it is important that the use of the data be limited to what is necessary for the legitimate and balanced conduct of its own defence.
What data governance issues are of particular importance to financial disputes in your jurisdiction? What case management techniques have evolved to deal with data issues?
At the moment, no disputes regarding data management have arisen.
Interaction with regulatory regime
What powers do regulatory authorities have to bring court proceedings in your jurisdiction? In particular, what remedies may they seek?
Regulatory authorities (Bank of Italy and CONSOB) cannot bring court proceedings, although they have the power to impose administrative sanctions that can be both financial and injunctive. An application can be brought against such sanctions before the judicial authority, which has the power to review, in its entirety, the merits of the matter that led to the imposition of sanctions.
After the intervention of the European Court of Human Rights in the case of Grande Stevens & others v Italy (App nos. 18640/10, 18647/10, 18663/10, 18668/10 et 18698/10 and 18698/10, 4 March 2004) and of the State Council, both of whom considered it to be essential to ensure due process, even during the decision phase of sanctions proceedings, CONSOB recently decided to modify its regulations governing sanctions proceedings.
Disclosure restrictions on communications
Are communications between financial institutions and regulators and other regulatory materials subject to any disclosure restrictions or claims of privilege?
No. Communications between the financial institutions and regulators are not subject to any disclosure restrictions or claims of privilege.
May private parties bring court proceedings against financial institutions directly for breaches of regulations?
A private party may bring court proceedings against financial institutions for breach of the CONSOB or Bank of Italy regulations only if it has a cause of action for which it can seek civil relief (eg, if, as a result of a breach of the Bank of Italy regulation a private party suffers loss, they may bring proceedings to obtain damages).
In a claim by a private party against a financial institution, must the institution disclose complaints made against it by other private parties?
No. The financial institution has no duty to lodge documents relating to other cases that have been brought by other private parties.
If a counterparty requests the production of a specific document (therefore, not a generic document relating to unknown parties) and the judge considers the production of the document to be necessary, the judge may order its production. If the document is produced in the proceedings, it will not constitute evidence of any liability of the financial institutions, but will be considered as evidence of facts that the judge may take into account.
Where a financial institution has agreed with a regulator to conduct a business review or redress exercise, may private parties directly enforce the terms of that review or exercise?
No. The systems are distinct. On the one hand, there is the regulatory authority’s sanctions regime, and on the other there is the protection of private parties’ system before the judicial authorities (with a prior attempt to resolve the matter through alternative dispute resolution procedures, when provided).
Changes to the landscape
Have changes to the regulatory landscape following the financial crisis impacted financial services litigation?
Yes. The expansion of the regulatory regime and the reinforcement of the financial institutions’ duties to customers have had a considerable impact on financial disputes.
In our opinion, this can be considered as one of the main causes of the increase in financial litigation. Before 2007, the main issues were bonds (in particular, ‘tango bonds’) or derivatives. From 2008 onwards, on the one hand the financial crisis has aggravated the relationship between investors and the banking system, and on the other hand, the reduction in credit has led to an increase in consumer disputes, relating to the investment industry and loans in general.
Is there an independent complaints procedure that customers can use to complain about financial services firms without bringing court claims?
In Italy, certain institutions have been given extrajudicial dispute resolution functions, as follows.
This is an extrajudicial system aimed at solving disputes between customers and banks or financial intermediaries. The work and decisions of the ABF are independent and it is supported by the Bank of Italy. Only the customer may start proceedings before the ABF and this is only after he or she has tried to resolve the dispute by sending a written complaint to the intermediary. If the decision of the ABF is not considered satisfactory, the customer, the intermediary or both may refer the matter to the court.
The ABF’s decisions are not binding like those of a judge, but if the intermediary does not respect them, its breach is made public.
The Chamber of Conciliation and Arbitration established CONSOB
The Chamber is responsible for managing conciliation and arbitration proceedings relating to disputes between investors or non-professional investors and banks or other financial institutions. The disputes for which it is responsible are those that arise out of compliance with reporting obligations and the duties of fairness and transparency in contractual relationships with customers relating to investment services or management companies (mutual funds).
This is a collegiate system of alternative dispute resolution to which customers may appeal in order to resolve disputes with banks and financial intermediaries arising out of investment services (sale of stocks, bonds, government bonds, mutual funds, financial policies, wealth management, etc). The Ombudsman’s decisions are not like those of a judge: while they are legally binding on the banks or the intermediary, they are not binding on the customer. In addition, a decision of the Ombudsman does not affect the parties’ right to submit the dispute to the civil courts. If a bank or intermediary refuses to comply with a decision, notice of its non-compliance is published in the press at the cost of the respective bank or intermediary.
Recovery of assets
Is there an extrajudicial process for private individuals to recover lost assets from insolvent financial services firms? What is the limit of compensation that can be awarded without bringing court claims?
Articles 59 and 60 of Legislative Decree No. 58/1998 (Consolidated Law on Financial Intermediation (TUF)) provide for an investors’ compensation scheme regulated by Ministerial Decree No. 485 of 14 November 1997. Under the Ministerial Decree, the participating entities pay a contribution that is paid into a special fund. The purpose of the fund is to satisfy the claims of investors in the event of:
- compulsory administrative liquidation of Italian banks and investment intermediaries;
- bankruptcy or composition with creditors of the brokers and financial intermediaries; or
- the intervention of compensation schemes of the countries of origin of foreign banks and of investment firms that have their branches in Italy or, where there are no compensation schemes in those countries and the intermediaries are subject to procedures similar to those indicated in (i) and (ii).
Compensation is limited to €20,000 for each investor.
Moreover, article 96 and 96-bis of Legislative Decree No. 385/1993 (the Consolidated Banking Act (TUB)) provides for a deposit guarantee scheme. This scheme aims to protect depositors in Italian banks that participate in the guarantee scheme and their branches (and, if so provided by its by-laws, this will also include branches situated in a non-EU country) and Italian branches of EU and non-EU countries’ banks that participate in the guarantee scheme. The following claims should be covered by the guarantee scheme:
- claims against banks in administrative compulsory liquidation that relate to funds acquired by banks with an obligation of restitution;
- deposits or other forms; and
- bank drafts and other similar securities.
Compensation is limited to €100,000 for each depositor. Compensation under the TUF and TUB may not be combined.