The 2007 Financial Law (Law 296 of December 27 2006) sets out new guidelines for regions and local authorities when entering into derivative transactions, and includes new provisions to be followed for these transactions to be valid.
Hedging transactions must be carried out with the aim of reducing the final costs of the debt and exposure to market risks. The legislator felt the need to stress this principle, although it was already clear in the existing legislation.
Hedging transactions must be entered into exclusively in relation to underlying liabilities effectively due, and with the sole aim of reducing credit risks.
The 2007 Financial Law provides that, starting from January 1 2007, regions and local authorities must send the final drafts of the agreements they intend to execute to the Ministry for the Economy and Finance (Treasury Department), so that the Ministry can document derivatives including amortization swaps and similar transactions. Without this filing the transactions are invalid.
The Ministry retains the right to inform the Court of Accounts (Corte dei Conti) whenever the drafts are not compliant with legislation, to allow the Court of Accounts to take the most appropriate steps within its competence.
Regions and local authorities are also now required to register all the main details of the debt, financial and hedging transactions they enter into. Compliance with this provision is under the control of the supervisory bodies of the relevant regions and local authorities.
Regions and local authorities are still obliged to provide details of their debt, financial and hedging transactions to the Ministry of Economy and Finance on a quarterly basis.
The new law clearly shows the legislator's intent to introduce more stringent controls on regions and local authorities.
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