The Italian financial law dated December 22 2008 (Financial Law) provides for measures restricting the range of financial transactions that regions and local authorities may enter into. Regions and local authorities can no longer issue bonds or enter into financing transactions with bullet repayment. The maturity of each single transaction, even if it results from the renegotiation of an existing debt, cannot exceed 30 years and must have a minimum maturity of at least five years.
The Ministry of Economy, in agreement with Bank of Italy, Consob and the Permanent Conference for Relationships with the State, will have to issue a decree setting forth the limits and characteristics of derivative transactions that regions and local authorities may enter into (the Decree).
Article 3 of the Financial Law expressly prohibits regions and local authorities from entering into derivative transactions until the date upon which the Decree will become effective, and in any case until August 6 2009.
The officer executing derivative contracts on behalf of a region or local authority must certify in writing to be aware of the contract's risks and features. Without this certification the contract will be null, although the nullity may be invoked in this case only by the relevant public entity.
Notwithstanding the new restrictions, it is possible to enter into novations only for the purpose of replacing a swap counterparty or transactions for the restructuring of a derivative if the underlying liability has for any reason changed so as to adjust the derivative to the new underlying debt.
The Financial Law increases further external controls on derivative transactions and provides that the Ministry of Economy and Finance is now required to transmit to the Court of Accounts, on a monthly basis, the swap documentation received by counterparties before their entering into any derivative transaction.
Regions and local authorities must enclose in their budget and accounts an explanatory note that must evidence the estimated financial burdens and commitments and those deriving from derivative transactions or from transactions that include derivative components.