Defending Financial Institutions in Italian Sanctioning Proceedings-Part 1
Administrative sanctions are an integral part of the Italian financial supervision landscape. The optimal defensive strategy will of course vary on the basis of the specificities of each case.
I will try to sketch in a three-part series certain guidelines which I have found of general relevance in around 25 years of experience working on sanctioning proceedings, on both sides of the table, first at the Bank of Italy and then in private practice.
This initial post will focus on two preliminary organizational aspects. Following posts will address procedural aspects and matters pertaining to the merits and actual content of the defenses.
I get a blind kind of panic that locks me inside
My mind numb and my heart racing
I am a man with too many reasons
On the road with too many signs
I play a deck with too many cards
Too many games of too many kinds
The seasons turned so fast and I’m moving too slow
I get blown off course, like everyone I know
I need more time, I need more time
New Model Army
I must start by addressing a topic which should be undisputed and yet it is sometimes hotly debated with clients, so hotly that as an outside counsel you may end up in a difficult spot.
The law allows defendants to seek for a prorogation of the term to prepare the defenses.
Yet, advice to ask for a deferral is sometimes met with criticism by clients. The objection has typically to do with the stigma allegedly attached to such a request by Regulators: “If they have set a term, they want us to meet it — the theory would go — lest we may endanger our relationship with them”. My professional view is that this is, to put it simply, wrong.
I cannot think of one example in which we denied a deferral when I worked at the Bank of Italy. We saw deferrals as a right of the defendant, set out by the law, and we routinely granted them (surprise! Officers working at regulators may act as civil servants and do not necessarily try to bully supervised entities just for the sake of fun). Also, I cannot think of one case where the senior managers of the Bank of Italy who met to decide on the sanctions ever discussed the fact that a financial institution had requested for a deferral.
Similarly, I cannot think of one example in which one of my clients in private practice has been denied such deferral by any regulator.
Occasionally I may also have the sensation that clients feel somewhat offended. If I raise the point that 30 days are not enough, the reaction may at times be something like “we are efficient, we do not care about what others do, we do not need more time!”. This is where things may turn challenging: I feel I have a professional obligation to insist, in the client’s interest, but at that point the idea that I push for a deferral because we are not good enough, because we fear that we cannot remain up-to-speed with our clients, may start to fluctuate in the room.
Which leads us to the next topic. Having as much time as possible is indeed a necessity.
The plan is useless, but planning is essential
Dwight D. Eisenhower
- For how long do the onions have to cook?
- Well, you will see it by yourself when they’re done
My mum replying to me
Many years ago I was hired by a foreign bank to assist in a proceeding before the Bank of Italy.
At the kick-off meeting I met somebody who would act –I was told — as “PMO”. I initially struggled to understand what would be his role. He would a) send emails after meetings to allocate tasks for which he would set tight timelines (tasks were assigned to others, never to himself); b) ahead of the deadline, chase everybody asking whether they were expecting to meet the deadline; c) after the deadline, chase everybody who had missed it; (d) send invitations for a follow-up meeting.
The cycle could thus start again.
I was admired. “I have met a professional stalker”, I came to think. Literally: He had made a leaving of bugging people. I was wrong. Project management has now become an integral part of any financial lawyer’s toolbox.
As the complexity of the internal organization of financial institutions and of the regulations grows, the number of offices and functions to be involved in the process of drafting responses, also increases.
Careful planning is of the essence. For example, one need to a) map the various responses to be prepared and allocate them to the respective owners who shall prepare the responses; b) keep track of the status of the responses; c) set the dates of the meetings of the board of directors which will have to approve the defenses.
No matter how efficiently you plan in advance, though, a number of factors will wreak havoc on your plan.
Let me choose one example of a topic which should play a negligible role and which may instead impact materially on the tempo of activities: One office may produce too short a response, completely insufficient. Another office may draft an overly extensive response, which may miss the point. In a surprisingly high number of cases the process of preparing the defenses is slowed down not only by substantial matters but by quite pragmatic matters like these ones.
I am by no means denying that the question which I sometimes hear — “how long should these responses be?” — makes sense. If you have never been involved in a sanctioning proceeding this is entirely uncharted ground to you, so I can see why you may seek for some guidance. However, there is no such thing as a “right” length of a response. Or, rather, that question should be answered by using a conspicuous dose of good old common sense (just like my mother — one of the greatest cooks of all times — replied to my question with an answer reminiscent of one of Master Yoda’s advices).
These are and should remain obvious topics. Yet, that is not the case and lengthy discussions sometimes take place just to let common sense prevail. I once had to have several conference calls whose topic was whether the various offices involved should be assigned the task to write “half a page”. I opposed such proposal (which did not come from the client but from another consultant, truth be told) and I thought I had had the upper end. They came back to me a few days later with examples of previous cases where the insurer involved had indeed replied with half a page to each charge. I asked them whether the charges were identical to the case we were analyzing and whether the client had been acquitted or sanctioned. A somewhat embarrassed silence followed my request, they had no idea and only at that point and thanks to the help of the company’s general counsel the idea was accepted that we should not force offices not to exceed half a page.
Coordinating the various actors involved is a key function even when addressing mundane topics as the ones described above. Even more so, when one has to address the merits of the responses, to which I will turn with the next post within this series.
(continued)
