Italy to soften sanctions in bid for smoother relations with markets

• New decree allows financial firms to agree to commitments with authorities as alternative to sanctions, and eliminates penalties for minor violations worth less than 10,000 euros
• Milan bourse's market-cap-to-GDP ratio stands at just 48% as of end-2025, among the lowest in advanced economies according to Consob data
• Government seeks to reposition supervisory authorities from being perceived as 'repressive and uncooperative' to allies of the market, with measures designed to speed up regulatory proceedings

Italy Plans Regulatory Reform to Boost Capital Markets

Italy is moving to soften its approach to financial sector sanctions in an effort to improve relations with markets and address longstanding capital market weaknesses. A decree set for approval on Thursday will introduce several key changes to the regulatory framework.

Key Reforms:

The new measures will allow financial firms to agree to commitments with authorities as an alternative to sanctions and eliminate penalties entirely for minor infractions. Companies will also have the option to negotiate sanction amounts with regulators. Significantly, penalties will only apply when infringements exceed €10,000 ($11,802), establishing a materiality threshold for enforcement actions.

Policy Objectives:

Junior Treasury Minister Federico Freni, a key architect of the package, emphasized the government's goal of repositioning supervisors as market allies rather than adversaries. He noted that "supervisory authorities have often been wrongly perceived as repressive and uncooperative." The reforms aim to accelerate regulatory proceedings and provide authorities with greater flexibility.

Market Context:

Italy's capital markets significantly underperform international peers. The Milan bourse's market-cap-to-GDP ratio stood at just 48% at end-2025, among the lowest in advanced economies according to Consob data. This persistent weakness has prompted government action to enhance market attractiveness.

Additional Considerations:

The government is also examining legislation that holds senior officials from Consob (Italy's securities regulator) and the central bank personally liable for damages in serious misconduct cases. However, changes to this provision are not expected in Thursday's decree.

The reforms represent a broader effort to modernize Italy's financial regulatory environment and improve competitiveness with European peers.