The supervisory body in the 231 model: the decision of the Venice Court of Appeal on Banca Popolare di Vicenza

The supervisory body in the 231 model: the decision of the Venice Court of Appeal on Banca Popolare di Vicenza

  • Carlo De Monte

With judgment no. 3348 of 4 January 2023, the Venice Court of Appeal ruled on a matter involving the Banca Popolare di Vicenza and concerning aspects of the credit institution’s liability under Legislative Decree 231/2001.

The first instance proceedings concluded with a severe sentence for the credit institution, based on the conduct of the members of the Supervisory Body, as the Court held that the body was so inadequate - in terms of functioning and composition - as to render the organisational model unsuitable.
At the heart of the Appeal Court’s decision, which confirmed the ruling of the court of the first instance, lies the matter of the Supervisory Body, a key component of the system outlined by the regulations laid down by Legislative Decree 231/2001.

According to the court of the second instance, the picture arising from the trial hearing was “of almost complete “osmosis” between the supervisory body and the senior management, making it impossible to perceive any degree of autonomy and effectiveness in the control activity conducted by the body”.
In order to be effective, a suitable organisational model must adopt and implement appropriate and efficient “prevention” countermeasures, which must not only comply with the theoretical criteria outlined by the legislation, but must also be suited to the actual reference situation.

In the case under review, the specific offences of market manipulation and hindering supervision were found.
As underlined by the Court of Appeal, the model adopted by the Banca Popolare di Vicenza instead contained “entirely general guidance on how to prevent the commission of the offences in question, which mostly came down to the requirement to adopt an internal organisation based on the criteria of division of powers and functional segregation with regard to specific activities, and the fulfilment of formal obligations, and to the imposing of prohibitions on aspects of lesser importance than the need to prevent the offences in question”.

As mentioned in the operative part of the ruling at issue, it is sufficient to look at the charges of market manipulation, where the adequacy of the model, with regard to an “offence of disclosure”, should have been substantiated, at the very least, by giving the Supervisory Body the powers to conduct prior checks on the validity of the information to be disclosed to the market.
In actual fact, these disclosures were not even sent to the Supervisory Body for information purposes, and there was no provision for spot checks to be carried out on sensitive activities.

Furthermore, according to the Court of Appeal, in the Banca Popolare di Vicenza’s model the Supervisory Body had no effective autonomy from the company’s management.
The management of the Supervisory Body was officially entrusted to the pro tempore head of the internal audit department, who worked with two other external members who were not employed by the Banca Popolare di Vicenza Group. In truth, all the members were found to lack the necessary independence.
The Chairman reported hierarchically to the General Manager and functionally to the Board of Directors, and therefore precisely to the “powers” that he should have been supervising.
Meanwhile, the two external members had received remuneration from companies attributable to the bank.

According to the Court’s reconstruction, this inveterate link between the Supervisory Body and the senior management meant that during meetings of the Board of Directors it was the General Manager who provided the report on the activities carried out by the Supervisory Body.

The Court of Appeal therefore concludes that “the commission of the offences did not require any fraudulent circumvention of the model in question: quite simply, the model did not represent any kind of impediment to manipulating the market and hindering supervision (with specific regard to disclosures to the market and to the supervisory authorities),so much so that the perpetrators of the offences did not have the slightest concern about “getting round it”, precisely because, as a safeguard, the model in question was not only a mere formality, but was also totally “defocused” from the conduct under trial".

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