The legislation introduces severe "fit and proper" criteria in terms of professionalism, integrity and independence as laid out by European authorities in 2013 with the directive on banks' capital requirements.
Under the rules, Rome will bar from the position of director at a bank anyone sentenced for money laundering, mafia and terrorism, whereas previously only banking and financial crimes were specifically mentioned.
"Italy's often late when it comes to adopting new European legislation, so this is welcome news," said Alessandro Zattoni, an Italian academic who chairs the International Corporate Governance Society.
Zattoni said the requirements set out in the decree were necessary but insufficient to guarantee well-functioning boards.
"That ... hinges on people who have the right personality and ambition to fulfil the company's objectives, even when this means challenging the course of action proposed by controlling shareholders or powerful managers," he said.
One of the sources said the measures, due to appear next week in the official gazette, should take effect by Dec. 31.
In clearing the legislation on Oct. 16, Italy's top administrative court asked the Treasury to make some changes, delaying further a lengthy approval process, the sources said.
"The adoption of the regulation was requested by the European Central Bank, which is responsible for checking the eligibility of directors in banks under its supervision," the draft decree seen by Reuters said.
The measures also rule out people who were members of government or parliament during the previous two years from the position of independent board members.
That would have prevented the recent appointment of former Economy Minister Pier Carlo Padoan as an independent director at UniCredit, ahead of taking on the chairmanship of Italy's no.2 bank next year.
Investors fretted about potential political interference at UniCredit when Chief Executive Jean Pierre Mustier last week decided to quit.
(Reporting by Giuseppe Fonte and Valentina Za; Editing by Kirsten Donovan and Alexandra Hudson)
By Giuseppe Fonte and Valentina Za
