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General introduction to the regulatory framework
The main piece of Italian legislation concerning financial instruments and services, including asset management and CISs, is the Legislative Decree No. 58 of 24 February 1998 (Consolidated Text of Rules on Finance) (TUF), as amended. The TUF is a statute issued by the government by delegation of Parliament. The TUF, in turn, delegates power to certain governmental and administrative bodies such as, without limitation, the National Commission for Companies and the Stock Exchange (CONSOB) and the Bank of Italy, in order to issue second-level regulations to implement the provisions of the TUF.
The TUF is periodically amended to implement the European Union (EU) directives applicable to the financial sector. Among the last material changes brought to the TUF are those contained in the Legislative Decree No. 191 of November 5, 2021 (LD 191), aiming at implementing at statutory level in the Italian legal system Directive (EU) 2019/1160 of the European Parliament and the Council of 20 June 2019 (known as the Cross-Border of Distribution of Funds Directive or CBDF) amending Directives 2009/65/EC (UCITS Directive) and 2011/61/EU (AIFMD) on the simplification of the cross-border distribution of CISs, including UCITS and AIFs.
In particular, LD 191 amended the TUF and mandated CONSOB to issue the relevant second-level rules as follows:
- Duties of CONSOB and the Bank of Italy: the information on the national rules applicable to cross-border distributions to be published on the websites of the national regulators, as required by Article 5.1 of Regulation (EU) 2019/1156, will be published on the websites of CONSOB and the Bank of Italy, according to the respective competences provided by the Italian law set out in Article 5 of the TUF: basically, the Bank of Italy for domestic undertakings for collective investment (UCIs) and CONSOB for foreign ones.
- Foreign UCITS: in relation to foreign UCITS, CONSOB will have to amend its regulations to discipline the ‘facilities’ set out by Article 92 of the UCITS Directive as amended by the CBDF. In particular, CONSOB will regulate the facilities for investors to be made available in Italy by EU UCITS, as provided for in Article 92 of Directive 2009/65/EC and, in particular:
- determine the tasks under the facilities for investors to ensure that investors can exercise their rights and have access to the information provided for in Article 92 of Directive 2009/65/EC;
- determine the language in which these facilities are to be provided; and
- regulate the conditions under which the tasks referred to in point (a) may be carried out by a third party or by the EU UCITS jointly with a third party.
Most likely the above exercise will be conducted by CONSOB by amending the provisions of its Issuers’ Regulation (Regulation 11971 of 1999, as amended – RE) governing the distribution of foreign UCITS, and will have to comply with the criteria of the CBDF, including, without limitation, the abolition of the current obligation provided by the Italian rules to have a paying agent and an investor relations manager established in Italy.
The cessation of the marketing of foreign UCITS in Italy must be preceded by a notification by the UCITS’ Home Member State (de-notification), according to the provisions of the UCITS Directive as amended by the CBDF and the formalities set out in the second-level rules to be issued by CONSOB.
It is worth noting that LD 191 does not address in any way the one-month prior notice concerning changes in the share classes marketed, set out by the new Paragraph 8 of Article 93 of the UCITS Directive as amended by the CBDF. Thus, it is expected that CONSOB will deal with this matter when amending the RE.
- Pre-marketing of alternative investment funds: the definition of pre-marketing in LD 191 is the same as that in Article 4.(1) (aea) of the AIFMD as amended by the CBDF, and the other requirements in terms of differences between pre-marketing and marketing also reflect those introduced by the CBDF. In connection with the pre-marketing of EU alternative investment funds (AIFs), CONSOB is informed by the Home Member State regulator, and CONSOB may ask the latter for additional information on the pre-marketing activities carried out or to be carried out in Italy.
In connection with the de-notification of AIFs, the rules provided by LD 191 are substantially the same as those provided for UCITS funds.
- Other provisions of LD 191: the other provisions of LD 191 concern changes to the rules on European venture capital funds and European social entrepreneurship funds introduced by the CBDF and the update of the rules of the TUF on sanctions for breach of the new rules deriving from the CBDF.
At the time of writing, CONSOB still has not issued the new version of the RE with the second-level provisions for the implementation of the CBDF.
Article 39 of the TUF delegates the Minister of Economy and Finance (MEF) to issue second-level rules determining the different types of Italian CISs based on the type of assets in which they can invest – that is, the closed-ended or open-ended type – and the authorised participants. In exercising such delegation, the MEF issued Ministerial Decree No. 30 of 15 March 2015 (2015 MEF Decree) concerning the general criteria applicable to the Italian CIS.
The 2015 MEF Decree (Article 14, Paragraph 2) provides for the following types of Italian CIS:
- UCITS;
- Italian open-ended AIFs (non-harmonised CISs that can invest up to 20 per cent in unlisted financial instruments), which may be available also to retail investors and called non-reserved;
- Italian closed-ended AIFs (a structure that is required to invest in real estate, loans and other assets for which there is a market and their value can be measured at least every six months);
- Italian real estate AIFs (a category of closed-ended AIFs); and
- Italian reserved AIFs, for which the Italian rules do not provide requirements as to the eligible assets.
The term reserved means that this category of AIFs is only available to the categories of investors mentioned in the 2015 MEF Decree, which are either professional investors – as defined in the MiFID and its national implementing regulations; or, if allowed by the relevant AIF rules, non-professional investors investing at least €500,000 (in cash, one-off payment, no commitment).
The MEF Decree No. 19/2022 (2022 MEF Decree), which entered into force on 30 March 2022, has introduced an additional class of non-professional investors in reserved AIFs by adding two new sub-paragraphs to the above-mentioned Article 14, Paragraph 2 of the 2015 MEF Decree.
These two new classes are:
- non-professional investors in reserved AIFs who, as a result of a recommendation given by an authorised intermediary in the context of the service of investment advice, subscribe or purchase units or shares of an AIF for an initial amount of no less than €100,000, provided that, following that subscription or purchase, the total amount of the investments in reserved AIFs does not exceed 10 per cent of the overall financial portfolio (cash, financial insurance products, other financial products) kept with all the financial intermediaries by the relevant non-professional investors in a reserved AIF. The minimum initial shareholding is not fractionable; and
- entities authorised to provide portfolio management services that, in the context of that service, subscribe or purchase units or shares of the AIF for an initial amount of no less than €100,000 on behalf of the non-professional investors in a reserved AIF of which they manage the investment portfolio.
To actually administer the verification of the 10 per cent limit set out in (a) above, the 2022 MEF Decree provides for an obligation of the relevant non-professional investor in the reserved AIF to give to the relevant intermediary complete information on his or her financial investments.
It is important to note that the 2022 MEF Decree did not lower the €500,000 threshold for being treated as professional investors for the purpose of the marketing of AIFs, but introduced a new class of non-professional investor in reserved AIFs that can invest €100,000 provided that this is done within the scope of an investment service that implies a prior assessment of suitability – i.e., non-discretionary investment advice or management of investment portfolios on a discretionary basis – and that the 10 per cent threshold is complied with in cases of investments within the scope of investment advisory services.
Therefore, for the investments outside the scope of investment advice or portfolio management, the minimum €500,000 threshold remains unchanged.
With regard to foreign AIFs that intend to use this additional option for distributing to retail investors, it is expected that CONSOB will recommend the clear explanation of the distribution formalities in the notification letter found under Article 32 of the AIFMD, including, without limitation, the context of the advisory or portfolio management services in which the €100,000 investment can be made and the 10 per cent limit in the case of investment advice.