Jump to Content Jump to Main Navigation

6 Italy

Francesco Paolo Crocenzi

From: Alternative Investment Funds in Europe

Edited By: Lodewijk van Setten, Danny Busch

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: null; date: 09 May 2021

Subject(s):
Supervision — Alternative Investment Fund Managers Directive (AIFMD) — Alternative investment fund — Hedge fund — Advertising and marketing and funds

(p. 273) Italy

I. Introduction

1. Nature of the national non-retail investment industry

6.01  Most of the Italian non-UCITS funds—alternative investment funds (AIFs)—are funds of funds. A significant part of the investments in non-Italian AIFs will come from Italian AIFs. In addition, there are also investments from other classes of Italian investors like ‘foundations’ and high net worth/affluent individuals, to the extent that they qualify as eligible investors for the relevant AIF.

6.02  AIFs are not permitted investments for Italian pension funds. However, the Italian Minister of Economy and Finance is expected to issue new rules on the permitted investments in mid 2014. These must include rules on AIFs in light of the AIFMD passports. Alternative investment fund managers (AIFM) should be able to offer AIFs to professional investors, a category that includes pension funds.

2. Legal structures used to form national AIFs

6.03  The largely predominant structure for Italian AIFs is the Fondo Comune di Investimento (FCI) (common investment fund). The FCI is equivalent, for example, to the Luxembourg Fonds Commun de Placement.

6.04  An FCI is an unincorporated structure, not a legal person, and, as we will see, its lack of legal status affects the ownership of the fund’s assets (see paragraphs 6.09 and 6.10). FCIs are also (p. 275) defined as collective investment schemes of the ‘contractual type’, as opposed to the Società di Investimento a Capitale Variabile (SICAV), ie an investment company with variable capital, which are referred to as collective investment schemes of a ‘corporate type’.

6.05  The reason for the prevalence of the FCI structure over the investment company is historical: in particular, the first Italian statute that governed collective investment schemes—Law No 77 of 23 March 1983—was titled ‘establishment and discipline of the common funds in transferable securities’ and did not consider SICAVs.

6.06  The introduction of SICAVs in Italian legislation was made at a later stage in connection with the implementation of the UCITS I Directive. The initial omission of SICAVs from the Italian legal system can be found in the main piece of Italian legislation on securities law—the Consolidated Law on Finance Intermediation,1 Legislative Decree No 58 of 24 February 1998 (in Italian, Testo unico delle disposizioni in materia di intermediazione finanziaria (‘TUF’)).

6.07  Interestingly, the pre-AIFMD text of the TUF only addressed FCIs and not SICAVs, which are governed by specific rules. During the consultation leading up to the introduction of the TUF, stakeholders noted that the Italian legislator ‘forgot’ SICAVs, and therefore a paragraph was inserted in order to state that the provisions of the TUF on FCIs also apply to SICAVs (TUF, article 50).

6.08  Article 36.6 of the TUF states that each sub-fund is a separate pool of assets, segregated from those of the managing company, and no legal actions of the creditors of the managing company can be taken against the fund’s assets.2 The application of article 36.6 has been confirmed and further clarified by the Italian Supreme Court (Corte di Cassazione (CdC)).

6.09  The CdC confirmed that the FCI ‘is not an autonomous legal person’ capable of having a legal relationship directly in its own name with third parties, thus needing the intervention of the managing company,3 but that, notwithstanding, the FCI’s assets are segregated from those of the managing company as a result of the ‘lawmakers’ concerns to ensure a strong protection of the interests of the investors who hold units of the fund by avoiding the risk that the fund’s assets are adversely affected by attacks from the creditors of the managing company’. This ensured the ‘exclusive destination [of the FCI’s assets] to the purpose of financial investment for the purpose of which it has been organized’.4

(p. 276) 6.10  The CdC’s clarifications involve two further considerations. First, that since the FCI has no autonomous legal personality, its assets will need to be registered in the name of an entity having legal status, ie the managing company. Second, that registration in the name of the managing company will be only ‘nominal’,5 while the beneficial owners will be the fund and its unit-holders. With regard to this issue, and in particular to the title on the real estate owned by an Italian real estate FCI, a recent decision of the Milan court (Tribunale di Milano) dated 29 March 20126 stated that the title on the real estate of an FCI must necessarily be registered in the name of its managing company, but this SGR (Società di Gestione del Risparmio) will hold the real estate only as ‘trustee’ of the unit-holders.

II. Pre-AIFMD Regulatory Framework

1. Regulation of AIFMs and national AIFs prior to the AIFMD

A. The pre-AIFMD regulation of non-UCITS management companies

6.11  The TUF may either directly regulate matters or delegate other entities, such as the Minister of Economy and Finance, the Bank of Italy, or the National Commission for the Companies and the Stock Exchange (‘CONSOB’) to issue second level rules for the implementation of the general principles contained in the TUF. Some articles of the TUF have been renumbered upon implementation of the AIFMD (see paragraph 6.41) and referred to here as articles of the ‘TUFR’. The TUFR entered into force on 9 April 2014.

6.12  Part II, Title III of the TUF governs ‘collective portfolio management’, which was defined by the article 1.1(n), (1) and (2) of the TUF as ‘the service that is performed through: (1) the promotion, establishment and organization of mutual funds and the administration of participants’ accounts; and (2) the management of the assets of own or third-party collective investment undertakings by means of investment in financial instruments, claims and other movable or immovable assets’.

6.13  The new definition of ‘collective portfolio management’ contained in article 1.1(n) of the TUFR only contemplates the ‘core’ activity of managing collective investment schemes, which includes the ‘administration’ of the scheme.

6.14  The pre-AIFMD text of article 33 of the TUF provided that the collective portfolio management might be carried out by either Italian ‘asset management companies’7 and SICAVs, or ‘harmonized asset management companies’. Harmonized asset management companies are non-Italian EU management companies that benefit from the freedom to provide services/freedom of establishment granted by Articles 16 to 21 of the UCITS Directive.

6.15  Given the regulatory context of the definition and until the full implementation of the AIFMD in Italy, ‘harmonized asset management companies’ will not be deemed authorized to carry out collective portfolio management in relation to the promotion or establishment (p. 277) of AIFs in Italy as their activity should be limited to UCITS funds, while the same companies, if authorized in their home Member State to manage investment portfolios on a segregated basis, may be appointed for the management of a specific part of the assets of an existing Italian AIF pursuant to passporting rights under MiFID.

6.16  In the Italian post-AIFM legal system, EU AIFMs and non-EU AIFMs have been added to the list of the entities authorized to carry out collective portfolio management, while the term ‘harmonized asset management company’ has been replaced by ‘EU management company’ (TUFR, article 1.1 o-bis). In this context, an EU management company will be authorized to manage either UCITSs and/or AIFs in Italy according to the authorizations it has in its home Member State.

B. The pre-AIFMD regulation of non-UCITS funds (AIFs)

6.17  Article 37 of the TUF authorized the Minister of Economy and Finance to make TUF implementation rules by Ministerial Decree, or ‘DM’. Accordingly, DM No 228 of 1999 (as amended) provides general requirements for the establishment of collective investment schemes with regard, inter alia, to the ‘object of the investment’,8 the ‘categories of investor targeted’,9 and ‘the manner of participating in open-/closed-ended funds’10 in connection with the subscription and redemption of units/shares and the frequency thereof, as well as with the minimum subscription amount.

6.18  Only collective investment schemes falling in one of the categories enumerated in DM 228 are permitted. The ‘catalogue’ in DM 228 can be extended to include new types of collective investment schemes, provided that they comply with the fundamental features of collective management in the TUF. DM 228 will be amended to complete the implementation of the AIFMD in Italy but, as of the date of this chapter, such modifications have not yet been enacted.

6.19  Therefore, the description of the articles of DM 228 in the following paragraphs refers to the pre-AIFMD text and any reference to ‘current’ or ‘currently’ in these paragraphs refers to the law as it stands before the changes are made in connection with the implementation of the AIFMD. Conversely, ‘DM 228R’ refers to DM 228 after the implementation of the AIFMD, as taken from the latest available draft.

6.20  DM 228 provides for the following types of Italian collective investment schemes: (i) harmonized open-ended funds; (ii) non-harmonized open-ended funds; (iii) closed-ended funds; (iv) reserved funds; (v) guaranteed funds; and (vi) speculative funds.

6.21  Harmonized open-ended funds (article 8 of DM 228) are UCITS funds organized under Italian law.

6.22  Non-harmonized open-ended funds (article 9 of DM 228) are best described as Italian domestic non-UCITS retail schemes (NURSs). Their investment policies and restrictions must comply with requirements of the Bank of Italy. The requirements are set out in the Bank of Italy Regulation on Collective Savings Management of 8 May 2012 (‘BOI Regulation 2012’). In essence, the rules for Italian NURSs are similar to the rules for UCITS funds, subject to certain exemptions.

(p. 278) 6.23  Non-harmonized open-ended funds may invest up to 20% of their assets in Italian ‘speculative funds’ or foreign funds, similar to the Italian ‘speculative funds’ that would qualify for authorization in Italy. The speculative or foreign fund must:

  1. (a)  have its net asset value (NAV) calculated at least monthly;

  2. (b)  have procedures that allow unit-holders to know the assets in which the fund is invested;

  3. (c)  have a sufficient diversification of the investments;

  4. (d)  invest in assets with a sufficient degree of liquidity (according to criteria set out in the BOI Regulation 2012);

  5. (e)  in case of foreign vehicles, ensure that the administrator and custodian are subject to adequate supervision of an EU or G10 country.

Furthermore:

  1. (f)  the rules of the target fund must specify the maximum leverage that can be used;

  2. (g)  the investments in units or shares of the same closed-ended or hedge fund cannot exceed 5% of the assets of the non-harmonized fund, but, where non-harmonized funds invest exclusively in other collective investment schemes, such threshold is raised to 20%.

6.24  Closed-ended funds (article 12 of DM 228), which category includes real-estate funds (article 12 bis of DM 228), must be used if more than 10% of the fund’s assets are invested in certain financial instruments specified in DM 228, such as, inter alia, real estate, equity interests in real estate companies, claims, and securities representing claims.

6.25  Reserved funds (article 15 of DM 228) can be open-ended or closed-ended. These funds are only available to those categories of investors as specified in the relevant fund’s rules, and not investors generally. DM 228 provides that reserved funds can establish investment limits different from those established by the ‘prudential rules for limiting and spreading risk issued by the Bank of Italy’ (article 15.3 of DM 228).

6.26  Guaranteed funds (article 15bis of DM 228) can be open-ended or closed-ended funds and may be available to retail and/or professional investors. They must comply with the BoI Regulation’s requirements regarding risk limitation and diversification. Guaranteed funds, as implied in the definition, ‘guarantee the return of the capital invested or payment of a minimum return’ through agreements, which can include swap agreements with banks, insurance companies, or other authorized intermediaries.

6.27  Speculative funds (article 16 of DM 228)11 are funds which have less than 200 unit-holders/shareholders, irrespective of whether these investors are retail or professional investors, who each invest at least EUR 500,000 and the units/shares of the fund have not been publicly offered. Speculative funds, pre-AIFMD, are not subject to regulatory restrictions on their investment powers. In particular, article 16 of DM 228 provides that speculative funds may invest ‘by way of derogation from the prudential rules for limiting and spreading risk issued by the Bank of Italy’. Accordingly, the fund’s powers are limited only as set out in its constitutive and offering documents.

(p. 279) 6.28  The Bank of Italy initially determined that an SGR may not promote and manage both speculative funds and UCITS funds, but this restriction was lifted in 2007.

6.29  The possibility of marketing AIFs to retail investors has not been affected in the post-AIFMD Italian regulatory system, given that article 44 of the TUFR expressly contemplates such marketing.

6.30  The latest draft of DM 228R, which implements the AIFMD, will amalgamate the categories ‘reserved funds’ and ‘speculative funds’ and replace them with the category ‘alternative funds’. This suggests that the other categories are not AIFs. That appears to be incorrect in view of the definition in Article 4(1)(a) of the AIFMD, which clearly includes all other categories under DM 228, except UCITS funds.

6.31  Unfortunately, the TUFR12 is not very helpful either, because the definitions of ‘alternative collective investment schemes’ contained in article 1.1 m-ter, m-quinquies, and m-sexies of the TUFR (concerning, respectively, Italian, EU, and non-EU AIFs) only mention, with an evident tautology, that the alternative collective investment schemes are those covered by the AIFMD, but the AIFMD does not regulate AIFs as such, only managers of AIFs.

C. The regulatory bodies

6.32  The Minister of Economy and Finance, the Bank of Italy, and CONSOB have, within their respective responsibilities, the power to issue regulations for the implementation of the TUF.

6.33  The responsibilities of the Bank of Italy and CONSOB are described by the TUF. As a general rule, the Bank of Italy is responsible for those aspects concerning the reduction of investment risks and the asset stability of the entities providing investment services; CONSOB is responsible for ensuring the correctness and transparency of the actions of such entities.

6.34  The TUF, as revised following the transposition of MiFID in Italy, provides the following supervisory objectives: to promote confidence in the financial system; to protect investors; to ensure stability and the satisfactory operations of the Italian financial system; to promote competitiveness of the financial system; and to ensure compliance with the rules governing financial matters.

2. Regulation of national marketing of AIFs prior to the AIFMD

6.35  DM 228 provides that units or shares in ‘speculative funds’ ‘cannot be the object of solicitation’. This means ‘any offering, invitation to offer or promotional message, addressed to the public in any manner whatsoever, having as its purpose the sale or the subscription of financial instruments’.

6.36  Although the term ‘solicitation’ is replaced in the TUF with the term ‘public offering’, the word ‘solicitation’ keeps its original meaning in DM 228, and the consequence is that Italian speculative funds cannot be advertised or offered to a retail audience. Therefore, no (p. 280) advertisements of Italian speculative funds may appear in the Italian media. It should be noted that the prohibition only covers (as indicated in the definition of ‘solicitation’) the promotion of financial instruments, and therefore the Italian AIFM is entitled to advertise its name and, if sought, its investment strategies so far as the object of the advertisement is a service and not an instrument.

6.37  The same restrictions apply to foreign AIFs, which, in addition, had to be previously authorized for being offered in Italy. In particular, pursuant to article 42.5 of the TUF (repealed by the TUFR), the offering of units of non-UCITS funds in Italy, including hedge funds, was subject to the authorization of the Bank of Italy after having consulted CONSOB.

6.38  In relation to foreign non-UCITSs with the same features as Italian speculative funds, no public advertisements are allowed for reasons of consistency with the restriction applicable to the Italian speculative funds.

III. Regulation of National AIFs after the AIFMD

1. Status of implementation of the AIFMD in Italy

6.39  As of 22 July 2013 (ie the deadline for the implementation of the AIFMD), Italy had not formally implemented the AIFMD. The Bank of Italy and CONSOB did issue interim rules regarding the freedom of EU AIFMs to market AIFs to Italian professional investors and manage AIFs in Italy, thus providing the minimum level of protection to EU players and avoiding sanctions from the EU.13

6.40  On 31 July 2013, the Italian Parliament approved an Act empowering the government to amend the TUF in order to implement the AIFMD. Level 2 rules will be issued by the Bank of Italy and CONSOB. The draft Bank of Italy and CONSOB regulations for the implementation of the rules of the revised TUF (TUFR) on AIFMs are currently not publicly available, although the draft TUFR have been elaborated by the Italian government in consultation with these regulators.

6.41  A public consultation procedure concerning a draft revised TUF to implement the AIFMD was completed on 26 July 2013; on 2 December 2013, the Italian government approved the (p. 281) revised TUF, and, finally, the Government approved the Legislative Decree of 4 March 2014 (‘Decree 44’) that amends the TUF in order to implement the AIFMD. Therefore, references to ‘TUFR’ are references to the TUF as amended by Decree 44. Several provisions of the TUFR will not enter into force until the issue of the second level rules of the BoI and CONSOB for the implementation of the TUFR (not yet issued as of the date of this chapter), hence the necessity of mentioning also the TUF before the changes introduced by the Decree 44. Public consultation for changes to DM 228 was completed in April 2011, but DM 228R has not been issued yet.

2. Regulation of AIFs after implementation of the AIFMD

6.42  The TUFR contains general principles applicable to any collective investment scheme, ie a wider definition that includes FCIs, SICAVs, but also the new category of SICAFs, or Società di Investimento a Capitale Fisso, ie investment companies with fixed capital. Specific sections apply to collective investment schemes of the ‘corporate type’.

6.43  The AIFMD does not seek to include AIFs as such in its regulatory scope. Accordingly, the transposition in Italy of the AIFMD will not have a material effect on existing Italian statutory provisions, which do not govern AIFs per se. The TUF regulates ‘collective portfolio management’, which may be carried out by SGRs, SICAVs, and harmonized managing companies (as described in paragraphs 6.14 and 6.15). Article 32 quater of the TUFR will replace article 33.1 of the TUF and will contain an updated list of the entities permitted to manage collective investment schemes. These will include, in addition to the SGRs, SICAVs, and harmonized asset management companies (to be named ‘EU management companies’ in the TUFR—see paragraph 6.16), Italian SICAFs (or fixed capital investment companies), as well as EU and non-EU AIFMs.

IV. General Provisions of the AIFMD and the Implementing Regulation

1. Implementation table

AIFMD

National implementation

Art 1 (subject matter)

TUF, arts 33, 34, 40, 41, 43; TUFR, arts 32 quater, 34

Art 2 (scope)

TUF, arts 33, 34, 40, 41, 42.5, 43; TUFR, art 32 quater

Art 3 (exemptions)

TUF, art 37; TUFR, arts 32 quater, 35 undecies; DM 228; DM 228R

Art 4 (definitions)

TUFR, art 1

Art 5 (determination of AIFM)

TUF, arts 33, 37, 38; TUFR, art 32 quater  ; BOI/CONSOB Regulation, arts 21, 33 (delegation of management)

Implementing Regulation

National implementation

Arts 3–7 (re Art 3(2) AIFMD: calculation of AUM)

BOI Regulation 2012, Title V, Ch IV

Arts 8–13 (re Art 4(3) AIFMD: calculation of leverage)

DM 228; BOI Regulation 2012

(p. 282) 6.44  The following terms used in the tables have the following meaning:

  • •  TUF: Consolidated Law on Finance—Legislative Decree No 58 of 24 February 1998 before the changes in connection with the implementation of the AIFMD or the provisions not affected by the implementation of the AIFMD, as the case may be;

  • •  TUFR: the TUF as amended in connection with the implementation of the AIFMD by the Legislative Decree No 44 of 4 March 2014 (‘Decree 44’);

  • •  DM 228: Ministerial Decree (Treasury, now Economy and Finance) No 228 of 24 May 1999;

  • •  DM 228R: the draft revised DM 228 for the implementation of the AIFMD;

  • •  BOI/CONSOB Regulation: the joint regulation of the Bank of Italy/CONSOB of 29 October 2007;

  • •  BOI Regulation 2012: the Bank of Italy Ruling of 8 May 2012.

2. Articles 2 and 3—Scope and exemptions

6.45  Article 2(2) of the AIFMD provides that the structure of the AIF is of ‘no significance’ for the purpose of the enforcement of the Directive. The present Italian rules that govern funds generally already apply without distinction to any type of collective investment scheme.

6.46  The exemptions set out in Article 3 of the AIFMD introduce new principles into the Italian regulatory environment. Currently, no exemptions are available if the unit-holder of the fund is the relevant SGR and/or its affiliates, subject to the requirements of ‘plurality’ of unit-holders. In addition, there are currently no minimum asset under management (AUM) thresholds that trigger the rules on funds. The TUFR empowers the Bank of Italy and CONSOB to implement the AIFMD exemptions.

6.47  Under the pre-AIFMD Italian law, there is no exemption if the unit-holder is the promoter or the manager SGR and/or its affiliate(s). The fund rules apply except that there is no ‘plurality’ of investors. ‘Plurality’ denotes that a vehicle is a collective investment scheme. In this context, the definition of collective investment scheme in article 1.1(k) of the TUFR (thus, in a post-AIFM scenario) provides that a collective investment scheme is a ‘scheme organised for the collective management of the savings of which the assets are raised from a plurality of investors’, thus in a manner substantially consistent with Article 4(1)(a)(i) of the AIFMD, which provides that AIFs ‘raise capital from a number of investors’.

3. Article 5—Determination of the AIFM

6.48  Italian law is clear that an AIFM is deemed to carry out the activity defined as ‘collective management’ by article 1.1(n) of the TUF. Only SGRs and self-managed SICAVs (in addition to EU management companies as defined in paragraph 6.16) are qualified to render the service of ‘collective management’, as defined in paragraph 6.13 (article 33.1 of the TUF, as replaced by article 32 quater of the TUFR. Article 32 quater of the TUFR also added the SICAFs (see paragraph 6.42) and the AIFMs, either Italian, EU, or non-EU that manage Italian AIFs.

6.49  As already pointed out (see paragraph 6.03), the entirety of existing Italian AIFs are established in the form of an FCI. Therefore, the internally managed structures as per Article 5(1) (a) of AIFMD do not have any practical relevance in the Italian market as long as they are intended as applicable to investment companies.

6.50  Another feature of Italian AIFs is that they are mostly funds of funds (as of 31 December 2013, 50 out of 69 Italian AIFs are funds of funds (plus 2 ‘mixed’ funds of funds—source MondoHedge)). (p. 283) The underlying collective investment schemes of such Italian funds of funds are foreign vehicles. This means that Italian FCIs do not need external managers formally appointed as delegates of Italian AIFMs because FCIs are already de facto managed by external managers, ie the managers of the underlying funds. Italian AIFMs are, in practice, selectors of funds. With a few exceptions, the capability of Italian AIFMs focuses on fund selection rather than on direct management.

6.51  Article 5(2) and (3) of the AIFMD provides for a series of steps to be taken by the competent regulator should the external AIFM prove unable to ensure compliance with the requirements of the AIFMD. In this case, the Italian regulators will directly exercise their powers where the external AIFM is an Italian entity or the Italian branch of a foreign managing company, while in the case of management services rendered to the AIF through the freedom to provide services, the Italian regulators will liaise with the home country regulator by following the procedures set out in the TUFR and AIFMD.

V. Authorization of AIFMs

1. Implementation table

AIFMD

National implementation

Art 6 (conditions for taking up activities as AIFM)

TUFR, art 32 quater, 34, 35; BOI Regulation 2012

Art 7 (application for authorization)

TUFR, arts 34, 35, 35 bis (for SICAVs and SICAFs); BOI Regulation 2012, Title II, Ch I

Art 8 (conditions for granting the authorization)

TUFR, arts 13(*), 14(+), 34, 35 bis (for SICAVs and SICAFs); BOI Regulation 2012, Title II, Ch I

Art 9 (initial capital and own funds)

TUFR, art 35 bis.1(c) (for SICAVs and SICAFs); BOI Regulation 2012, Title II, Ch I, section II

Art 10 (changes in the scope of the authorization)

TUFR, arts 13(*), 14(*); BOI Regulation 2012, Title II, Ch I, section VI.4, Title IV, Ch IV, section II, Title III, Ch III (for SICAVs)

Art 11 (withdrawal of the authorization)

TUFR, arts 51–53, 56, 57, 60 bis; BOI Regulation 2012, Title II, Ch I, sections VI.5 and VI.6

Implementing Regulation

National implementation

Arts 14–17 (re Art 9(7) AIFMD: own funds and insurance)

BOI Regulation 2012, Title II, Ch V (insurance not included)

(*)  Rule applicable to the repute requirements of the persons conducting the business of the AIFMD per Art 8(1)(c), then implemented through Ministerial Decree No 468 of 11 November 1998.

(+)  Rule applicable to the requirements for the shareholders of the AIFMD per Art 8(1)(d), then implemented through Ministerial Decree No 469 of 11 November 1998.

2. Articles 6 to 8—Conditions and application for authorization

6.52  Until a few years ago (see paragraph 6.28), Italian law did not allow the same company to manage both UCITSs and ‘speculative funds’ (as described in paragraph 6.27). Therefore, although this restriction has been eliminated, in the Italian market there is still a distinction (p. 284) between companies that only manage UCITSs and companies that only manage other funds, even within the same group. Article 34 of the TUFR provides that the authorization to operate as an SGR granted by the Bank of Italy covers both UCITSs and AIFs, thus giving rise in the Italian legal system to identical requirements for UCITS management companies and AIFMs.

6.53  The procedures to be established by the competent regulator and the exercise of regulatory discretions under Articles 7 (application) and 8 (granting authorization) of the AIFMD are expected to compare generally to the procedures established and the exercise of regulatory discretions under the sister provisions in Articles 7 and 8 of the UCITS Directive.

6.54  SGRs are authorized by the Bank of Italy. In examining a request of authorization for a new SGR, the Bank of Italy will carry out both a verification of the formal requirements provided for by the TUFR (article 34) for granting an authorization, and an analysis of the position of the applicant within its group of companies—if any—in order to ensure that the structure of such group does not adversely affect the actual exercise of the Bank of Italy supervision over the SGR (article 34.1(f) of the TUFR). The application for authorization will be rejected if, in the opinion of the Bank of Italy, and after examination of the documents and information submitted by the applicant, sound and prudential management cannot be ensured.

6.55  From a practical standpoint, this means that whenever there is an application for authorization filed by a company belonging to a group which does not have other companies authorized and regulated by the Bank of Italy, it is a common practice that, together with the filing of the documents and information, the applicant will ask for a meeting with the Bank of Italy, with the participation of the applicant’s affiliates and/or mother company, in order to introduce the group and its plans for Italy (in addition to the business plan filed with the request for authorization).

6.56  Another practical aspect is that the Bank of Italy grants the authorization to carry out the collective management only to companies that are already incorporated. Therefore, before filing the application for such authorization, the process of establishing an SGR in the form of a joint stock company (Società per Azioni or ‘SpA’), including the full payment of at least the minimum capital of the company, must be completed.

6.57  Market practice in Italy shows that SGRs also manage portfolios on an individual basis. Since 1998, the TUF has provided that an SGR may carry out both collective and individual management, ie before the amendment to the UCITS I Directive introduced by Directives 2001/107/EC and 2001/108/EC of the European Parliament and of the Council of 21 January 200214 (known as ‘UCITS III’) permitted this in 2001 for managers of UCITS funds. In this context, and in relation to Article 6(4) of the AIFMD, Italy will allow domestic AIFMs to carry out all of the additional services provided for in said rule, including the reception and transmission of orders (the only service not permitted to SGRs in the pre-AIFMD system), but only to SGRs managing AIFs, not UCITS.

(p. 285) 6.58  In particular, article 33.2 of the TUFR15 allows the same SGR to manage both on a segregated and pooled basis (ie with collective investment schemes), without making any distinction between types of funds (for example UCITS or ‘speculative funds’). The same provision also allows SGRs to advise on investments (which is defined in the AIFMD as a non-core service, rather than an investment service, as made by MiFID and the TUF), to set up and manage pension funds, to place units or shares of collective investment schemes either of the same SGR or of third parties, to carry out the non-core services provided by the TUF16 but only with respect to the assets of the funds of the relevant SGR, and to perform related and instrumental activities established by the Bank of Italy in consultation with CONSOB.17 As anticipated, article 33.2, as revised by Decree 44, will also include the reception and transmission of orders in relation to financial instruments, but only for SGRs managing AIFs.

3. Article 9—Initial capital and own funds

6.59  The implementation of the AIFMD will not have a significant impact on existing Italian rules governing certain aspects of AIFs such as initial capital and own funds, provided the pre-AIFMD domestic rules applicable to Italian SGRs are stricter than the EC rules. For example, with regard to minimum capital, the threshold required by the Bank of Italy for the establishment of SGRs is currently EUR 1 million fully paid-in (BOI Regulation 2012, title II, Chapter I, section II), which is an amount materially higher than that required by the AIFMD, plus a variable amount depending upon the value of the assets under management.

6.60  Article 9(7) of the AIFMD, and as detailed in Article 12 of the Implementing Regulation, will require specific implementation rules. BOI Regulation 2012 (not yet amended in connection with the implementation of the AIFMD) does not provide for the possibility of a guarantee from a third party in connection with the coverage of 50% of own funds as referred to in Article 9(3), nor is it possible to foresee whether Italy will select the option set out in Article 9(6) of the AIFMD due, on the one hand, to a conservative attitude of Italian law makers as to capitalization requirements, and, on the other hand, by the likely pressure from industry and the attempt to create more independent asset management companies that would be helped by the exercise of such options.

6.61  It is expected that the provisions of Article 9 in general and Article 9(7) in particular will not change the Italian general rules on private law liability of AIFMs, provided these rules do not affect the basic principles of such liability, but only the protection of AIFMs from the consequences of such liability.

(p. 286) 4. Articles 10 and 11—Changes in the scope of the authorization and withdrawal

6.62  Given that the Italian rules on authorization for managing companies apply to SGRs in general, irrespective of the fact that they manage UCITSs or other non-UCITS funds, the ‘change in scope’ and ‘withdrawal’ provisions of the AIFMD will not materially affect the current Italian legal system, which is consistent with the corresponding provisions of the UCITS Directive, which, in turn, are very similar to those in the AIFMD.

5. Consequences of violating authorization provisions

A. Regulatory law consequences

6.63  For the purpose of the following discussion, the phrase ‘regulatory law consequences’ means sanctions consisting of fines—enforced by regulators and not by judges—which do not arise from crimes but from ‘administrative irregularities’, ie those behaviours which, under the law, are considered less serious than a crime.18

6.64  As a consequence, the procedure for administrative sanctions will be administered directly by the competent regulatory authorities, ie the Bank of Italy or CONSOB, according to their respective competence. The procedure for the enforcement of administrative sanctions is governed by the TUF.

6.65  It should be noted that if the person who committed an administrative irregularity is an employee, officer, director, etc, of a company, the company should be jointly and severally liable with the relevant individual for the payment of the administrative sanction, with a right of recourse against that individual.

6.66  With regard to the actual administrative irregularities, the TUF sanctions the ‘abusive denomination’, ie the use near the company’s name of phrases like ‘SGR’, ‘SIM’ (ie investment firm), ‘SICAV’, or similar—even if not in Italian—by entities that are not authorized to use such qualifications. This is because the TUF provides that the acronyms ‘SGR’ and ‘SIM’19 may be used only by companies that have been authorized to act respectively as fund management companies and investment firms, and thus any use of those acronyms by non-authorized entities will be considered an abuse capable of deceiving the public on the regulatory status of the relevant company.

6.67  Therefore, if the companies ‘Alpha Milano Asset Management’ SIM or ‘Beta Roma SGR’ are not authorized by the Bank of Italy or CONSOB to act as fund/asset management companies, the respective insertion of ‘SIM’ and ‘SGR’ will be liable to the administrative sanction for abusive denomination, the amount of which ranges from EUR 516 to EUR 10,329.20

(p. 287) 6.68  These figures may seem relatively low, and therefore, in addition to civil damages, the most efficacious deterrent seems to be the threat of criminal sanctions, which is also accompanied by the extension of the consequences of the liability to the company that obtained a profit from the crime committed by its officers, directors, agents, etc (see paragraphs 6.103 to 6.106).

B. Criminal law consequences

6.69  Under article 166 of the TUF, any entity that carries out investment services or activities, or collective portfolio management without being authorized under the TUF will be punished with imprisonment of between six months and four years and a criminal fine of between EUR 2,066 and EUR 10,329.

6.70  The CdC had the occasion of further defining the crime of unauthorized exercise of asset management in order to state that such crime can be perpetrated jointly by misrepresentation and thus give rise to two distinct charges. This is because, according to the court, the unauthorized exercise of asset management is a so-called ‘crime of danger’ (ie a crime that does not produce actual damages but the risk of damaging interests protected by the law), in which the object of the protection granted by the law is the correct operation of the markets in financial instruments for the benefit of investors, which result is obtained by permitting only regulated and authorized entities to operate on such markets, while the swindle is a ‘crime of damage’ in which there is an actual decrease of the assets of the person who suffered the fraud.21

C. Private law consequences

6.71  The consequences of managing an AIF without authorization are those provided by the Italian civil code (‘CC’) for damages not arising from a contract, defined as ‘extra-contractual liability’. Other rules of the CC also deal with liability for breach of contract, ie ‘contractual liability’.

6.72  Provided damages caused to a third party by an AIF acting without authorization do not arise from breach of an agreement between the damaged party and the unauthorized entity but from something else, ie the behaviour of a person who acts against the law irrespective of the existence of an agreement, the private law consequences will be classified as ‘extra-contractual liability’. Article 2043 of the CC provides that ‘Any fact, either deriving from wilful misconduct or from negligence, which causes an unjust damage on another, obliges the person who committed the fact to pay damages’. Calculation of the amount of damage is assessed according to the general criteria of the CC, which also apply to liability for breach of contract. Under these criteria, it is necessary to take into consideration both the actual loss suffered by the creditor—or, in case of extra-contractual liability, by the person who suffered the damage, and the missed gain that that person experienced, to the extent that such loss and missed gain are the immediate and direct consequence of the injurious fact. If the injurious fact has been committed by more than one person, there will be joint and several liability of such persons.

(p. 288) VI. Operating Conditions for AIFMs

1. Implementation table

AIFMD

National implementation

Art 12 (general principles)

TUFR, art 35 decies

Art 13 (remuneration)

BOI/CONSOB Regulation, art 8(1)(f)

Art 14 (conflicts of interest)

TUFR, art 35 decies. 1(b); BOI/CONSOB Regulation, arts 37–40

Art 15 (risk management)

BOI/CONSOB Regulation, arts 12, 13

Art 16 (liquidity management)

BOI Regulation 2012, Title V, Ch III

Art 17 (investment in securitization positions)

BOI Regulation 2012, Title V, Ch III

Art 18 (general principles)

TUFR, art 35 decies; BOI/CONSOB Regulation, Pt II, Title I

Art 19 (valuation)

TUFR, art 48.3(b)(*); BOI Regulation 2012, Title V, Ch IV

Art 20 (delegation)

TUFR, art 33.4; BOI/CONSOB Regulation, arts 21, 33, 34

Art 21 (depositary)

TUFR, arts 47–49; BOI/CONSOB Regulation, art 21; BOI Regulation 2012, Title IV, Ch III, Title V, Ch VIII

Implementing Regulation

National implementation

Arts 18–30 (re Art 12(1) AIFMD: general principles)

TUFR, art 35 decies; BOI/CONSOB Regulation, arts 4–18, 35–39, 44

Arts 31–38 (re Art 14 AIFMD: conflicts of interest)

BOI/CONSOB Regulation, arts 37–40

Arts 39–46 (re Art 15 AIFMD: risk management)

BOI/CONSOB Regulation, arts 12, 13

Arts 47–50 (re Art 16 AIFMD: liquidity management)

BOI Regulation 2012, Title V, Ch III

Arts 51–56 (re Art 17 AIFMD: investment in securitization positions)

BOI Regulation 2012, Title V, Ch III

Arts 57–67 (re Art 18 AIFMD: organizational requirements—general principles)

BOI/CONSOB Regulation, Arts 4–18

Arts 68–75 (re Art 19 AIFMD: valuation)

BOI Regulation 2012, Title V, Ch IV

Arts 76–83 (re Art 20 AIFMD: delegation of AIFM functions)

BOI/CONSOB Regulation, arts 21, 33, 34

Arts 84–103 (re Art 21 AIFMD: depositary)

BOI/CONSOB Regulation, art 21; BOI Regulation 2012, Title IV, Ch III, Title V, Ch VIII

(*)  Governing the role of the custodian in the valuation process.

(p. 289) 2. Section 1 (Articles 12 to 17)—General requirements

A. Article 12—General principles

6.73  Italian general conduct principles apply to all SGRs. Therefore, the relevant principles of the AIFMD will not involve changes to the current Italian system and in particular to the standard of care under article 40 of the TUF (replaced by article 35 decies of the TUFR), according to which SGRs (ie Italian AIFMs) must, without limitation, operate diligently, correctly, and transparently in the interests of the unit-holders and the integrity of the market.

6.74  The fact that the AIFMD shows ‘appropriate level of consistency with UCITS and MiFID’, as requested in ESMA’s technical advice to the European Commission on possible implementing measures of the Alternative Investment Fund Managers Directive of 16 November 2011 (‘ESMA Advice’), is very helpful in terms of national transposition of the AIFMD.

6.75  Article 35 decies of the TUFR (which replaces article 40 of the TUF) expressly contemplates an additional conduct of business rule, ie equal treatment between unit/shareholders. Furthermore, the TUFR also include an additional requirement that an SGR must act not just in the interests of unit-holders and the integrity of the market, but also in the interests of the collective investment schemes managed by it.

B. Article 13—Remuneration

6.76  In the absence of rules providing for a complete remuneration code as outlined in Article 13 and Annex II of the AIFMD, it is expected that Italy will need to implement new provisions in this field. For the time being, there are provisions in the BOI/CONSOB Regulation (Article 8(1)(f)) providing that the Board of Directors of an intermediary—including an SGR—must ensure that remuneration and inducements policies do not increase risks for the company and are consistent with its long-term strategies.

D. Article 15—Risk management

6.78  With the exception of requirements on leverage, provisions on the organization requirements applicable to the risk management function within an AIFM will not involve material changes to Italian law, since the BOI/CONSOB Regulation already provides for ‘permanent risk management function’ (Article 39(1) of the Implementing Regulation), as well as a separation, even in the hierarchical organization of the AIFM, of the risk management function and other requirements to protect its independence and ensure its segregation from other departments.

6.79  Article 6.1(c)(2) of the TUFR grants to the Bank of Italy the (new) power of determining maximum levels of leverage for certain Italian AIFs. The definition of ‘leverage’ that will probably appear in the new text of DM 228 is ‘any method that uses indebtedness, financial derivative instruments or other procedures by means of which the SGR increases the exposure of a collective investment scheme’.

(p. 290) 6.80  The draft revised text of DM 228 provides that the rules of the AIF must provide for a maximum level of leverage and, in compliance with the rules of the TUFR, that the Bank of Italy has the power to determine maximum thresholds with respect to funds that invest in certain assets or use particular investment methods. These restrictions will be determined by the Bank of Italy on a case-by-case basis or for predetermined categories of vehicles.

6.81  Therefore, there are, for the time being, no further details as to the method for calculating the leverage as set out in Articles 6 to 11 of the Implementing Regulation and it is possible that DM 228 will establish further requirements as to such method (keeping in mind the review of the method of calculation to be made by the Commission under Article 6(2), second paragraph of the Implementing Regulation) and information on leverage/indebtedness that a fund must provide under Article 15(4) of the AIFMD.

E. Article 16—Liquidity management

6.82  With regard to the provisions on liquidity management set out in the AIFMD and Implementing Regulation, it is expected that current Italian rules will be updated. This is because ‘liquidity’ is presently contemplated only for reporting purposes by the BOI Reporting Manual (as defined in the Table at section VII), while the only provision with actual rules on liquidity management is a Bank of Italy ruling of December 2008 that introduced in the Italian legal system the possibility of establishing ‘side-pockets’ for Italian speculative funds.

F. Article 17—Investment in securitization positions

6.83  Currently, the issue of securitization is governed by two main groups of rules: (i) the rules on investment restrictions applicable to Italian collective investment schemes, as provided for in DM 228 in general and in BOI Regulation 2012 in particular; and (ii) the rules on securitization transactions provided for by Law No 130 of 30 April 1999. None of these rules govern all the matters contemplated by the AIFMD and Implementing Regulation, and therefore it is expected that changes will be introduced in the Italian rules.

3. Section 2 (Articles 18 and 19)—Organizational requirements

A. Article 18—General principles

6.84  The organization of Italian AIFMs is currently governed by the high level rules of the TUF/TUFR (for example article 35 decies of the TUFR), as well as by the second level rules, issued either solely by the Bank of Italy, ie the BOI Regulation 2012 on collective management, or jointly in the form of the BOI/CONSOB Regulation, which, although issued within the context of the implementation of the rules of MiFID on investment firms, is also applicable to other intermediaries, including SGRs.

6.85  In particular, while the BOI/CONSOB Regulation governs the internal organization and main functions of all intermediaries carrying out investment services, including SGRs (for example, prevention of conflicts of interests, compliance, delegation of activities, etc), the BOI Regulation 2012 is only applicable to SGRs. In this context, the BOI Regulation 2012 specifically lists the requirements for being authorized as an SGR, the requirements for its directors and top management, as well as its shareholders. The BOI Regulation 2012 is very detailed, and its contents are in line with the requirements set out by the AIFMD and the Implementing Regulation for the subject matter.

(p. 291) 6.86  Accordingly, the implementation of the provisions of the AIFMD and of the Implementing Regulation on the internal organization of AIFM involved few changes to the TUF and a revision of a limited number of provisions of both the BOI/CONSOB Regulation and BOI Regulation 2012.

B. Article 19—Valuation

6.87  Although current Italian rules provide that the valuation of the assets of hedge funds should take place at least twice yearly, market practice shows that calculation of NAV occurs more frequently (weekly, monthly, or quarterly). The fund may choose its own method of disclosing this financial information, which may include publication in a newspaper or dissemination via the internet. It is expected that the requirements of Article 19 will not affect the structuring of an AIF post-AIFMD.

6.88  The formalities for securing independence of the function of SGRs in valuing assets are those currently provided by the BOI/CONSOB Regulation rules on the independence of the functions of compliance, internal control, and internal audit (‘control functions’). In this context, under article 12.1 of the BOI/CONSOB Regulation, persons undertaking control functions: (i) must have the authority, resources, and expertise necessary for performing their duties; (ii) must not be hierarchically subordinate to the persons responsible for the controlled activities, nor can such activities be carried out by the same persons in charge of the control functions. The control functions must be separate and the system of remuneration of the persons in charge of the control functions must not be such as to affect their objectiveness.

6.89  Valuation can be carried out either by the SGR or by the depository. If the valuation is entrusted to the depository, BOI Regulation 2012 provides that the depositary must have, at each calculation period, the information necessary for the valuation, and must implement procedures in order to verify the information received from the SGR for the purpose of the valuation.

6.90  The Italian rules on breach of the duty of care in connection with the valuation are not only consistent with the principles in Article 19(10) of the AIFMD, but appear to be even more protective for investors. In particular, Article 19(10) provides that in the event of such breach, investors may only seek a remedy from the AIFM and not the external valuer appointed to carry out the valuation: this is because the first part of Article 19(10) expressly provides for liability of the AIFM towards the investors for any such breach, while the second part of Article 19(10) provides that in the same circumstance the external valuer is responsible towards the AIFM, without mentioning any direct liability of the external valuer towards the investors. In contrast, article 49.1 of the TUFR provides for a direct liability of the depository towards the SGR and the investors in relation to the duties delegated by the SGR (including the valuation of the assets). Furthermore, consistently with the second part of Article 19 (10) of the AIFMD, a ‘contractual’ liability may arise in the relationship between the AIFM and the external entity in charge of the valuation.

4. Section 3 (Article 20)—Delegation of AIFM functions

6.91  Article 33.4 of the TUFR permits the delegation of ‘specific functions’. Until the transposition of the AIFMD, complete delegation was permitted only to another SGR or to a (p. 292) foreign EU UCITS managing company, then defined as a ‘harmonized managing company’ by article 1.1(o)bis of the TUF. After implementation of the AIFMD the TUFR also includes foreign AIFMs. Article 38 of the TUFR specifically regulates the management by a third party manager of the entire assets of SICAVs and SICAFs, and provides rules that are applicable to both the delegating entity (ie the SICAV or SICAF) and the delegate.

6.92  In relation to delegation of a portion of the fund’s assets, the TUF (article 33.3) provided that:

Asset management companies [ie SGRs] may delegate specific functions inherent in the provision of the services referred to in subsections 1 and 2 [ie fund management, portfolio management, advice on investments, placing] to third parties in ways that avoid turning the company into an empty shell, without prejudice to its responsibility vis-à-vis participants in the fund for the actions of agents.

6.93  This provision remains the same in article 33.4 of the TUFR with a few changes in relation to the new terminology and the express reference to compliance with the rules on the delegation of core services (see paragraph 6.95).

6.94  For the purpose of this rule, the ‘third parties’ are either SGRs/‘harmonised managing companies’ (and foreign duly passported AIFMs, after the complete implementation of the AIFMD) or, with the exclusion of the management of the entire fund, investment firms governed by MiFID and authorized to manage investment portfolios on an individual basis. The possibility that MiFID investment firms may proceed to the partial management of an AIF is also contemplated by Article 6(8) of the AIFMD. It is interesting that the Italian rules anticipated the requirements to prevent the delegating entity becoming a letter-box entity as set out in Article 82 of the Implementing Regulation.

6.95  The second level rules issued for the implementation of MiFID regulate the delegation of ‘essential operational functions’—including the management of the investment portfolio (article 19 of the BOI/CONSOB Regulation)—being the functions that, if discontinued or adversely affected, could jeopardize the intermediary’s ability to act in compliance with the terms of its authorization or to comply with the rules that govern the investment services.

6.96  Article 21 of the BOI/CONSOB Regulation provides for a series of conditions for such delegation, including most of those listed in Article 20(1) of the AIFMD. Article 33 of the BOI/CONSOB Regulation provides for a list of requirements for the delegation of the management. These appear to be consistent with those set out in Article 75 of the Implementing Regulation and therefore the current Italian rules on the delegation of management will not be materially affected by the implementation of the AIFMD.

6.97  The obligation to notify the delegation to the regulators of the home Member State will not involve material change in the Italian system since such duty is already provided for SGRs in CONSOB Regulation No 17297 of 2010. In addition, under the BOI/CONSOB Regulation (article 21.5) intermediaries must transmit or disclose to the regulators the information necessary to verify that the delegated activities are being carried out in compliance with the applicable rules.

5. Section 4 (Article 21)—Depositary

6.98  In general, the implementation of the AIFMD will involve a loosening of the current rules on depositories, which are presently stricter than those of the AIFMD. For example, with regard to the eligible parties, Italian law provides that only an Italian bank, or the Italian (p. 293) branch of an EU bank, may be appointed as depository, while for the time being the entities mentioned in Article 21(3)(b) and (c) of the AIFMD are not contemplated unless (with some restrictions) for the purpose of the sub-deposit. Therefore, article 47 of the TUFR provides that, in addition to Italian banks and Italian branches of EU banks, Italian Società di Intermediazione Mobiliare (SIMs, ie Italian investment firms) and Italian branches of investment firms will also be eligible to be appointed as depositories.

6.99  In addition, the Bank of Italy requires that the depository has minimum assets for supervision purposes (EUR 100 million) and adequate experience. The bank appointed as depository must have a division dedicated to the function of depository, have in place adequate information systems to enable exchange of information with the SGR on a continuous basis, ensure the segregation and protection of information received in performing its duties, and verify its procedures on a periodic basis. It is also worth mentioning that the BOI Regulation 2012 stipulates that the bank cannot be appointed as custodian if the managing director, the chairman of the board of directors, the general manager, or the head of the management function of the SGR is also the managing director, chairman of the BOD, general manager, or head of the depository division of that bank, because such appointments will give rise to conflicts of interest.

6.100  The BOI Regulation 2012 also provides that the depository can sub-deposit the fund’s assets to Italian or foreign entities authorized to deal with the centralized administration of financial instruments subject to adequate supervision, to Italian or foreign banks, to SIMs (ie Italian investment firms as described in paragraph 6.98) and (non-Italian EC) investment firms that can hold the cash and financial instruments of their clients, as well as to the residual category of entities other than those already mentioned, subject to the same supervision as the banks and SIMs or investment firms, provided that the correct performance of their duties is guaranteed by a bank of the same group.

6.101  With regard to the functions in addition to the main task of safe-keeping the fund’s assets, the list in article 38.1 of the TUF was consistent with that provided in Article 21(9) of the AIFMD. Article 38.1 provided that the depository:

  1. 1. verifies the compliance with the law of the operations of issue and redemption of units and the destination of the fund income;

  2. 2. verifies the correctness of the calculation of the value of the fund’s units, if made by the SGR, or, if appointed to do so by the SGR, makes such calculation;

  3. 3. verifies that in the transactions involving fund’s assets any consideration is paid to the fund within the usual time limits;

  4. 4. carries out the instructions of the SGR unless they conflict with the law, the fund rules or the prescriptions of the supervisory authorities.

6.102  Article 48 of the TUFR, which replaces article 38 of the TUF, replicates the list in paragraph 6.101, but adds a fifth duty of the depository to monitor the liquidity of the collective investment scheme, when such liquidity is not entrusted to the depository itself.

6. Consequences of violating operating conditions

A. Regulatory law consequences

a. Legislative Decree No 231 of 8 June 2001

6.103  From a regulatory standpoint, Legislative Decree No 231 of 8 June 2001 (‘D Lgs 231’) provides for the ‘administrative liability’ of a company where crimes are committed by its (p. 294) officers, managers, directors, agents, internal auditors, or individuals for whom they are responsible (‘agents’), if two conditions occur: (i) the company took a benefit from such crimes; and (ii) the company cannot provide evidence that it has an organization providing for a series of controls in order to avoid the perpetration of said crimes and that there was an adequate supervision of the activity of the person who committed the crime. An amendment to D Lgs 231, introduced by Law No 190 of 6 November 2012 (‘Law 190’), has added to the crimes from which a company may take an advantage the crime of ‘corruption between private parties’. In other words, D Lgs 231, as integrated by Law 190, now provides that a company may be subject to administrative liability if its agents corrupted those of another company (the ‘target company’) in order to carry out actions contrary to their fiduciary/diligence duties towards the target company, thus giving rise to damage to the target company (accompanied, as stated earlier, by a benefit to the company on behalf of which the agents are acting).

6.104  For the purpose of D Lgs 231, ‘administrative liability’ consists of being subject to a series of ‘administrative sanctions’—other than imprisonment22—which are usually imposed in conjunction with committing a crime. In this context, the ultimate rationale of D Lgs 231 is to secure the payment of fines, which are the most important administrative sanctions, taking into account not only the estate of the individual who actually committed the crime, but also the company on behalf of which the crime was perpetrated.

6.105  The administrative liability of the company under D Lgs 231 arises when the company did not implement what is defined in D Lgs 231 as an ‘organizational and management model’ to ensure the avoidance of the perpetration of crimes. In practice, a regulated company, such as an AIFM, subject to organizational requirements established by the law, appears to be in a safer position with respect to the generality of companies given that full compliance with such requirements will probably, per se, be evidence that the company has in place ‘organizational and management models’ required by D Lgs 231 to exclude the administrative liability of the company in conjunction with the criminal liability of its agents (as defined in paragraph 6.103). On the other hand, the crime of ‘corruption between private parties’ introduced by Law 190 will impose an extra duty of care on the AIFM to ensure that its agents do not perpetrate such a crime in connection, for example, with the payment of inducements to a target company (as defined in paragraph 6.103) in exchange for the target company—for example, a discretionary portfolio manager—breaching its duty of best serving its clients’ interests. It should also be noted that article 60 bis of the TUFR coordinates the enforcement of certain ‘administrative sanctions’ under D Lgs 231, such as the suspension of the company’s licence, and the prohibition on carrying out the activity or contracting with the public administration, with certain measures set out by the TUF/TUFR having similar scope or a more serious purpose, such as appointment of directors by the state or compulsory liquidation.

6.106  The relevance of D Lgs 231 should not be underestimated, because it requires, inter alia, that Italian companies issue a ‘Code of Ethics’ containing the general principles of honesty, fairness, diligence, customer care, non-discrimination, social responsibility, etc, which must be followed when conducting business. Such a Code of Ethics will also ensure that companies (p. 295) cannot enter in agreements with other companies (irrespective of their nationality) which do not comply with the Code of Ethics. This may lead to deadlocks in negotiations of agreements between Italian and foreign parties if the latter are not willing to comply with a Code of Ethics of another company, belonging to a different jurisdiction and written in another language.

b. The TUF

6.107  Under the TUF, the violation of article 40.1(b) (article 35 decies.1 b) of the TUFR), which states that SGRs must ‘organize themselves in such a way as to minimize the risk of conflicts of interest, including conflicts between the pools of assets under management and, where a conflict of interest exists, act in such a way as to ensure the fair treatment of the collective investment undertakings’, will give rise to the administrative sanction in article 190.1 of the TUFR of a fine ranging from EUR 2,500 to EUR 250,000, payable by the company’s directors, officers, or employees.

6.108  The administrative sanctions set out in article 190 also apply to breaches of the second level regulations issued by the Bank of Italy for the implementation of the TUF/TUFR rules. These concern, inter alia, rules relating to capital adequacy, the limitation of risk, permissible shareholdings, depositories and client money, and various rules relating to the operation of collective investment undertakings.

6.109  In addition, these sanctions will also apply to breaches of the rules governing the limits to the leverage that can be used by Italian AIFs and the delegation of the NAV calculation, issued by the Bank of Italy in exercising the additional powers granted by article 6 of the TUFR.

6.110  The administrative sanctions set out in article 190.1 of the TUFR (see paragraph 6.107) apply to the breach of duties arising from second level regulation issued by the Bank of Italy and/or CONSOB for the implementation of the TUF and governing the general aspects of the organization of SGRs: prevention of discontinuation of the operations, administration and accounts, internal control, compliance, risk management, internal audit, liability of top management, processing of the complaints, personal transactions, outsourcing, including the delegation of management, procedures for managing the conflicts of interest, the keeping of records, and inducements.

B. Criminal law consequences

6.111  With regard to breach of organizational requirements and in particular those for the prevention of conflicts of interests, article 167 of the TUF provides for the crime of ‘unfaithful management’, which is perpetrated by those who, within an SGR (or an investment firm), in breach of the rules on the conflicts of interests, carry out transactions for the purpose of obtaining an unjust profit for the AIFM itself or third parties and causing damage to investors.

6.112  The crime is punishable by imprisonment for between six months and three years and a fine of between EUR 5,164 to EUR 103,291. ‘Unfaithful management’ may also give rise to the crime of breach of fiduciary duties set out in article 2634 of the CC, which is punishable by imprisonment for between six months and three years for directors, general managers, and liquidators with conflicting interests with those of the company who, for the purpose of obtaining an unjust profit, dispose of the company’s assets and wilfully cause a loss to the (p. 296) company. Article 2634 of the CC also applies when such a disposal if made of assets owned or administered on behalf of third parties.

6.113  Finally, breach of the rules on conflicts of interests may involve a breach of article 2635 of the CC, which contemplates ‘corruption between private parties’, discussed in paragraph 6.103.

6.114  A breach of the organizational requirements may also amount to the crime of ‘confusion of assets’, punishable under article 168 of the TUF. Such crime is perpetrated by those who, within an SGR (or investment firm), breach the rules on the segregation of the assets of the SGR from funds managed by it for the purpose of procuring an unjust profit to the detriment of the investors. The same criminal sanctions apply as to unfaithful management, discussed in the previous paragraphs.

6.115  The sanctions set out in articles 167 and 168 of the TUF are applicable as long as such behaviour does not amount to a more serious crime. For example, if the crime of unfaithful management is carried out by a company without licence to act as an SGR, or if such behaviour involves the crime of ‘false statements in the prospectus’ (see paragraph 6.116), the more severe sanctions set out in article 166 of the TUF (see paragraph 6.69) will apply. The same is true if the ‘confusion of assets’ is actually an appropriation of the fund’s assets by, for example, a director of the SGR.

6.116  Finally, there is the crime of ‘false statements in the prospectus’ set out in article 173 bis of the TUF. Anyone who, for the purpose of obtaining an unjust profit, inserts in the prospectus false information or conceals data or news in a manner liable to deceive prospective investors may be punished with imprisonment from one to five years. In this context, a breach of the organizational requirements may also amount to ‘false statements in the prospectus’ if statements become false and are liable to procure an unjust profit for the issuer of the prospectus.

C. Private law consequences

6.117  On a preliminary basis, it should be noted that the Italian rules of private law and liability of AIFMs apply to breaches of the rules on risk management, securitization positions, and liquidity management.

6.118  From a private law perspective, failure to comply with the organizational requirements set out, inter alia, in Articles 12(1)(c), (e), 14, and 18 of the AIFMD or in the corresponding national provisions may give rise to either an ‘extra-contractual liability’ (sanctioned by article 2043 of the CC—see paragraph 6.72) or a ‘contractual liability’ of the AIFM, to the extent that there is a direct relationship between the violation of the organizational requirements and the damage suffered by a party (typically, an investor or a client). For example, a breach of the organizational duties concerning the function of risk management of an SGR may amount to an extra-contractual liability towards persons who have suffered damage as a consequence of such breach but who are not a party to a contract with the SGR, or to a contractual liability if there is an agreement (for example a portfolio management agreement) between the party who suffered the damage and the SGR.

6.119  It is expected that the rules of the AIFMD on the standard of care that must accompany the operations of SGRs, as well as those of other intermediaries, including the concept of ‘professional diligence’ requiring insurance against ‘professional negligence’ set out by Article 9(7) of the AIFMD, will not materially affect the existing Italian rules and guidance of the courts relating to the liability of intermediaries.

(p. 297) 6.120  As with private liability for breach of the authorization requirements, either the rules on extra-contractual liability in article 2043 of the CC, or those of contractual liability in the CC, apply. The difference between these two types of liabilities is based on the existence or not of a contract between the investor/unit-holder, on the one hand, and the AIFM and the investment company, on the other. In particular, extra-contractual liability will be grounded on ‘unjust damage’ suffered by the non-breaching party. The fact that damage is a consequence of the breach of the duty of care appears sufficient to qualify it as ‘unjust’ for the purpose of the enforcement of the liability provisions in article 2043 of the CC. In addition, the general rules of the CC on the diligence of ‘bonus pater familias’ and of the enhanced standard of diligence applicable to specific types of professional services are applicable (article 1176, paragraphs 1 and 2 of the CC).

6.121  The TUF/TUFR provides for a reversal of the burden of proof in relation to disputes concerning investment services. In particular, article 23.6 provides that in this type of dispute, the investment firm must give evidence that it acted with the ‘due diligence required’. Therefore, as stated by the Corte di Cassazione23 in a case concerning investment services, the investor/plaintiff, under the ordinary rules of the CC, will have to give evidence of the damage suffered and of the fact that such damage is a direct consequence of the behaviour of the investment firm, while the latter will need to give evidence that it acted in accordance with the rules of diligence provided by the law.

6.122  Although article 23.6 of the TUF expressly applies to investment services, and thus not to collective portfolio management, it is likely that its criteria, consisting of rigid scrutiny of the diligence used by the relevant intermediary, will also be applied to judgments against managing companies, in order to avoid unjustified differences of treatment being given to clients who have entrusted a segregated portfolio and those who have their assets managed on a pooled basis by a fund management company such as an AIFM.

6.123  Indeed, maintaining such a distinction as to the burden of proof could lead to the paradoxical consequence that, in a legal action brought by a client on behalf of which an Italian SGR managed a segregated portfolio (ie an investment service), the SGR would have to prove that it acted with due diligence, but would not be subject to such burden of proof in a case concerning fund (ie collective) management.

6.124  The Corte di Cassazione, in its judgment 16605 of 201024 (mentioned in paragraph 6.09), fixed criteria for the determination of the liability of the SGR. In particular, where there has been a breach of the statements made or misrepresentation in a prospectus, the SGR that issued the prospectus will have an extra-contractual liability towards the investor under article 2043 of the CC, with the consequent necessity for the plaintiff to give evidence of a direct relationship between the breach/misrepresentation in the prospectus and the damage suffered by the plaintiff/investor.

6.125  The Italian rules state that in no case will an entity that has delegated its management functions to a third party be exempted from its duties (see paragraph 6.92 and in particular the last sentence of article 33.3 of the TUF quoted there). The rules are fully in line with Article 20(3) of the AIFMD, which provides that an AIFM’s liability shall not be affected ‘by the fact that the AIFM has delegated functions to a third party’. Accordingly, since the AIFM remains responsible for management functions even where it has delegated these functions to another party, the provisions on liability for breach of the organizational (p. 298) requirements or of the duty of care apply. In particular, there will be a breach of the organizational requirements by the delegating entity where the delegate is not qualified, or where the delegate—duly appointed and vested with the appropriate requirements—does not perform its duties with the diligence necessary for this type of professional task.

6.126  The rules on the liability of the depository provided for in Article 21(6)(e), (12), (13), (14)(e), and (15) of the AIFMD will involve some changes to Italian legislation with respect to the limitation of a depository’s liability in cases of force majeure and contractual arrangements. In particular, the pre-AIFMD Italian rules (article 38.2 of the TUF) provided that the depository was liable towards the SGR and the unit-holders of the fund for any loss suffered as a consequence of a breach of its duties (see also paragraph 6.90). Article 49 of the TUFR, which replaces article 38 of the TUF, reproduces article 38.2 and further provides for reimbursement of any loss suffered, as provided for in Article 21(12) of the AIFMD. However, in compliance with the AIFMD, article 49 of the TUFR expressly provides that the depositary is exempted from liability if such loss was due to force majeure. Article 49.3 of the TUFR extends the liability of the depository to damages arising from actions of the sub-depository appointed by the depository, unless such liability was contractually excluded (Article 21(13)(b) of the AIFMD).

VII. Transparency Requirements

1. Implementation table

AIFMD

National implementation

Art 22 (annual report)

TUFR, art 39.2(b); DM 228, art 3; BOI Regulation 2012, Title IV, Ch VI

Art 23 (disclosure to investors)

TUFR, arts 37), 94(*), 98 ter(°); BOI Regulation 2012, Title V, Ch I; CONSOB Regulation 11971/1999,25 Annex I

Art 24 (reporting obligations to competent authorities)

TUFR, art 8; BOI Regulation 2012, Title IV, Ch IV

Implementing Regulation

National implementation

Arts 104–112 (re Art 22(2)A–E, 23(4), 24(1) AIFMD: disclosure to investors and regulatory reporting)

  • Disclosure to investors:

  • BOI Regulation 2012, Title V, Ch I; CONSOB Regulation 11971/1999, Annex I

  • Reports to regulators:

  • BOI Regulation 2012, Title IV, Ch IV; Bank of Italy Manual for Statistical and Regulatory Reports of Collective Investment Schemes(+)

(*)  Prospectus requirements for all financial instruments excluding open-ended funds, and thus including closed-ended funds.

(°)  Prospectuses requirements for open-ended funds, SICAVs, and SICAFs.

(+)  In Italian, ‘Manuale delle segnalazioni statistiche e di vigilanza per gli OICR’, hereinafter, ‘BOI Reporting Manual’.

(p. 299) 2. Article 22—Financial reporting

6.127  Article 22 of the AIFMD will not materially change the law and operating environment for AIFs/AIFMs in Italy given that the local rules already provide for the same type of duties, including the audit to be made by external auditors under the supervision of CONSOB.

3. Article 23—Disclosure to investors

6.128  To correctly address the issue of disclosure to investors, it is necessary to determine what, in the Italian legal system, is considered to be a ‘disclosure document’ as contemplated by the AIFMD. This is because, in the Italian system collective investment schemes—organized as FCIs—have two disclosure documents: the fund’s rules (Regolamento) and the fund’s prospectus, the first to be drafted in accordance with Bank of Italy regulations and the second in accordance with templates of CONSOB.

6.129  While the rules address in general the organization and operation of the fund and its relationship with the investors, the prospectus focuses on the merits of the investments, ie the investment policies and techniques. However, the two documents often overlap, with the effect that the prospectus also describes the functioning of the fund and the rules also contain the investment policies. The fact that the rules also address matters contained in the prospectus is for a precise reason: in the Italian legal system, no prospectus is issued/delivered if the offering of a financial instrument is exclusively addressed to institutional investors, or, as defined by the TUF, ‘qualified investors’, a category that corresponds to ‘professional clients’ as defined in the CONSOB rules that implement MiFID. Accordingly, in this case, the only document that will be required are the rules, which will therefore also contain information on matters covered by the prospectus, such as the investment objective and policies.

6.130  The consequence is that the rules, to be issued in any case, are the ‘disclosure document’ set out by the AIFMD, while the prospectus will be issued only ‘in accordance with the national law’, as also contemplated by Article 23(3) of the AIFMD.

6.131  Article 98 ter. 1 and 98 quater. 1(a) of the TUFR grant to CONSOB the power to establish rules governing the issue and public dissemination of the key investor information document (KIID) for all types of Italian collective investment schemes offered to retail investors, including domestic AIFs. CONSOB may use this to authorize a shorter format for an AIF’s disclosure document similar to the KIID for UCITS funds.

6.132  Article 37.5 of the TUFR grants to the Bank of Italy the power to issue general authorizations applicable to the rules of collective investment schemes having standard characteristics in terms of eligible investors and fund procedures, but this article will not necessarily apply to AIFs. The BOI Regulation 2012 contemplates ‘simplified Rules’ for certain classes of collective investment schemes, which for the time being do not include alternative funds.

6.133  With regard to liability for errors in the disclosure document, see paragraph 6.124.

(p. 300) 5. Consequences of violating transparency requirements

A. Regulatory law consequences

6.135  A breach of the Italian rules on transparency that implement Articles 22 to 24 of the AIFMD will involve the enforcement of the ‘administrative sanctions’ set out in article 190 of the TUFR: see paragraph 6.107.

B. Criminal law consequences

6.136  Breach of the transparency requirements may be ‘false statements in the prospectus’, as described at paragraph 6.116. The same breach may also amount to ‘unfaithful management’, as described at paragraph 6.111.

6.137  Article 2638 of the CC introduces the crime of ‘hindrance to the activity of the supervisory authorities’. In particular, this article punishes with imprisonment from one to four years directors, managers, persons in charge of preparing the accounts, internal auditors and liquidators who insert false information on the economic or financial situation of their company—or omit to mention circumstances that should have been disclosed—in the reports to be provided to the supervisory authorities. With respect to the funds, it is important to mention that article 2638 of the CC is also applicable when such false statements or omissions concern assets owned or administered on behalf of third parties.

C. Private law consequences

6.138  Breach of the transparency requirements set out in the national rules implementing Articles 22 to 24 of the AIFMD will involve ‘extra-contractual’ liability of the SGR/SICAV under article 2043 of the CC (see paragraph 6.72), if, as required for the enforcement of this article 2043, there is a direct relationship between the breach of such transparency requirements and the ‘unjust’ damage suffered by the investor.

VIII. AIFM Managing Specific Types of AIF

1. Implementation table

AIFMD

National implementation

Art 25 (use of information, supervisory cooperation, and limits to leverage)

TUFR, arts 4 quater, quinquies(*), 6.1(c)(2)(°); new second level provisions to be inserted in DM 228, BOI Regulation 2012, and BOI Reporting Manual

Art 26 (scope)

TUFR, arts 45, 46; new second level provisions to be inserted possibly in CONSOB Regulation 11971/1999

Art 27 (notification of the acquisition of major holdings and control of non-listed companies)

TUFR, arts 45, 46; new second level provisions to be inserted possibly in CONSOB Regulation 11971/1999 and BOI Reporting Manual

Art 28 (disclosure in case of acquisition of control)

TUFR, arts 45, 46; new second level provisions to be inserted possibly in CONSOB Regulation 11971/1999 and BOI Reporting Manual

Art 29 (annual report of AIFs exercising control of non-listed companies)

TUFR, art 45.5(c); new provisions to be inserted possibly in CONSOB Regulation 11971/1999 and BOI Reporting Manual

Art 30 (asset stripping)

TUFR, art 45.5(d); new second level provisions to be issued by CONSOB

Implementing Regulation

National implementation

Art 113 (re Art 25(3) AIFMD: leverage limits)

New provisions to be inserted possibly in DM 228, BOI Regulation 2012, and BOI Reporting Manual

(*)  Cooperation for OTC derivatives, central clearing houses, Regulation (EU) No 345/2013 on EuVECA,26 Regulation (EU) No 346/2013 on EuSEF.27

(°)  Limits to leverage.

(p. 301) 2. Section 1 (Article 25)—AIFM managing leveraged AIF

6.139  The rules on the AIFMD on leverage involved changes to the Italian legislation given that no Italian rules expressly dealt with leverage before the implementation of the AIFMD. The regulatory changes with regard to the use of leverage by AIFs are outlined in paragraphs 6.79 and 6.80, while the relationship with non-Italian regulators and ESMA in connection with the leverage described in Article 25 of the AIFMD will be governed by brand new rules: as already mentioned, article 6.1(c)(2) of the TUFR grants to the Bank of Italy the power of fixing limits on leverage for certain Italian AIFs.

3. Section 2 (Articles 26 to 30)—Obligations of AIFMs managing AIFs which acquire control of non-listed companies and issuers

6.140  The implementation of Articles 26 to 30 of the AIFMD on holdings in ‘non-listed companies’ involved amendments to the Italian regulations. Before the implementation of the AIFMD there were few restrictions on holdings in non-listed companies. They concerned holdings in regulated companies such as SGRs, investment firms, banks, insurance companies, etc, which are unlisted.28

6.141  Article 45.1 of the TUFR requires an SGR to notify CONSOB of any variation in its participation in a non-listed company held by an Italian, EU, or non-EU AIF managed by the SGR where such participation equals, exceeds, or is reduced below the following thresholds: 10%, 20%, 30%, 50%, and 75% of the voting rights of the non-listed company.

6.142  Notification is also required where there is an acquisition of a relevant holding in a non-listed company made jointly by two or more AIFs (Italian and/or foreign), managed by either the same SGR or by different SGRs, or by an SGR and a foreign AIFM. For self-managed SICAV/SICAFs, notification will have to be made directly by these entities.

(p. 302) 6.143  Article 45.4 of the TUFR defines ‘non-listed companies’ as companies with a registered office in the EU not having shares admitted to listing on a regulated market, and expressly excludes from the scope of the definition (in compliance with the AIFMD) ‘micro, small and medium-sized enterprises’ as defined in the Annex to Commission Recommendation 2003/61/EC,29 as well as special purpose vehicles (SPVs) whose purpose is the purchasing, holding, or administrating of real estate.

6.144  Article 45.5(d) of the TUFR grants to CONSOB the power to issue regulations in order to protect the capital of a non-listed company and prevent the spin-off of its assets for a period of 24 months from the acquisition by the relevant AIF.

4. Consequences of violating provisions relating to AIFMs managing specific types of AIF

6.145  For the private, regulatory, and criminal law consequences for violation of the requirements for leveraged AIFs, the same consequences as those described in paragraphs 6.111 to 6.126 in connection with the violation of organizational requirements shall apply.

6.146  Given that this matter is relatively new for the Italian legal system, it is difficult to comment at this time on the consequences of a breach of the requirements concerning the participation in non-listed companies by AIFs. For the time being, the administrative sanctions set out in article 190 of the TUFR30 are applicable in case of breach of the notification duties set out in articles 45 and 46 of the TUFR (see paragraphs 6.141 and 6.142).

IX. Rights of EU AIFMs to Market and Manage EU AIFs in the EU

1. Implementation table

AIFMD

National implementation

Art 31 (marketing of shares or units of EU AIFs in the home Member State of the AIFM)

TUFR, arts 43 (marketing to professional investors), 44 (marketing to retail investors); BOI Regulation 2012, Title V, Ch II

Art 32 (marketing of shares or units of EU AIFs in Member States other than in the home Member State of the AIFM)

TUFR, arts 43 (marketing to professional investors), 44 (marketing to retail investors); BOI Regulation 2012, title VI(*), Ch III, Title VI, Ch V

Art 33 (conditions for managing AIFs established in other Member States)

TUFR, art 41 ter; BOI Regulation 2012, Title VI, Ch II

Implementing Regulation

National implementation

n/a

(*)  Marketing of Italian AIFs outside Italy.

(p. 303) 2. Article 31—Marketing of shares or units of EU AIFs in the home Member State of the AIFM

6.147  Article 43.2 and 43.3 of the TUFR implement Article 31 of the AIFMD. This new procedure is applicable without distinction to Italian, EU, and non-EU AIFs managed by Italian AIFMs (ie SGRs) or by non-EU AIFMs authorized in Italy, and for this reason it has materially changed the previous system of authorization, which provided for different procedures for Italian or foreign AIFs, irrespective of the nationality of the management company.

6.148  Article 43.2 and 43.4 of the TUFR also provide that CONSOB will promptly forward to the Bank of Italy a copy of the notification set out by Article 31 of the AIFMD and of the attachments thereto, and will reply to the applicant AIFM within 20 business days from receipt of the notification. The AIFM will also have to seek CONSOB approval in case of modifications to the information transmitted with the notification. The actual procedures for the notification will be specified in a regulation to be issued by CONSOB.

3. Article 32—Marketing of shares or units of EU AIFs in Member States other than in the home Member State of the AIFM

6.149  Article 43.8 of the TUFR fully implements the notification procedure of Article 32 of the AIFMD with regard to the marketing in Italy to professional investors and to specific categories of non-professional investors, as they shall be defined in a Decree of the Minister of Economy and Finance, of AIFs managed by AIFMs of other EU Member States or by non-EU AIFMs authorized in another EU Member State. The notification must be transmitted by the home Member State regulator to CONSOB, which will forward to the Bank of Italy a copy of the documentation received. It should be noted that the definition of ‘professional investor’ in the TUFR corresponds to the one of ‘professional clients’ as given in the CONSOB rules that implement MiFID (see also paragraph 6.129).

6.150  With regard to the marketing to professional investors in other EU Member States of AIFs managed by Italian SGRs (ie Italian AIFMs), the same procedure described in paragraphs 6.147 and 6.148 for the marketing in Italy of AIFs of SGRs are applicable.

6.151  Another issue that may arise in connection with the implementation of the AIFMD is the possibility of listing non-UCITSs on the Italian Stock Exchange (Borsa Italiana), which for the time being only allows the listing of UCITSs.

6.152  Finally, it is worth mentioning that the pre-AIFMD procedure for the authorization of foreign non-UCITSs will not be applicable any longer to foreign non-UCITSs, if any, which are not covered by the AIFMD.31.

4. Article 33—Conditions for managing AIFs established in other Member States

6.153  Article 41 ter of the TUFR implements Article 33 of the AIFMD. In particular, the establishment of an AIF in another Member State must be notified to the Bank of Italy (which will promptly forward to CONSOB such notification) by the home Member State regulator.

(p. 304) 6.154  Article 41 of the TUFR provides that SGRs can render their services abroad. The terms and conditions for the relevant applications and authorizations will be detailed in second level rules to be issued by the Bank of Italy. With regard to the operations of SGRs in non-EU countries, article 41 expressly requires the existence of a cooperation agreement between Italy and the competent regulator of the relevant non-EU host country.

5. Consequences of violating conditions for EU AIFMs to market and manage EU AIFs in the EU

A. Regulatory law consequences

6.155  Where there is a breach by an Italian AIFM of the Italian rules—implementing the AIFMD—which govern the marketing and/or management of AIFs in the EU (outside Italy), the same rules as described with respect to the breach of the provisions on marketing and management of AIFs on the domestic market will be applicable. In particular, a breach of the Italian rules on the operations abroad of Italian SGRs will involve the enforcement of the ‘administrative sanctions’ set out in article 190 of the TUFR (see paragraph 6.107). Furthermore, the correspondent rules of the home Member State may be applicable, especially where services are carried out directly from such home Member State and not through a branch in the relevant host Member State.

6.156  Article 54 of the TUFR provides that if the Bank of Italy or CONSOB suspects that foreign collective investment schemes (either UCITSs or non-UCITSs, and thus also non-EU AIFs) are in breach of the Italian provisions applicable, inter alia, to marketing in Italy of their units/shares, the Bank of Italy or CONSOB, according to their respective competence, may suspend the offerings of such collective investment schemes for a period not exceeding 60 days. If such violations are ascertained following a formal investigation, the offerings may be suspended without time limit or definitively prohibited.

B. Criminal law consequences

6.157  With regard to the marketing of foreign AIFs in Italy without authorization, the general rules on the unauthorized offering in Italy of collective investment schemes will apply. In this context, article 166.1(b) of the TUF provides that the offering of units or shares of collective investment schemes in Italy without authorization is punishable with imprisonment from between six months and four years and with a fine ranging from EUR 2,065 to EUR 10,329.

6.158  With regard to breaches by foreign AIFMs that operate through a branch in Italy, the same rules as those applicable to Italian SGRs managing AIFs apply.

C. Private law consequences

6.159  From a private law perspective, a breach of the rules on the marketing of AIFs in the home Member State or of foreign AIFs in Italy will give rise to extra-contractual liability under article 2043 of the CC (see paragraph 6.72) if the relevant damage is duly evidenced.

6.160  Where there is a breach of the rules on the management of Italian AIFs by foreign AIFMs, the rules on contractual liability (described in paragraph 6.120) will apply provided the carrying-out of such management services is reflected in an agreement between the foreign AIFM and the Italian AIF (or its promoter AIFM) since third parties who have suffered damage as a result of such breach by the foreign AIFM may claim damages arising from extra-contractual liability.

(p. 305) X. Specific Rules in Relation to Third Countries

1. Implementation table

AIFMD

National implementation

Art 34 (conditions for EU AIFMs which manage non-EU AIFs not marketed in EU)

TUFR, art 41(*); BOI Regulation 2012, Title VI, Ch II(*)

Art 35 (conditions for marketing in EU with passport of non-EU AIFs managed by EU AIFMs)

TUFR, arts 43 (marketing to professional investors) and 44 (marketing to retail investors); BOI Regulation 2012,Title VI, Ch V

Art 36 (conditions for the marketing in EU without a passport of non-EU AIFs managed by EU AIFMs)

n/a

Art 37 (authorization of non-EU AIFMs intending to manage EU AIFs and/or market AIFs managed by them in the EU in accordance with Art 38 (EU AIF) or 39 (non-EU AIF))

  • TUFR, arts 41 quater (management of AIF by non-EU AIFM), 43 (marketing to professional investors), 44 (marketing to retail investors)

  • Second level rules in DM 228 and BOI Regulation 2012, Title VI

Art 38 (peer review of authorization and supervision of non-EU AIFMs)

TUF, arts 2, 4(°)

Art 39 (conditions for the marketing in the EU with a passport of EU AIFs managed by non-EU AIFMs)

  • TUFR, arts 43 (marketing to professional investors), 44 (marketing to retail investors)

  • Second level rules in DM 228 and BOI Regulation 2012, Title VI

Art 40 (conditions for the marketing in the EU with a passport of non-EU AIFs managed by non-EU AIFMs)

  • TUFR, arts 43 (marketing to professional investors), 44 (marketing to retail investors)

  • Second level rules in DM 228 and BOI Regulation 2012, Title VI

Art 41 (conditions for managing EU AIFs established in Member States other than the Member State of reference by non-EU AIFMs)

  • TUFR, art 41 quater

  • Second level rules in DM 228 and BOI Regulation 2012, Title VI

Art 42 (conditions for the marketing in Member States without a passport of AIFs managed by non-EU AIFMs)

n/a

Implementing Regulation

National implementation

Arts 114–116 (re Arts 34(1), 35(2), 36(1), 37(7)(D), 39(2)(A), 40(2)(a), 42(1) AIFMD)

Same as for the AIFMD in the respective matters

(*)  Applicable to the foreign operations of Italian AIFM.

(°)  General provisions concerning the relationship between the Italian regulators and the EU institutions.

2. Article 34—Conditions for EU AIFMs which manage non-EU AIFs not marketed in EU

(p. 306) 3. Articles 35 and 36—Conditions for marketing in EU with and without a passport of non-EU AIFs managed by EU AIFMs

6.162  With regard to marketing to professional investors in the EU with a passport a non-EU AIF managed by an EU AIFM, the same provisions as those applicable to the marketing to professional investors in Italy of AIFs managed by AIFMs of other EU Member States are applicable (see paragraph 6.147).

6.163  The Italian legal system does not contemplate marketing in Italy without a passport a non-EU AIF managed by an EU AIF. In particular, Italy never had a so-called ‘private placement exception’, meaning that an offering of certain financial instruments to professional investors only would have been exempted from registration/authorization requirements. Accordingly, in the pre-AIFMD Italian system, any ‘offering’ of non-UCITSs (as well as of UCITSs, etc) requires prior authorization even if such offer is exclusively addressed to professional investors. As used here, the term ‘offer’ means ‘taking the initiative’ of approaching an Italian prospect for the purpose of an investment. Based on such qualification, the present Italian rules allow the purchase of non-UCITSs not authorized for ‘offering’ in Italy if the Italian investor has taken the initiative of contacting the fund (and this can be adequately evidenced).

4. Articles 37 to 41—Authorization of non-EU AIFMs and managing and marketing AIFs in the EU

6.164  Article 41 quater.1 of the TUFR provides that non-EU AIFMs must be authorized by the Bank of Italy in order to manage Italian AIFs (or EU AIFs, or AIFs for which Italy is the Member State of reference). The Bank of Italy will issue second level rules in order to enforce the authorization procedure. The Italian branches of non-EU AIFMs will have to comply with the Italian rules on conduct in relation to branches of EU AIFMs. Finally, article 41 quater.2 of the TUFR provides that a non-EU AIFM already authorized in another EU Member State can manage Italian AIFs through a branch or provide services under the same rules as those governing EU AIFMs, ie the regulator of the EU Member State that authorized the non-EU AIFM send a notification to the Bank of Italy (see paragraph 6.153).

6.165  The marketing to professional investors in Italy of Italian, EU, or non-EU AIF managed by a non-EU AIFM is subject to the same notification procedure as described in paragraph 6.147 in relation to the marketing to professional investors of Italian, EU, or non-EU AIF managed by an Italian SGR.

5. Article 42—Conditions for the marketing in Member States without a passport of AIFs managed by a non-EU AIFM

6.166  With regard to the possibility of marketing without a passport in Italy of AIFs managed by non-EU AIFMs, see paragraph 6.163, and in particular the discussion on the absence of a ‘private placement’ exception in the Italian legal system.

6. Consequences of violating specific rules in relation to third countries

A. Regulatory law consequences

6.167  For the regulatory law consequences of violation of the Italian laws on the marketing/offering/managing of AIFs by non-EU AIFMs, see the discussion on the corresponding topics in relation to EU AIFMs in paragraphs 6.155 and 6.156.

(p. 307) B. Criminal law consequences

6.168  For the criminal law consequences of violation of the Italian laws on the marketing/offering/managing of AIFs by non-EU AIFMs, see the discussion on the corresponding topics in relation to EU AIFMs in paragraphs 1.157 and 1.158.

C. Private law consequences

6.169  For the private law consequences of violation of the Italian laws on the marketing/offering/managing of AIFs by non-EU AIFMs, see the discussion on the corresponding topics in relation to EU AIFMs in paragraphs 6.159 and 6.160.

XI. Marketing to Retail Investors

1. Implementation table

AIFMD

National implementation

Art 43 (marketing of AIFs to retail investors)

TUFR, arts 44, 94(*), 98 ter(°); BOI Regulation 2012; CONSOB Regulation 11971/1999

Implementing Regulation

National implementation

n/a

(*)  Prospectus requirements for all financial instruments excluding open-ended funds, and thus including closed-ended funds.

(°)  Prospectus requirements for open-ended funds and SICAVs.

2. Article 43—Marketing of AIFs by AIFMs to retail investors

6.170  As discussed in paragraph 6.29, Italy will continue to allow retail investors to purchase units or shares of AIFs, if relatively high minimum investment thresholds (EUR 250,000 in the last draft of revision of DM 228) are complied with.

6.171  Under article 44.1 of the TUF, the marketing to retail investors in Italy of Italian AIFs must be preceded by a notification to CONSOB by the manager SGR. The following documents must be included in the notification: the prospectus, the rules (or memorandum and articles) of the AIF to be marketed to retail investors, and the document containing the additional information to be provided before the investment, which is to be determined in second level rules by CONSOB (but which article 98 ter of the TUFR expressly refers to as a KIID).

6.172  Provided the information contained in the documents mentioned in paragraph 6.171 is complete, consistent, and understandable, CONSOB will authorize the marketing to retail investors within 10 business days from receipt of the notification from the SGR. Second level rules to be issued by CONSOB will govern in detail the notification procedure.

6.173  Managers of foreign EU and non-EU AIFs that offer in their home state the units/shares of those AIFs can be authorized to market the AIFs to Italian retail investors, according to the terms and conditions in article 44.5 of the TUFR. Authorization is granted by CONSOB (with the participation of the Bank of Italy for the matters described in (b)) if the following conditions are satisfied:

  1. (a)  the managers of the relevant AIF have completed the procedures set out in article 43 of the TUFR (marketing to professional investors);

  2. (p. 308) (b)  the operating procedures and arrangements for the limitation and diversification of risk implemented by the foreign AIF are consistent with those provided for Italian AIFs;

  3. (c)  the duties of the depository of the foreign AIF are consistent with those provided for the depository of Italian AIFs;

  4. (d)  the rules (or memorandum and articles) of the AIF do not allow preferential treatments towards one or more investors;

  5. (e)  the organization of the foreign AIF allows the exercise of rights of the investors, in compliance with the second level rules issued by CONSOB with the participation of the Bank of Italy;

  6. (f)  the pre-investment information provided to the retail investors is complete, consistent, and understandable

6.174  The rules for the authorization to market foreign AIFs to Italian retail investors will be issued by CONSOB. In this context, it is likely that such rules will be contained in a revision to CONSOB Regulation 11971, which implements the rules of the TUF on the offering of financial instruments to the public.

6.175  The rules set out in paragraph 6.174 provide in general that any offering to retail investors (or addressed to retail investors too, ie not addressed exclusively to professional investors) requires the publication32 of a prospectus and its delivery to the prospective investor before the subscription.

6.176  Notwithstanding the general requirement described in paragraph 6.175, and even if the offering is also addressed to retail investors too, article 100 of the TUF and article 34 ter of the CONSOB Regulation 11971 provide for a series of exemptions from the prospectus requirements. These exemptions include (without limitation): (i) where the offering is to less than 100 retail investors (in addition to an unlimited number of professional investors); (ii) where the offerings are open-ended collective investment schemes (CISs) for which the minimum subscription amount is EUR 250,000; (iii) where the offerings are financial instruments, other than open-ended CISs (and securities issued by insurance companies), for which the minimum par value per security is EUR 50,000. Therefore, as long as Italy allows the offering of AIFs also to retail investors and unless the rules on the prospectus requirements of the TUF and CONSOB Regulation 11971 are amended, the publication/delivery of a prospectus should not be required because, as indicated at (ii), the minimum threshold for the offering of AIFs to retail investors is EUR 250,000, which is also one of the cases in which there is a prospectus exemption for open-ended CISs.

3. Consequences of violating national rules with respect to marketing of AIFs by AIFMs to retail investors

6.177  If publication of a prospectus is required and this requirement is not met, both the administrative sanction set out by article 191.1 of the TUF and the suspension/prohibition of the marketing of the relevant AIF set out by article 54 of the TUFR will apply (see paragraph 6.156).

(p. 309) 6.178  More generally, if the breach of the rules on retail offering involves a breach of the general duties of care set out in article 40 of the TUF, the administrative sanction in article 190 of the TUFR will also apply (see paragraph 6.107).

6.179  With regard to the criminal law, a breach of the duties on offering CISs in Italy may give rise to the sanctions in article 166.1(b) of the TUF (see paragraph 6.157).

6.180  With regard to private law consequences, a breach of the rules on the marketing of AIFs to retail investors may give rise to an extra-contractual liability under article 2043 of the CC (see paragraph 6.72), if, as is required by article 2043, there is a direct relationship between the breach of such transparency requirements and the ‘unjust’ damage suffered by the investor.

XII. Competent Authorities and Supervisory Powers

1. Implementation table

AIFMD

National implementation

Art 44

TUFR, arts 2, 4

Art 45

TUFR, arts 5–8, 10

Art 46

TUFR, arts 2, 4–8, 10

Art 48

TUF, arts 187 quinquiesdecies, 188–191, 195

Art 50

TUFR, arts 2, 4

Art 51

Legislative Decree No 196 of 2003 (‘D Lgs 196’)

Art 52

D Lgs 196

Art 53

TUFR, arts 2, 4

Art 54

TUFR, arts 2, 4

Art 55

TUF, art 2

2. Designation, responsibility, and powers of competent authorities

6.181  The rules of the AIFMD on competent authorities and supervisory powers, ie Articles 44 to 46 and 48 to 55, are implemented through changes to the TUF. However, it should be noted that the TUF already had a complete definition of the competence and powers of the Italian regulators: see paragraphs 6.32 to 6.34.

6.182  In particular, the Bank of Italy is the regulator of the funds industry. In addition to the powers to authorize SGRs, the Bank of Italy has extended supervisory powers, the general purpose of which has been described in paragraph 6.33.

6.183  The first part of the TUF describes how these supervisory powers are actually articulated. In particular, they consist of the power of the Bank of Italy:

  • •  to issue second level regulations for the implementation of the rules of the TUF (and possibly in other statutes), and an example of this power is the BOI Regulation 2012 (article 6 of the TUFR);

  • •  to convene boards of companies subject to supervision —such as SGRs—if these boards are not called in due course pursuant to the law, and the power to request clarifications from members of boards of companies subject to supervision (article 7 of the TUF);

  • (p. 310) •  to request information and documents from the companies subject to supervision (article 8 of the TUFR); and

  • •  to make inspections and carry out investigations within the premises of companies subject to supervision and requesting exhibit documents (article 10 of the TUFR).

3. Other issues

6.184  The implementation of Article 49 of the AIFM on the right of appeal will not involve changes in the Italian legislation because the acts of public administrations, such as CONSOB and the Bank of Italy, can be challenged before regional administrative courts (Tribunali Amministrativi Regionali) made up of magistrates. The judgments of these courts can be appealed before the Council of State (Consiglio di Stato).

6.185  Article 4 of the TUF/TUFR provides that Italian regulators, including the Bank of Italy and CONSOB, must cooperate with regulators of the EU, including ESMA, and that such cooperation must be performed, inter alia, through exchange of information. In addition, cooperation agreements providing for a reciprocal delegation of supervisory powers can be entered into between CONSOB and/or the Bank of Italy and ESMA or regulators of other Member States. The Italian regulator competent to receive requests for information from other EU regulators is CONSOB, which will consult the Bank of Italy if the matter is within the competence of the latter, such as in the field of collective management. In general, article 2 of the TUF provides that the Ministry of Economy and Finance, the Bank of Italy, and CONSOB must exercise their powers in a manner consistent with the EU rules and that the Bank of Italy and CONSOB are parties of ESMA and the European Banking Authority. Where there is tension in the market, article 2 of the TUF provides that the Bank of Italy and CONSOB must consider the effects of any decision on the stability of the financial systems of other Member States.

6.186  It should be noted that, save as explained at paragraph 6.187, Italian regulators, when processing personal data, must comply with D Lgs 196, which implemented Directive 95/46/EC.33

6.187  However, under article 187 octies of the TUF, CONSOB is entitled to obtain from third parties, information providers, and other public administrations, etc, also in derogation to the privacy rules provided for by D Lgs 196, information collected by such entities and relating to persons that CONSOB is investigating in connection with insider trading.

6.188  In all other cases, data can be transferred by the Italian regulator to a third party only with the consent of the party providing the data and the TUF expressly states that information received by the Bank of Italy or CONSOB cannot be forwarded to other regulatory authorities without the prior consent of the regulator which sent that information. Finally, Italian regulators and their employees, officers, and agents, are bound by professional secrecy; derogations are expressly provided for by the law in connection with criminal investigations.

(p. 311) 6.189  Article 4.5 bis of the TUF provides that the exchange of information between the Italian regulators and the correspondent authorities of third countries is possible only if such third countries have comparable rules on professional secrecy to Italy.

6.190  With regard to the exchange of information relating to the potential systemic consequences of AIFM activity, the matter has been addressed by article 4 quater of the TUF.

6.191  Article 4 of the TUF provides that the Bank of Italy and CONSOB may execute cooperation agreements with regulators of other Member States providing for the reciprocal delegation of supervisory activities (for example the power to carry out onsite investigations).

6.192  A new paragraph 2 bis added to article 4 of the TUF provides that the Bank of Italy and CONSOB ‘may’ (thus reflecting the wording of Article 55 of the AIFMD) submit to ESMA a dispute between the regulators and a foreign regulator, but only with regard to ‘cross-border’ matters.

XIII. Concluding Remarks

6.193  The implementation of the AIFMD in Italy will materially affect the local market for ‘speculative funds’ so long as the barriers to the entry of foreign AIFs are lifted. An assessment on whether or not this will be a success can be based on a consideration of the various standpoints. It will be a success for foreign AIFMs, which will gain full access to the Italian market through direct sales to local investors (including, as we have seen, retail investors—see paragraph 6.170) instead of the indirect presence they had through wrapping their foreign products in Italian funds of funds.

6.194  It is likely that the increase in the ‘import’ of foreign AIFs in Italy will not be balanced by a correspondent increase in ‘export’ Italian AIFs due to the fact that Italian AIFs are generally funds of funds (see paragraph 6.50). There is no significant Italian expertise in the direct management of AIFs. Accordingly, from an industry standpoint, the AIFMD seems to be more advantageous to foreign than Italian AIFMs.

6.195  In addition, as long as the AIFMD grants to national regulators an option to adopt more flexible requirements in relation to the organization of AIFMs or service providers—such as the option to act as depositary for certain private equity funds set out in Article 21 (3) of the AIFMD—it is expected that AIFMs of countries with stricter rules will establish their AIFs (if not the AIFM itself) in countries with less strict requirements. Undoubtedly, Italy will belong to the group of countries with strict requirements and will suffer an ‘emigration’ of its AIFs and possibly AIFMs. Such emigration may also be aided by more favourable fiscal treatments in certain jurisdictions.

6.196  From investors’ standpoint, the transposition of the AIFMD into Italian law may bring some advantages in terms of protection and information to subscribers of AIFs. This is because until now the restrictions on the ‘marketing’ (in the meaning specified in Article 4(1)(x) of the AIFMD) of foreign AIFs in Italy did not prevent subscriptions by Italian investors through the ‘reverse inquiry’ process, consisting of a subscription originated by an unsolicited ‘initiative’ of the Italian prospect. In particular, the Italian law does not apply to subscriptions originated by a ‘reverse inquiry’; the fact that a sale took place without the enforcement of any Italian rule (for example rules on the prospectus, information to investors under MiFID, (p. 312) etc) meant that an Italian party was completely unprotected so long as the investment was considered to be outside of Italy.

6.197  If one considers that, following the implementation of the AIFMD, ‘marketing’ (in the meaning described at paragraph 6.196) will be possible, Italian investors will continue to do the same things they did before (ie subscribing foreign AIFs), but with a higher level of protection because they will purchase products from companies complying with the requirements of the Directive and will receive pre-investment information required by the rules on the placing of all other types of financial instruments (under the UCITS and Prospectus Directives).

6.198  Of course, products not covered by the AIFMD will continue to be liable to subscriptions through the reverse enquiry process, but the opportunity of taking benefit from the ‘linear’ process of the AIFMD will probably induce most AIFMs to use the passport rather than the other, ‘byzantine’, procedure.

Footnotes:

1  Unless otherwise specified, the English translations of Italian financial regulations quoted in this chapter are from the English section of the website of CONSOB at <http://www.consob.it/mainen/legal_framework/index.html>.

2  TUF, art 36.3 states:

Each investment fund and each sub-fund shall constitute an independent pool of assets, separate to all intents and purposes from the assets of the Italian management company and from those of each unitholder, as well as from any other assets managed by the same company; commitments relating to bonds subscribed on its own account shall be met solely from the investment fund’s own equity. Such assets may not be admitted in legal actions brought by creditors of the Italian management company or in its interest or in actions brought by creditors of the depositary or the sub-depositary or in their interest. Actions brought by the creditors of individual investors shall be admitted only with respect to the latter’s units. In no case may the Italian management company use the assets belonging to the funds it manages in its own interest or in the interest of third parties.

3  Corte di Cassazione, I Civil Section, judgment No 16605 of 15 July 2010, published in Pluris/Cedam-UTET database (hereinafter ‘Pluris’).

4  Corte di Cassazione (n