ITALY: CONSOB Consultation on Proposed Amendments to Intermediaries’ Regulation

Wednesday August 9 2017

CONSOB has launched the consultation with the financial market on the proposed amendments to the Intermediaries’ Regulation to transpose:

1. a) the regulations contained in the MiFID II directive (Markets in Financial Instruments Directive – MiFID II) concerning the procedures for authorising investment firms and the entry of EU investment firms into Italy;
2. b) the MiFID II regulations applicable to managers.

The consultation ends on September 30.

The procedures for authorising investment firms and the operation of EU investment firms in Italy, are contained in Book II of the Intermediaries’ Regulation. As regards authorisations, the primary regulations transposing MiFID II contain a significant change with respect to the current framework in force. In particular, the attribution of authorisation and regulatory powers, with regard to cross-border operation (in EU and non-EU countries) of investment firms, powers that currently reside with the Banca d’Italia, to CONSOB is envisaged.

Reported below are the main amendments submitted to market consultation in relation to authorisation for the performance of investment services and activities by investment firms.

1. a) With reference to the first application for authorisation (and, therefore, of consequent registration to the relevant register) as well as to the application for extension of the authorisation for the performance of further investment services and activities, recourse to the European implementation legislation is envisaged, both with regard to the information and documents to be provided to CONSOB, and with regard to the standard formats, the models and the procedures for the submission of said documents/information. Consequently, it is proposed to remove the corresponding regulatory provisions from the Intermediaries’ Regulation.
2. b) As regards the verification of the requirements of the corporate officers of the applicant companies, the Commission proposes maintenance of the current regulations, although with some marginal amendments.
3. c) As regards the investigation related to the application for authorisation, it is proposed to maintain the time limit, currently set at 120 days, for the conclusion of the procedure, as well as the grounds for suspension of the time limits, also introducing grounds for interruption in case of amendments to the investigatory elements relevant for the purposes of the Authority’s decision.
4. d) The rules concerning the forfeiture and revocation of the authorisation have been reformulated, in view of the amendments made to the Consolidated Law on Finance – TUF, with the intent of standardising the regime applicable to investment firms and Italian banks. In particular, in line with the new TUF, the intermediary’s express waiving of the authorisation issued, as well as the failure to initiate operations within one year from the issue of the authorisation have been ruled as grounds for forfeiture. Furthermore, interruption of the performance of investment services and activities for more than six months has been ruled as cause for revocation and no longer for forfeiture of authorisation. Similarly, further grounds for revocation have been established as authorisation obtained by presenting false declarations or by any other irregular means as well as situations in which the conditions under which authorisation is granted are not met. For the forfeiture and revocation procedures the fulfilments and time limits for investigation are governed.

As regards the cross-border operation of investment firms, in light of the regulatory changes, the following are governed in the new Part III-bis of the Intermediaries’ Regulation submitted to consultation:

1. a) the necessary conditions and the procedures that must be respected so that the investment firms can provide services eligible for mutual recognition, both through the right of establishment and through the free provision of services, in other EU countries and
2. b) the conditions and procedures for the issue, to investment firms, of authorisation to provide services not eligible for mutual recognition in other EU countries and their own services in non-EU countries.

As regards the operation in Italy of EU investment firms, the proposed amendments to the current Part V of Book II of the Intermediaries’ Regulation take account of the new version of the TUF, as resulting from the transposition of MiFID II, which particularly envisages the possibility for intermediaries to exercise the right of establishment including through tied agents established in Italy.

As regards collective managers, the rules submitted to market consultation concern, on the one hand, the identification of the provisions derived from MiFID II applicable to undertakings for collective investment (UCIs) that carry out marketing of their own or third parties’ mutual funds and, on the other hand, the identification of the organisational and procedural requirements for managers providing investment services and activities contained in Book IV of the Intermediaries’ Regulation, in particular in articles 76-bis and 77, concerning UCIs carrying out marketing of their own or third parties’ mutual funds.

In particular, in line with the approach followed by the Intermediaries’ Regulation currently in force and in order to guarantee investors the same protection when subscribing mutual funds, regardless of the purchase channel used (third party distributor or manager that directly markets their own or third parties’ mutual funds), the MiFID II rules have also been extended to UCIs that carry out marketing of their own or third parties’ mutual funds. In particular, without prejudice to the direct application of the MiFID rules of conduct, where marketing is combined with an investment consultancy service, the confirmation of this approach, in the new reference context defined by MiFID II, also involves the application of European regulations concerning disclosure of the financial instruments (shares or stock of mutual funds) marketed, as well as the provisions concerning product governance. A further significant innovation concerns the application of the provisions on experience and knowledge requirements for staff providing customers with information regarding mutual funds.

As regards the organisational and procedural requirements applicable to managers, the new Book IV-bis of the Intermediaries’ Regulation, contained in the consultation document submitted to consultation, identifies the set of organisational and procedural obligations borne by collective managers, including in their capacity as investment service providers. This is according to an approach that exactly re-proposes the current approach of the Joint Regulation concerning the organisation and procedures of intermediaries providing investment or collective asset management services, adopted by the Banca d’Italia and by CONSOB with the measure of 29^th October 2007. In particular, the articles contained in the new Book IV-bis identify the obligations regarding internal procedures, control of compliance with standards, handling of complaints, personal transactions, management of conflicts of interest and storage of records that managers are currently required to apply when providing collective asset management services as well as investment services and activities, for the purposes of fulfilling correctness and transparency obligations. The proposed framework is therefore the result of merely translating the provisions concerning the matters under CONSOB’s responsibility currently contained in the Joint Regulation into the Intermediaries’ Regulation. It also takes account of the amendments to the provisions concerning the Intermediaries’ Regulation submitted to market consultation on July 6, with particular reference to the new Book III-bis.

In particular, the new Book IV-bis provides for:

• the applicability, to managers providing collective asset management services as well as investment services and activities, of the rules applicable to other intermediaries concerning internal procedures and handling of complaints (see article 77-bis, paragraph 1);
• the subjection, of research activities concerning investments carried out in the context of collective management, to the rules dictated by directly applicable and relevant European legislation, derived from MiFID II;
• the applicability, to managers providing investment services and activities, of the rules derived from MiFID II contained in the new Book III-bisof the Intermediaries’ Regulation concerning conflicts of interest and the storage of records. In relation to these matters, managers will also be required to apply the specific sector rules derived from the UCITS and AIFMD directives;
• as regards the control of compliance, article 77-quinquiestakes account of the amendments made to the reference regulations which now see CONSOB as responsible for issuing the rules concerning the methods for exercising compliance functions, whose establishment is instead required of the regulatory provisions of the Banca d’Italia. Therefore, in relation to the regulatory aspects for which CONSOB is responsible, the wording of the article respects the current provisions of article 42 of the aforementioned Joint Regulation, which, in the present case, applies the European AIFMD matrix regulations directly applicable in domestic law.

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