ITALY: Italian Index Tracking sanctioned by Regulator

Monday March 7 2016

The Italian financial regulator, Consob, has taken action against some of the largest investment companies in Italy for mis-selling funds that purport to offer active management but in reality only follow a benchmark index.

‘Closet tracker’ funds typically perform worse than passive funds, even though they stay close to their benchmark, due to their higher costs.

A number of European regulators have discovered a high proportion of actively managed funds tend to mimic an index. This is regarded as a form of mis-selling that has left millions of investors significantly worse off than if they had bought a cheap index fund in the first place.

A spokesperson for the Italian watchdog said it took “remedial action” against a number of the companies it examined. It declined to name which companies were affected, but said they were made to change their fund documents to ensure that the stated investment policies were consistent with the management style actually adopted by the manager.

The Italian regulator plans to carry out another investigation into closet tracking in the coming months, partly in response to ESMA, the European markets watchdog, examining the issue.

ESMA found that between 5 and 15 per cent of actively managed equity funds in Europe could be closet trackers, but said it was the responsibility of national regulators to identify and sanction problem funds.

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