On September 6, 2022, Italy has eventually completed the transposition of the cross-border distribution of funds Directive (EU) 2019/1160 (“CBDF”) by enacting some changes to the sections of CONSOB Regulation on Issuers (no. 11971 of 1999, as amended, hereinafter, “RI”) governing on the marketing and distribution of foreign UCITS funds and AIFs. CONSOB also amended the RI in order to ensure full consistency with the Regulation (EU) 2019/115 with respect to marketing activities.
The powers to amend the RI was granted to CONSOB by the relevant rules of the Consolidated Text of Finance Regulations, Italy’s main piece of financial regulations (Legislative Decree no. 58/1998, as amended – the “TUF”), as modified in November 2021 for the implementation of the CBDF at the statutory level (see our Newsletter 2021 07).
It is anticipated that the implementation of the CBDF by CONSOB has been made in full compliance with the provisions of this Directive and that there are no practices of “gold-plating”. On the contrary, CONSOB confirmed some waivers in case of marketing addressed only to professional investors, and a few express clarifications given by CONSOB in the revised RI will be a useful criterion in order to determine the exact scope of some requirements of the CBDF: among these, the meaning of “change regarding share classes to be marketed”, to be notified one month in advance under the new para. 8 of article 93 of the UCITS Directive (2009/65/EU) as amended by the CBDF.
This Regulatory Update will cover the new provisions on UCITS funds, another issue on AIFs will follow.
The main developments brought to the Italian marketing of UCITS by the implementation of the CBDF concern:
- One month prior notification in case of changes to the information provided in the notification letter or to the share classes marketed in Italy
- Italian application form
- Termination of the marketing of UCITS funds
1 Facilities (article 92(1) of the UCITS Directive, article 43a of the AIFMD as amended/introduced by the CBDF) – Language of the facilities
In compliance with the CBDF, the section of the RI that previously required a Local Paying Agent (“LPA”) established in Italy or the EU and an Investor Relations Manager (“IRM”) established in Italy has been completely re-drafted by replacing the reference to LPA and IRM with those to the “facilities”, and fully reflects the tasks of the latter as listed in the new article 92(1) of the UCITS Directive as amended by the CBDF.
The revised RI fully reflects the provisions of the CBDF on the possibility for the UCITS to provide the facilities directly or through third parties, in this second case with an agreement meeting the requirements of the new article 92(1) of the UCITS Directive.
CONSOB expressly mentioned that the facilities for the Italian retail investors must be provided in the Italian language, thus English is not allowed.
This for both a general principle of understandability by the average members of the public in Italy (which is also a general requirement provided by the MiFID for the communications to investors) and because the provisions of the CBDF on the language of the facilities mention only: the (i) official language of the “host” member State, and (ii) a language approved by the regulators of the same “host” member State, but not the “language customary in the sphere of international finance” that, e.g., is mentioned in article 94(1) c) of the UCITS Directive in order to give the option to circulate the prospectuses only in English. Therefore, given that there are no other languages “approved” by CONSOB for the information to investors – nor CONSOB would have these powers – the only language is the Italian: in this regard, the provisions of the CBDF on the language of the facilities is exactly the same as article 94(1) b), on the basis of which the KIIDs are allowed only in Italian.
Notwithstanding the changes of the CBDF on the subject matter, it is reasonable to expect that the most important tasks of the facilities for the Italian retail clients, such as the transmission of the orders and the processing of the payments (in addition to the withholding of the Italian taxes on capital gains), will unlikely be performed out of Italy due to the complexity of the Italian subscription arrangements. As a demonstration of that assumption, although the Italian pre-CBDF regulations already provided for the possibility of having a LPA based in another EU Member State, this option was (as far as I am aware) never used for the retail marketing. This is probably due, e.g. to the administration of the Italian withholding tax, which has different rates according to the portion of the fund invested in “white list” bonds, and to the necessity of knowing the details of the underlying retail investors whereas the subscriptions of the Italian retail investors are sent to the CIS on a nominee basis in the name of the local paying agent – now local facilities agent.
On the basis of the above considerations, although the CBDF introduced the concept of “facilities”, a review of the list of tasks in the new article 92(1) of the UCITS Directive shows that at least four (letters a) to d)) out of six items are the same functions previously carried out by the LPA, the IRM and the Italian retail sub-distributors. The relevant service agreement will therefore continue to be applicable, with a specific reference to the items of article 92(1) that have been outsourced and, if not already in the agreement, the duties of the UCITS specified in the last sentence of article 92(3).
2 One-month prior notification in case of changes to the information contained in the Notification Letter or “regarding share classes to be marketed” (article 93(8) of the UCITS Directive as modified by the CBDF)
The new article 93(8) of the UCITS Directive, as amended by the CBDF, provides for a one month prior notice to both the “home” and “host” member State regulators in case of: (i) changes to “the information in the notification letter” and (ii) changes “regarding share classes to be marketed”.
There were some doubts on the actual scope of the changes sub (ii), in particular if these changes also included, e.g., mergers, terminations, etc. and, given these doubts, some regulators suspended the effectiveness of the requirement due to the high amount of the actual or potential notices in case of interpretation of the same requirement as applicable to a wide range of cases.
From its part, CONSOB gave a “minimalist” interpretation of this requirement, by providing that the one month prior notification only applies to the offer in Italy of new classes of shares/units of vehicles or sub-funds already marketed in Italy.
As to the scope of the notification duties for the changes sub (i), CONSOB strictly followed the phrasing of the CBDF (i.e., changes to the information in the notification letter).
The revised RI doesn’t specify itself how these prior notifications have to be sent to CONSOB, but it states that CONSOB will issue instructions and procedures for this purpose.
Finally, the RI specifies that the amended sales documents reflecting the changes to be notified one month in advance under article 93(8) of the CBDF – e.g., a new application form with an additional share class and the relevant KIID – will be deposited with CONSOB with the usual procedure, the business day before dissemination/effectiveness. Therefore, for the avoidance of doubt, the one month prior notice is distinct from the usual deposit of the retail documents with CONSOB.
3 Italian application form with Annex for the retail offering
Following the implementation of the CBDF rules on the facilities, the revised RI now requires that the Italian application form to be used for the retail marketing of CIS has to include information on the facilities available for Italian retail investors, unless this information is already available in the other fund’s documentation, e.g., in the prospectus.
4 Termination of the marketing of UCITS
The RI refers to the relevant provision of the TUF as revised for the implementation of the CBDF. At its turn, the TUF refers to the procedure with the fund’s home member State set out in 93a, paras. 2 and 3 of the CBDF.
In addition, the termination of the marketing of a sub-fund will have to be notified to CONSOB via the usual procedure for the deposit of amended sales documents, e.g., deposit of a new retail application form without the terminated/de-registered sub-fund.
5 Other changes
Other changes and simplifications were introduced in the RI in relation to marketing exclusively addressed to professional investors, listed ETFs and delivery of the hard copies of some fund documents to the domicile of the investors who requested them.