March 6, 1992
TO: INTERNATIONAL MEMBERS NO. 4-92
INVESTMENT ADVISER MEMBERS NO. 9-92
RE: NEW ITALIAN SECURITIES LEGISLATION
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Counsel to the Institute has provided information about
Italian legislation with important implications for members
seeking to provide investment services in Italy. The following
discussion highlights some of the features of the new law and its
possible impact on U.S. investment advisers and funds.
Interpretations of the new law remain unsettled. Members doing
business in Italy might wish to consult their own counsel to
determine the applicability of the law in specific circumstances.
As of January 5, 1992, an entity that provides any of a
broad range of investment services in Italy or cross-border into
Italy must do so through an Italian company or limited
partnership that has been authorized as a SIM ("societa di
intermediazone mobiliare") by the Italian regulatory authority,
Commissione Nazionale per le Societa e la Borsa (CONSOB).
Services must be conducted through a SIM if they are provided on
a "professional" basis to the "public", terms that are broadly
defined. The penalty for breach of the SIM law is a criminal
fine and the possibility that all contracts resulting from the
unauthorized business will be voidable.
Some of the ways in which U.S. money managers may be
affected by the SIM law include:
A. Sale of Investment Company Securities in Italy
Any entity involved in the promotion and marketing of
investment company securities in Italy is subject to the SIM
legislation. The fund itself must be authorized under other
provisions of Italian Law, such as Law No. 77 (1983), that set
out the requirements that any mutual fund, foreign or domestic,
must meet before it is sold in Italy.
One aspect of the new law is important for U.S. money
managers that have established qualified UCITS (Undertakings for
Collective Investment in Transferable Securities) in any EC
member country. There appears to be a conflict between the new
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law and the UCITS Directive, which was implemented in Italy on
February 14, 1992. The UCITS Directive provides that UCITS
qualified in any EC member nation may be marketed freely
throughout the EC. To the extent that the new SIM law requires
sponsors of non-Italian UCITS to be established and registered in
Italy, an amendment may be necessary to conform the law to the
Directive. However, an amendment to the SIM law to eliminate
this conflict would have no effect on the marketing of foreign
funds other than those qualified as UCITS in an EC member state.
B. Investment Advisory Services
The SIM law requires that any foreign money manager seeking
to provide investment advice in Italy establish a separate
Italian subsidiary that is an authorized SIM.
This aspect of the legislation would conflict with the EC's
proposed Investment Services Directive. That Directive would
allow investment management firms qualified in one EC member
country to provide services throughout the EC. Again, the SIM
law may have to be amended to deal with this apparent conflict
upon adoption of the Directive; however, non-EC investment
management firms likely would remain subject to the law.
C. Purchase of Italian Securities
Dealing in securities in Italy clearly is subject to the
new law. CONSOB's initial interpretation was that a foreign
party that purchases or sells securities through a broker-dealer
that is an authorized SIM would not itself be subject to the
law's requirements. It now appears that CONSOB takes the
position that any "professional" that initiates securities
transactions with an Italian party, even an authorized SIM, would
be subject to the law. CONSOB's argument would be that the
foreign party is soliciting business in Italy with the public
(which apparently is interpreted to include a single Italian
party) and is doing so on a professional basis.
The Institute's counsel believes that this interpretation
could subject a foreign fund or adviser to liability under the
SIM law if it initiates a purchase or sale of Italian securities.
Unless revised or modified, this application of the law could
severely inhibit foreign participation in the Italian market.
Not surprisingly, the new law is controversial within the
European Community. For example, the UK claims that the law is
inconsistent with the Treaty of Rome, which provides for freedom
of establishment and freedom to provide cross-border services
within the EC. We are informed that the European Commission
intends to take action against the law through the European Court
of Justice.
We emphasize that the full extent and effects of the law
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are as yet unclear. The Italian Foreign Minister has indicated
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that the law may be amended to allow the promotion of some
investment services in Italy without establishment and
authorization as a SIM, but the content and status of such an
amendment are uncertain.
Members wishing further information about this legislation
should contact the undersigned at (202)955-8419 for a copy of the
memoranda received from the Institute's counsel.
We will keep you informed of further developments.
Angela C. Goelzer
Assistant Counsel - International