Italy

Author: | Published: 3 Oct 1999
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There is no doubt the Italian public has a newfound interest in mutual funds. The net collection of savings by Italian Mutual Funds reached approximately L353 billion ($195 million) in 1998, a figure that more than doubled compared to that of the previous year and which accounts for 85% of the total managed investment.

A number of significant economic and financial factors, have combined to create such a favourable climate. Falling inflation to levels below 2%, the lowering of interest rates and the improvements in public finances have certainly acted as catalysts for investments at large. Combined with massive privatization and corporate restructuring in the domestic market, these factors have played a key role in helping investors channel their traditionally high level of savings from treasury bonds to a more diversified portfolio.

Despite Italian investors' careful and prompt reaction in adapting to newly available financial instruments, Italian households still have significant amounts of savings in bank and postal deposits ($630 billion) and in unmanaged securities (($750 billion) and a good savings ratio of 13% of disposable income. Furthermore, 66% of mutual fund investors own only one fund indicating there is very little cross-selling or financial planning. This goes to confirm that there is ample room, even beyond the recent boom in the industry, for growth and especially for improvement in terms of the quality of investments.

LEGISLATiVE OVERVIEW

Legislative Decree number 58 dated February 24 1998 on financial intermediaries has almost entirely superseded the previous discipline, substantially updating and streamlining the applicable regulatory framework. The Decree, in force as of July 1 1999, provides funds with a general and unified set of rules.

The first distinction made by Italian law on foreign mutual fund management companies is that between harmonized and non-harmonized funds. The first includes managed investment activities that fall within the scope of EU Directives 85/611 and 88/220 and which can thus be marketed in European Union territory in a regime of mutual recognition. Non-harmonized funds remain unregulated by such directives and are to be authorized by the Bank of Italy provided the operating arrangements are compatible with those prescribed by Italian undertakings. Further regulation is in the process of being elaborated. Generally speaking, however the presence of non-harmonized funds in Italy is uncommon due to an unfavourable taxation regime.

Offer of harmonized mutual funds in Italy to the general public
Notification

The first step towards the marketing of harmonized mutual funds is to forward previous notification to both the Bank of Italy and CONSOB. Two months must elapse between such notification and the beginning of marketing operations.

Notification refers to several documents. Among the most important are the certificate issued by the competent foreign authorities attesting that the investment company meets the requirements stated in EU Directive 85/611, the incorporation documents of the investment company, the latest version of the prospectus, an information document ("documento integrativo") to be disclosed to the public, and the latest Annual Report.

Publication

After obtaining the necessary authorizations from the Bank of Italy and CONSOB, the prospectus, along with the information document and subscription form, must be published by means of their deposit at CONSOB in the form of one original and one copy on a computer-supported system. Also, copies must be made available at placement agents for anyone who should request them.

The publication of the information document must occur before the commencement of the adhesion period. This time period must begin within six months from the conclusion of the reporting activities carried out by the Central Bank and CONSOB. Before the closing of the operation, a copy of the prospectus must be delivered to the investor. Adhesion to the offer occurs with the investor's signing of the subscription forms.

CONSOB's information requirements

CONSOB prescribes that periodical reports and, if not enclosed with the prospectus, the management rules and by-laws of the management company must be made available to the public in Italian at the secondary registered offices in Italy and, where these have not been constituted, at the registered offices or branches located in the regional capitals of the correspondent bank in Italy. Participating members have the right to obtain a free copy, including home delivery, of the above mentioned documents.

There have been changes in CONSOB's requirements regarding information obligations to comply with in the management company's country of origin CONSOB has now excluded itself from the process and only requires that the management company comply with the rules and regulations in force in the country of origin CONSOB does require a detailed list, however of the applicable foreign information obligations.

The value of the units of the management company, calculated according to the time frame specified in the company rules or by-laws, must be published in at least one daily newspaper with adequate distribution in the areas where the product will be marketed. Dates of member meetings and notices of payment of proceeds must be published in the same daily newspaper.

Correspondent bank

If the management company does not have a branch office in Italy, it shall enter into an agreement with a bank in Italy (the correspondent bank) acting as intermediary for payments pertaining to the investors' interest in the management company (eg subscription of shares, redemption and dividends).

The management company and the correspondent bank must use all necessary means to ensure that their respective functions are efficiently carried out and, specifically, that the subscribers' applications, the buy-back and redemption's requests, and the payments of earnings are promptly processed and complied with.

Contractual agreements with placement agents in Italy

In addition to the agreements with the corresponding bank (if necessary), the fund management company must also make contractual agreements with placement agents in Italy. Agents must agree to transmit subscription, reimbursement and conversion requests to the management company within the next business day following reception of such requests. Within the same term, agents must deposit payments relative to subscriptions at the corresponding bank.

Offer of fund units with respect to professional investors only

When the marketing of shares or stock of harmonized management companies is directed exclusively to qualified investors (defined in CONSOB regulation 11522) the sole requirement is that of publishing the unit value of the share or stock according to the above mentioned formalities. In other words, the management company is excluded from the requirement of publishing a prospectus and other company documents.

It must be noted however, that the above mentioned management companies when soliciting qualified investors must comply with marketing procedures set forth by the Central Bank and therefore must deposit their prospectus with both the Central Bank and CONSOB. For the purposes of this type of activity, the management company may not carry out any form of advertising.

Net asset value mutual funds in Italy
Equity funds Balanced funds Bond funds Total
Billion % of N. of Billion % of N. of Billion % of N. of Net Asset N.of
Lire Total Funds Lire Total Funds Lire Total Funds Value Funds
Dec 38.761 29,78 150 18.112 13,91 57 73.294 56,31 147 130.167 354
1994
Dec 35.878 28,30 201 14.339 11,31 58 76.574 60,39 198 126.791 457
1995
Dec 34.748 17,64 235 12.869 6,53 57 149.340 75,82 239 196.957 531
1996
Dec 78.007 21,23 277 22.179 6,04 53 267.201 72,73 296 367.387 626
1997
Dec 143.217 19,87 321 55.917 7,76 57 521.688 72,37 325 720.823 703

Contact Details:

Studio Legale Carnelutti

Via Parigi, 11

00185 Rome

Italy

Tel: +49 06 462 0241

Fax: +39 06 489 0628 5