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Italy

On July 23 2001 Consob issued a communication to remind collective asset managers of the rules with which the process of making investment decisions must comply, inter alia with reference to some operating procedures required by the prudential rules for limiting and diversifying risk.

Firstly, the Commission recalled the general principles with which the consolidated law on financial intermediation approved by Law No 58 of February 24 2001 as amended and supplemented (the Consolidated Law) requires managers to comply, ie to act diligently, correctly and transparently in the interests of customers. The Commission then pointed out that, in application of these principles, Consob Regulation No 11522 of July 1 1998 implementing the provisions on intermediaries of the Consolidated Law, as amended (Regulation No 11522) has laid down rules of conduct aimed at ensuring, among other things, that asset management was performed in conformity with the investment objectives established for each collective investment undertaking. In particular it noted that, in regulating the provision of the service, Articles 54.1 and 54.2 of Regulation No 11522 required each collective investment undertaking to: (i) collect and process the information needed to carry out scenario analyses; (ii) prepare economic forecasts on which to base its general investment strategies; and (iii) translate these strategies into coherent operating choices.

The Commission pointed out that these rules of conduct apply to the assets of each fund (or sub-fund) under management.

The Communication also stresses that the reference framework outlined above has to be borne in mind even when individual investment choices are made in conformity with the relevant prudential requirements. In particular, it recalls the obligation - provided for in Chapter II, Section IV, of the Bank of Italy Regulation issued on September 20 1999 - to restore, as soon as possible, taking into account the interests of investors, compliance with any investment limits exceeded as a result of the exercise of pre-emption rights, movements in the prices of securities or other factors beyond the control of the asset management company or Sicav. Further, it stresses that the disposal of excess securities in such circumstances has to be effected in accordance with the general principles of correctness and diligence.

Lastly, the Commission specified that disposals of securities to other collective investment undertakings managed by the same intermediary are subject to Article 49.2 of Regulation No 11522, which made the possibility of carrying out transactions involving a conflict of interest conditional on the equal treatment of the collective investment undertakings concerned. According to the Commission, there is a presumption of equal treatment where the transactions are compatible with the purchasing undertaking's investment strategies and objectives and comply with the principle of best execution.

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