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A provision of the Bank of Italy dated November 31 2002 has finally set out rules for authorization to trade in units of common investment funds not established pursuant to the relevant EU regulation (including Directive 85/611/EEC relating to undertakings for collective investment in transferable securities, the so-called UCITS Directive). These are referred to as non-harmonized funds.

The Provision has been issued pursuant to Article 42, paragraph 5 of Legislative Decree No 58 of February 24 1998. This provides that the marketing in Italy of the units of mutual funds not falling within the scope of the directives on collective investment undertakings must be authorized by the Bank of Italy, after consulting CONSOB, provided that the operating arrangements are compatible with those prescribed for Italian undertakings. Until the entry into force of the Provision, the procedure to be followed was still that provided under Law No 77 of March 23 1983. This required the foreign undertaking to obtain the relevant authorization from the Treasury upon consultation with the Bank of Italy at the end of a complex filing. On the contrary, the Provision contemplates the Bank of Italy - upon consultation with CONSOB - as the unique regulatory authority. The authorization must be released upon the undertaking of a series of conditions precedent including the non-harmonised fund: (i) having operating arrangements compatible with those prescribed for Italian undertakings; (ii) being subject in its home country to appropriate supervision by the relevant authority or having been authorized by a public authority supervising the relevant activities in a way similar to that of Italian authorities; (iii) trading its units in its home country; (iv) providing for appropriate information to the public and adopting an organizational model with a view to ensuring the exercise of unit-holders' property rights in Italy; and (v) having the integrity and experience requirements for persons performing administrative, managerial or control functions in management companies. The Provision makes also a distinction among undertakings the home country of which is an EU member country and other undertakings. For such latter undertakings the Bank of Italy will evaluate, for the purposes of the authorization to trading and in addition to the requirements listed in numbers from (i) to (v) above, whether: (i) there are any co-operation agreements between the respective supervisory authorities in Italy and in the relevant country; and (ii) there is reciprocity in the undertaking's home country (as to recognition of funds) within the limits set forth by international conventions. The procedure to be followed for authorization to trading in Italy of units of harmonized funds compared to the procedure under consideration is characterized by the mutual recognition, among EU members, of legislation applicable to establishing undertakings for collective investment in mutual funds (subject to satisfaction of requirements of the UCITS Directive). This undoubtedly simplifies the work to be done by the relevant regulators in order to grant the relevant authorization.

As to the documentation to be filed with the Bank of Italy, including a copy of the memorandum and articles of association of the undertaking and of the latest prospectus of the funds, there is a substantial similarity with provisions concerning harmonized funds established pursuant to the UCITS Directive. The authorization will be released within four months of receipt by the Bank of Italy of the relevant request (as compared to the two-month period provided for harmonized funds). This term is subject to interruption in cases where the documentation proves to be incomplete or to suspension whenever the Bank of Italy requires further clarifications or further information from the supervisory authorities of the undertaking's home country.

In conclusion, it is beyond doubt that the Provision, besides representing a necessary completion of the Italian legislative framework, is likely to also encourage foreign undertakings not established pursuant to the UCITS Directive to join the Italian market.

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