Eight years have passed since Italy defined qualified investors in its financial regulations, yet many intermediaries still tend not to properly classify their counterparties.
Consob regulation 11522 of July 1 1998 implemented provisions of Legislative Decree 58 of February 24 1998 (the Financial Act) applicable to intermediaries.
Regulation 11522's definition of qualified investors includes not only the specific counterparties expressly identified but also any company or entity that has specific competence and experience in transactions on financial instruments. The relevant entity must confirm its competence and experience in writing.
When dealing with a qualified investor, an intermediary does not need to comply with certain rules under Regulation 11522 designed to guarantee non-qualified investors greater protection.
The Regulation's broad definition has been criticized by some scholars and judiciary, who say it does not correctly identify qualified investors.
Also, EU Directive 2004/39 (yet to be implemented in Italy) has introduced stricter requirements for the identification of qualified investors (that is, professional clients).
According to the Directive, to treat clients as professional investors "on request," at least two of the following requirements must be met: (i) the client has carried out transactions, of significant size, in the relevant market at an average frequency of 10 each quarter over the previous year; (ii) the size of the client's financial instrument portfolio exceeds €500,000; (iii) the client works or has worked in the financial sector for at least one year in a professional position.
This issue is relevant when dealing with Italian regions and local authorities.
The Court of Accounts, during an intervention of its chairman before the Financial Commission of the Chamber of Deputies in January 2005, confirmed that regions and local authorities should not be classified as qualified investors due solely to their declaration as a qualified investor.
The Court of Accounts has expressly stated that the declarations through which regions and local authorities represent to "understand, assess and accept the risks arising from a financial transaction" are unacceptable in the light of their status of counterparties without adequate knowledge and experience of the financial markets.
So it is clearly inappropriate to treat regions and local authorities as qualified investors for the purposes of Regulation 11522 and it is the duty of financial intermediaries, under the Financial Act, to act diligently, correctly and transparently in the interest of customers.
According to court precedents, clauses containing a declaration of qualified investor status not corresponding to the actual position of the investor are void.