This short article provides an update on the implementation of Directive 2007/16/CE on Eligible Assets for UCITS (Eligible Assets Directive) in Italy.

The Eligible Assets Directive sets out provisions aimed at ensuring the uniform application of the UCITS Directive, as amended, by reducing uncertainties in determining whether certain categories of financial instruments fall within the scope of the definitions set out in the UCITS Directive.

Bank of Italy is currently implementing at secondary level the Eligible Assets Directive and, to this end, it has recently issued a Consultation Paper containing proposals intended to amend the Bank of Italy Regulation of 14 April 2005 on undertakings for collective investment (Provvedimento sulla gestione collettiva del risparmio) in order to clarify the eligible assets which may be included in portfolios of UCITS.

In accordance with the Consultation Paper, Bank of Italy appears to have acknowledged the main principles of the Eligible Assets Directive, providing UCITS asset management companies with further autonomy in terms of their investment strategies.

These goals are compliant with CESR’s Level 3 Guidelines concerning eligible assets for investment by UCITS which were published in March 2007.

In particular, in the Consultation Paper Bank of Italy, inter alia, classifies UCITS as sophisticated or non-sophisticated funds on the basis of:

  • The fund’s portfolio exposure to derivatives instruments.
  • The complexity of the derivatives instruments included in the portfolio.
  • The level of complexity of the investment strategies adopted.

With particular reference to investment in derivatives, the Consultation Paper allows management companies to calculate the limits of the fund’s exposure to derivative instruments (which must not be greater than 100 per cent. of the total net value of the fund) through internal control models based on the VaR (Value at Risk) system, integrated with stress tests, in alternative to the ordinary approach based on commitments (which estimates the maximum potential loss for the fund). The use of such models would be subordinated to the authorisation from Bank of Italy, released upon the verification of adequate organisational and quantitative requirements.

Bank of Italy is currently taking into consideration comments made by the Italian Association of asset managers (Assogestioni) and other industry associations. Amendments to the Bank of Italy Regulation of 14 April 2005 are expected to enter into force within the next few months.