Fund management regulation

Regulatory framework and authorities

How is fund management regulated in your jurisdiction? Which authorities have primary responsibility for regulating funds, fund managers and those marketing funds?

Collective portfolio management is a regulated activity requiring prior authorisation (by the Bank of Italy), and the conditions to meet for the release of the authorisation incorporate those requested under applicable regulations.

The definition of collective portfolio management was narrow before the implementation of the Alternative Investment Fund Managers Directive (AIFMD) as it only covered contractual funds and SICAVs (investment companies with variable capital), so non-collective investments in transferable securities (UCITS) funds could be established also as unregulated structures.

Because the AIFMD applies to all AIFMs irrespective of the legal nature of alternative investment funds (AIFs), this regulatory framework changed with the implementation of the AIFMD. AIFs may now be established in contractual or corporate form, both structures being regulated by law. Also, in implementing the AIFMD, Italy gold-plated its provisions regulating sub-threshold AIFMs by requiring all AIF managers to be authorised (with limited regulatory differences between full-scope and sub-threshold managers).

Also, investment advice is a regulated activity requiring prior authorisation (by the Italian Companies and Exchange Commission (Consob)), and the conditions to meet for the release of the authorisation incorporate those requested under the Markets in Financial Instruments Directive (MiFID). Investment advisers are not allowed to provide collective portfolio management in respect of an AIF, unless they are also authorised as AIFMs.

Fund administration

Is fund administration regulated in your jurisdiction?

Fund administration is not a regulated activity in Italy. Small fund managers typically entrust specialised outsourcers in compliance with applicable regulations concerning delegation of functions.

Authorisation

What is the authorisation or licensing process for funds? What are the key requirements that apply to managers and operators of investment funds in your jurisdiction?

A company wishing to obtain authorisation as an Italian asset management company (SGR) must satisfy a number of conditions, including the following: (1) company limited by shares (legal form); (2) registered office and headquarters in Italy; (3) initial share capital of €1,000,000 (reducing to €500,000 for full-scope SGRs dedicated to closed-ended ‘reserved’ AIFs (as herein defined), or €50,000 for sub-threshold SGRs); (4) directors, general managers and statutory auditors meeting certain moral, independence, experience, skills, fairness and other requirements; (5) owners of qualifying holdings meeting certain moral, skills and fairness requirements; and (6) group structure not preventing a sound and prudent management and the effective exercise of supervisory functions by the Bank of Italy and Consob. If all applicable legal and regulatory requirements are complied with and the conditions for a sound and prudent management are met, the Bank of Italy will release the authorisation. 

A substantially similar authorisation process applies to funds established as corporate structures and SICAVs, being investment companies with variable capital, and SICAFs, being investment companies with fixed capital.

AIFs of a contractual nature do not require prior authorisation provided that they qualify as reserved AIFs, which are reserved for subscription by:

  • professional investors under MiFID;
  • entities and individuals (not qualifying as professional investors) making a commitment of €500,000 or more to the AIF;
  • entities and individuals (not qualifying as professional investors) making a commitment of €100,000 or more to the AIF and benefiting from MiFID II advisory services in relation to such investment, provided that the aggregate amount invested in reserved AIFs do not exceed 10 per cent of the investor's total financial portfolio;
  • investment portfolio managers making a commitment of 100,000 or more to the AIF on behalf of retail clients; and
  • directors and employees of the AIFM (without a minimum commitment).

 

The regulatory regime applicable to all funds requires the appointment of a depositary carrying out safekeeping and other functions in accordance with applicable regulations. Only Italian banks and investment firms (or local branches of EU banks and investment firms) can be authorised by the Bank of Italy to carry out depositary functions.

Further, all funds are subject to reporting obligations with regard to Bank of Italy and Consob.

Territorial scope of regulation

What is the territorial scope of fund regulation? Can an overseas manager perform management activities or provide services to clients in your jurisdiction without authorisation?

Managers of EU undertakings for collective investments in transferable securities (UCITS) and alternative investment fund managers (AIFMs) may offer their services in Italy:

  • through a branch; or
  • without a permanent establishment.

 

A branch is an extension of the institution to which it is affiliated (ie, it is not treated as a separate legal entity for regulatory purposes). The provision of services without a permanent establishment implies that managers carry out their activities without a permanent physical presence.

EU UCITS managers or AIFMs that want to operate in Italy do not need authorisation. Instead, the European framework establishes a notification procedure by the competent authority of the home member state of the manager, evidencing that: (1) the manager is authorised to manage in its home member state funds with characteristics similar to those it intends to establish and manage in Italy; (2) it has entered into an agreement with an Italian depositary that is suitable for ensuring that the latter has access to the information necessary for the performance of its duties.

Non-EU UCITS managers or AIFMs cannot operate in Italy without establishing and authorising a subsidiary in Italy; the scenario will change with the extension of the AIMD passport to third countries.

The EU managers shall be required to comply with any and all laws and regulations applying to Italian funds and, if the EU manager operates in Italy through a branch, also certain rules of conduct prescribed for Italian SGRs.

Acquisitions

Is the acquisition of a controlling or non-controlling stake in a fund manager in your jurisdiction subject to prior authorisation by the regulator?

In the case of (1) the acquisition of a stake at least equal to 10 per cent of the share capital of an SGR, (2) a variation on the stake held that must reach or exceed the threshold of 20, 30 or 50 per cent of the share capital of an SGR, (3) the control of the SGR, it is necessary a prior notice to the Bank of Italy. The Bank of Italy shall assess, inter alia, that the prospective shareholders own the requirement of honourability, correctness and competence. Shareholding in SGRs is also subject to publicity requirement in the competent Companies’ Register.

The same requirements apply, mutatis mutandis, to shareholding in funds established as corporate structures (SICAVs and SICAFs).

Restrictions on compensation and profit sharing

Are there any regulatory restrictions on the structuring of the fund manager’s compensation and profit-sharing arrangements?

The Bank of Italy enacted regulations implementing the European Securities and Markets Authority Guidelines on Sound Remuneration Policies under the AIFMD and the UCITS Directive. In particular, attention shall be paid to the balance between the fixed and variable components of the remuneration and to the undertakings, including deferred payment and clawback mechanics, applying to the variable remuneration (which includes carried interest).