The Italian Companies and Stock Exchange Commission, Commissione Nazionale per le Società e la Borsa (CONSOB), has published a communication drawing the attention of market participants to the growth of UCITS funds governed by foreign law, including those funds established abroad and managed under UCITS IV by Italian intermediaries, so called “round-trip” funds.

CONSOB notes that having undertaken an analysis it has found that, despite increasing harmonisation of EU legislation, there still remain areas of non-uniformity between Member States, particularly as regards to the regulation of performance fees which are subject to strict conditions under the Bank of Italy regulation on asset management (last updated on 19 January 2015).

CONSOB warns that the existence at EU level of non-uniform provisions regarding the calculation methods for UCITS performance fees “may increase the risk of opportunistic activity which is not in line with obligations of due diligence and correctness which are to be observed in relationships with customers who subscribe the aforementioned products.”

CONSOB therefore recalls in its communication the following obligations:

  • in the distribution phase, without prejudice to the obligation to inform investors regarding all fees related to the product, intermediaries should pay the utmost attention to the customer’s interests;
  • specifically, intermediaries are required to identify and manage any conflicts of interest deriving from the offer of UCITS featuring fee mechanisms which are more advantageous for the manager and, based on “payback” systems, for the distributors themselves;
  • in the same context, conflicts of interest deriving from group relationships must also be identified and managed;
  • the selection of products offered/recommended to customers must not be based simply on an evaluation of financial gain for the intermediary, but must be aimed at looking after the customers’ interests; and
  • perceived “inducement” by the distributor is only admissible, in line with current regulations, (Art. 52 Consob Regulation 16190/2007), in cases where this is “aimed at increasing the quality of the service provided to the customer, and it must not inhibit the fulfilment by the intermediary of its obligation to serve the customer’s interests as well as possible“.

View: Comunicazione strutture commissionali degli OICR distribuiti alla clientela retail e regole di condotta – Richiamo di attenzione 10 July 2015 (in Italian) and Fee structures of UCITS distributed to retail customers and rules of conduct – Notice 15 July 2015 (in English).