How to start a collective investment management business in Italy

How can I start a collective investment management business in Italy

Anyone can take up the business of a collective investment manager through a stand-alone company or a subsidiary. In both cases, the authorization procedure follows the same rules.

A subsidiary is a distinct legal entity from its parent company and is accordingly subject to all the applicable prudential requirements.

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

1. through a branch;
2. without a permanent establishment.

1. A branch is an extension of the institution to which it is affiliated, i.e. it is not treated as a separate legal entity for regulatory purposes. EU UCITS management companies and AIF managers that want to operate in Italy through a branch do not need authorization. Instead, the European framework establishes a system of communication between the competent authorities. On the contrary, non-EU AIF managers cannot operate in Italy through a branch unless the European Commission adopts a delegated act as set out by Article 67(6) of the AIFMD. Therefore they can only establish a subsidiary in Italy.

2. The provision of services without a permanent establishment implies that collective investment managers carry out their activities without a permanent physical presence. EU UCITS management companies and AIF managers that want to operate in Italy without a permanent establishment do not need authorization. Instead, the European framework establishes a system of communication between the competent authorities. However, non-EU AIF managers cannot operate in Italy by means of the provision of services without a permanent establishment unless the European Commission adopts a delegated act as set out by Article 67(6) of the AIFMD. Therefore they can only establish a subsidiary in Italy.

Which activities can I carry out?

UCITS management companies and AIF external managers can:

• provide portfolio management services;
• set up and manage pension funds;
• perform connected or instrumental activities;
• provide ancillary services (safekeeping and administration of financial instruments and related services), exclusively for the units of the UCIs managed;
• provide investment advisory services;
• market units and shares of UCIs managed by third parties, in compliance with the rules of conduct established by Consob after consultation with the Bank of Italy.

AIF external managers can also provide the service of the reception and transmission of orders.

To whom do I apply for authorization?

Your application must be submitted to the Bank of Italy, Supervisory Institutional Relations Directorate, New Banks and Financial Intermediaries Division (riv@pec.bancaditalia.it).

Can I approach the Bank of Italy to have pre-application discussions?

You are encouraged to get in touch with the Bank of Italy. While not mandatory, pre-application discussions can prove beneficial for applicants wishing to gain a better understanding of the various stages of the authorization process and of the Bank of Italy's expectations in this regard.

Why is it important that the application be complete?

When you submit an application, the Bank of Italy first assesses whether it is complete or not; if the application is not complete, the authorization process cannot begin or will be suspended until the additional information has been supplied. The completeness of the information provided is crucial to ensuring that the authorization process begins and the application is processed as smoothly as possible.

The following Frequently asked questions (FAQ) are intended to help applicants prepare complete application by explaining the assessment criteria.

What does the Bank of Italy assess in case of application for a stand-alone company or a subsidiary?

The Bank of Italy assesses risk containment, asset stability and the sound and prudent management of intermediaries. CONSOB oversees transparency and correctness of conduct.

These requirements are requested in order to ensure a level playing field in the EU and are assessed on the basis of EU best practices.

Initial paid-up capital

Initial paid-up capital shall be at least:

• €1,000,000 for both UCITS management companies and AIF managers;
• €500,000 for AIF managers which only manage portfolios of closed-ended reserved Italian AIFs;
• €50,000 for sub-threshold managers and for SICAVs and SICAFs that appoint an external manager.

Shareholding structure

The Bank of Italy assesses the suitability of qualified shareholders (i.e. holding at least 10 per cent of shares or voting rights). In order to be suitable, shareholders must be of good repute, proven integrity, possess sufficient knowledge and be financially sound.. The integrity requirements are detailed in Decree 469/1998 issued by the Minister of the Treasury. Regarding financial soundness, the Bank of Italy assesses whether the financial situation of the shareholders is sufficiently sound to support the activities of the applicant after authorization.

For assessment purposes, the Bank of Italy takes into account links of whatever nature, including family or associational ties, between shareholders and other persons.

Programme of activity

The Bank of Italy assesses the viability and sustainability of the proposed business plan, having regard to the amount of the initial investment required to create the technical and organizational structure, to the volumes of business that the applicant proposes to achieve, and to expected outturns. The Bank of Italy evaluates applicants' ability to comply with the prudential rules during the start-up phase. Applicants are requested to provide a financial plan, including a projected balance sheet and profit and loss accounts for the base case and worst case scenarios for at least the first three business years, with evidence of their funding profile.

Where appropriate, the Bank of Italy may require that the applicant's shareholders offer specific financial commitments in order to safeguard the sound and prudent management of the applicant. The origin of the resources used for the acquisition also comes under scrutiny.

Sub-threshold managers are not required to provide the programme of activity; they shall provide the information required by Article 5(2) of Commission Delegated Regulation (EU) 231/2013.

Corporate governance structure and management bodies

The Bank of Italy assesses the corporate governance structure in order to verify if it ensures the monitoring of all risks, it is consistent with the operations and the dimension of the new intermediary, it is clear in the allocation of tasks among different corporate bodies and in the relationships with shareholders

The persons performing administrative, managerial or control functions (including board members and senior managers) must satisfy the experience and integrity requirements established by statutory and regulatory provisions. The integrity and experience requirements are detailed and assessed in Decree 468/1998 issued by the Minister of the Treasury.

The integrity requirements mainly refer to criminal proceedings, e.g. preventive measures issued by the judicial authorities or conviction to a term of imprisonment of at least one year or two years for the specific crimes indicated in Decree 468/1998.

Board members and senior managers must prove that they have specific experience in managerial roles, academic positions, professional or civil servant career posts.

The presence of independent directors is positively evaluated by the Bank of Italy, if it is necessary to reduce the risk of conflicts of interest.

The ban on interlocking directorships, introduced by Article 36 of Law 201/2011, also applies.

According to Italian law, the assessment falls under the responsibility of the applicant's corporate bodies, which assess the suitability of the proposed directors: the applicant must submit to the Bank of Italy a copy of the minutes of the meeting in which the verification of suitability took place. The more accurate and motivated the minutes, the less likely it is that the Bank of Italy will request information. Vice versa, in the case of an incomplete assessment by the applicant, the Bank of Italy may conduct its own investigation and require the original documentation (including extracts of official criminal records) to be submitted.

If the requirements are satisfied by all the board members the application can be approved.

Organizational structure and internal control system

The Bank of Italy evaluates the consistency and the effectiveness of the intermediary's technical, organizational and geographical structure with its proposed dimension and scale of the activities to be carried out.

Applicants can outsource functions, depending on their operational complexity, but the outsourcing contract must identify the minimum guaranteed level of services and ensure the possibility of access for the supervisory authority to the outsourcer's systems.

According to the principle of proportionality, the small or less complex asset management firms: a) centralize the risk management and compliance control functions in a single unit; and b) operate without establishing the internal audit function. Sub-threshold managers must centralize risk management, compliance and internal audit in a single, permanent and independent control function.

A separate, permanent and independent AML function must always be established and maintained.

In case of outsourcing, the risk management responsibilities can be conferred on: a) intermediaries authorised to perform collective investment management services or portfolio management and are subject to forms of prudential supervision; or b) qualified subjects authorised to perform investment services and activities and are subject to forms of prudential supervision.

Sub-threshold managers may confer risk management responsibilities on subjects other than those indicated in letters a) and b).

What information should I provide when submitting a licensing application for establishing a stand-alone company or subsidiary?

• copies of the instruments of incorporation and the bylaws;
• a depository bank declaration certifying the existence and amount of initial paid-up capital;
• information on the provenance of the funds;
• a programme of activity and description of the organizational structure;
• a list of the persons who directly or indirectly participate in the capital, with an indication of the shares held; for indirect holdings, an indication of the company through which the capital is held;
• documentation showing that persons directly or indirectly holding a qualifying share of the capital or control of the company satisfy the integrity requirements;
• a copy of the minutes of the meeting in which the suitability of persons who perform administrative, managerial or control functions has been assessed by the Board;
• a map of the group the new company will belong to after obtaining the authorization;
• information on remuneration policies and practices. This provision does not apply to sub-threshold AIF managers and SICAVs and SICAFs which appoint an external manager;
• for the provision of investment services and activities, a copy of the certificate of membership in a compensation system for the protection of investors recognized by the Minister of the Economy and Finance after consulting the Bank of Italy and Consob.

The Bank of Italy also takes account of other information in its possession - such as supervisory records and the Central Credit Register (CCR) - or held by other public authorities, such as the competent supervisory authorities of the foreign countries concerned.

With specific reference to the programme of activity, the Regulation on collective management of assets provides guidelines on its content. The programme must include the following:

• the applicant's envisaged activities, operations and services;
• the applicant's organizational and geographical structure,
• three-year projected financial statements.

With specific reference to the governance arrangements and organizational structure report, this must indicate at least the:

• composition, role, and functioning (also in terms of the allocation of powers) of the management bodies;
• composition and role of any Committees, if established;
• policy on conflicts of interest and remuneration;
• strategies;
• investment process;
• procedure for determining the value of units or shares.

With specific reference to the description of the internal control system and risk management framework, the documentation and information submitted should indicate for each control function, the:

• role, responsibilities and reporting lines to the board;
• skills of the heads of units;
• number of people allocated to each control function;
• control function's annual plan.

The IT infrastructure and business continuity plan shall include a description of the back-up facilities, the disaster recovery procedures and the IT structure; the head of the IT unit should also be indicated, along with a description of his or her role, responsibilities and professional skills.

What's life like as a new collective investment manager in Italy?

The supervision of collective investment fund managers is carried out by the Bank of Italy and CONSOB, within the limits of their respective competencies.

With regard to the controls performed by the Bank of Italy, they take into account the entrepreneurial nature of the supervised entities, which autonomously establish their own strategies, organizational models and investment policies within the framework of a system of general prudential rules.

Supervision involves analyzing the supervised entities and adopting measures designed to promptly uncover signs of potential anomalies in their technical and organizational structures and requiring that appropriate corrective actions be taken. These controls cover every aspect of their operations and focus on the coherence of organizational structures, the quality of management, risk control, capital adequacy with respect to any losses.

This is done through the evaluation of documents (based on the gathering, processing and systematic analysis of statistical, accounting and administrative data) and on-site inspections at intermediaries' offices to verify the quality and accuracy of the data submitted and to gain a better understanding of their organization and operations. Inspections are tailored to the characteristics, size and complexity of the intermediary being monitored and focus on material risks, governance and internal controls.

How can I keep up to date with regulatory information?

The Bank of Italy's website includes the latest news and publications. In the specific section dedicated to Banking and Financial Supervision, you can find regulatory and policy publications which you can search by sector, year of publication and type of publication. You can also subscribe to the Bank of Italy's newsletter to keep up to date on all the latest regulatory news and new publications.

The Bank of Italy also informs all collective investment fund companies of any developments of legal framework decisions that could have an impact on their daily operations.