Asset Management under the revised Italian Consolidated Law on Finance

1. Introduction

The reform of the regulatory framework for asset management is an important part of the comprehensive reform of the Italian Consolidated Law on Finance (TUF). The reform process began with the 'OECD Capital Market Review of Italy 2020', followed in 2022 by the Ministry of Economy and Finance's Green Paper on 'The Competitiveness of Italian Financial Markets in Support of Growth'.

Banca d'Italia contributed to the reform within the dedicated Committee established by the Minister of Economy and Finance and coordinated by Undersecretary Federico Freni, who will open the first session of the seminar.

In my remarks, I will outline several contextual elements useful for framing the reform, with a focus on the key theme of innovation, and will review some of its most significant innovations concerning asset management.

2. Innovation in Europe and Italy

The European Union and Italy are characterized by a relatively low level of innovation, one of the main drivers of productivity growth. According to the European Commission, this is a true 'innovation deficit'.¹ The reasons for this situation are manifold. I will briefly summarize the financial aspects, on which I have recently focused.²

This innovation deficit is certainly not due to a lack of savings: every year, around €300 billion of Europeans' savings are invested in markets outside the EU (reflecting the Union's current account surplus).

What is missing instead is the investment of savings in risk capital to support the most innovative firms. This is partly attributable to the structure of the European financial system, where the banking sector has traditionally held a predominant position, while institutional investors such as insurance companies and pension funds have played a comparatively modest role. For several well-known reasons, banks do not have a comparative advantage in financing innovation.

Even among institutional investors - who, in principle, should have both the incentives and the expertise to prioritize long-term, illiquid, and high-risk investments, such as those needed to fund innovation - Europe has demonstrated a limited appetite for this type of project. This contributes to the relative underdevelopment of venture capital (VC) and private equity (PE) funds, the intermediaries most oriented toward financing innovative activity and supporting business growth. In Italy, the sector lies below the European average in terms of both the number and the size of operators.³

Identifying the root causes of this situation may be difficult, since causes and effects are intertwined. Available evidence, both internationally and for several European countries over the past decade, shows that public investment is crucial for the expansion of VC: governments can act as cornerstone investors to signal confidence and attract private capital. In Italy, Cassa Depositi e Prestiti plays an important driving role, often in partnership with private investors (a recent example is the launch of the Indirect National Strategic Fund). Indeed, this increased government activism has, in Europe, coincided with a notable expansion of the sector.

At the same time, public intervention alone does not guarantee success; it must be carefully designed and refined as the sector evolves, extending beyond the mere provision of financial resources.

The insufficient development of VC in Europe and Italy may also reflect households' limited risk tolerance. In a sample survey conducted a few years ago, more than 70 per cent of European households reported they were unwilling to take any financial risk, compared with 40 per cent in the United States.⁴ If institutional investors receive highly conservative mandates from their clients, they cannot invest in higher-risk assets even though it is well known that, with adequate diversification and over a long time horizon, those investments are more profitable.

In the long run, financial education can make households more aware of these opportunities, mitigating the impact of this factor. It is therefore crucial that it has become a mandatory subject across all levels of the Italian school system, and that the recent reform of the TUF explicitly acknowledges its role in investor protection.

This reform fits into the broader framework of recent European Union initiatives designed to strengthen the contribution of financial markets to innovation and productivity growth. The Savings and Investments Union (SIU) is intended to renew the ambitious Capital Markets Union (CMU) project launched in 2015. However, the current proposal does not address several key issues that had already played a part in the CMU's limited success, such as the lack of harmonization of national regulatory frameworks across EU Member States in areas including company law, insolvency law, public offerings, taxation, and accounting standards.⁵

3. The Reform of Asset Management

These considerations suggest that it would be unrealistic to expect the recent reform of the TUF - at least in respect of the topics under discussion today - to deliver a decisive solution to Italy's innovation deficit. What the reform does achieve, however, is the removal of the complex layers of regulation that, over the years, muddled the 1998 TUF, affecting its clarity and internal coherence. It also takes advantage of the several opportunities for simplification offered by European Union legislation. Finally, it introduces a number of important innovations. In what follows, I will briefly discuss three of them: the creation of a registration regime for sub-threshold managers; the introduction of partnership companies; and the formal recognition of private pension funds as professional investors.

Small-scale asset management intermediaries - i.e. sub-threshold managers⁶ - will be able to operate under significantly streamlined rules, subject only to registration. In practice, these intermediaries will no longer fall within the scope of micro-prudential supervision, nor will they be subject to the full set of transparency and conduct requirements. They will nonetheless have to comply with anti-money-laundering regulations and remain subject to the controls needed to verify that the conditions for registration continue to be met and that systemic risk remains limited. For these purposes, supervisory authorities will retain certain powers of oversight and verification, including on-site inspections.⁷ Investments through sub-threshold intermediaries will continue to be restricted to professional investors or to individuals with substantial financial expertise and capability.

The new regime for sub-threshold managers appears both well-conceived and well-structured. Only a limited number of crises or problematic episodes have emerged among operators in this segment over the years, and the reform brings the Italian framework into closer alignment with those of major European jurisdictions.⁸ It may also encourage venture capital and private equity intermediaries to tap the market - which Italy particularly needs. In addition, the reform will allow entities such as club deals and family offices to operate within a fully lawful and clearly defined regulatory framework, under rules that are proportionate and fit for purpose.

The reform also broadens the range of legal structures available in the asset management sector by introducing a typical partnership structure known as accomandita. Partnership companies (società di partenariato, SPs) will be closed-end vehicles, reserved for professional investors or for individuals with significant financial knowledge and experience who wish to invest in venture capital and private equity.

To put it simply, this corporate structure may be viewed as a hybrid between a SICAF (a joint-stock company with fixed capital) and an SGR (an asset management company). As with SICAFs, investors in an SP - acting in their capacity as shareholders - may influence key corporate decisions. The broad statutory independence in matters relating to capital structure also allows SPs to customize fundraising and investment practices to meet investor needs. At the same time, the accomandita structure ensures that the managers (soci accomandatari, or general partners) remain independent from the investors (soci accomandanti, or limited partners), thereby aligning the SP model, in certain respects, with that of the SGR.⁹

I will not attempt to enumerate the relative advantages and disadvantages of this and other corporate structures, a topic that continues to be debated among specialists. Investors will choose what fits their needs and goals. It is nonetheless worth noting that SPs are modelled on the limited partnership - a business structure widely used internationally in venture capital and private equity - which may make them particularly appealing to foreign investors.

Finally, the reform of the TUF definitively establishes the de jure inclusion of private pension funds among professional investors.¹⁰ Until now, pension funds could obtain professional investor status only upon request, provided they met specific criteria relating to financial expertise and business operations.¹¹ The new legal framework relieves pension funds, as well as their intermediaries, from the obligation to verify the aforementioned requirements. It should also reduce the disputes that have occasionally arisen in the past between pension funds and intermediaries.¹² At the same time, it reinforces the need for pension funds to develop appropriate organizational structures and professional competencies. This, in turn, may encourage them to take on a more active role in funds managed by sub-threshold intermediaries and in partnership companies.¹³ It is to be hoped that the secondary legislation governing pension funds' investment-risk management will be finalized swiftly.

4. Conclusions

The reform of the Consolidated Law on Finance, insofar as it concerns the asset management sector, does not introduce sweeping changes in an area that, as a whole, does not currently face significant structural vulnerabilities. It nonetheless adopts a series of innovations that deserve careful consideration.

I would like to conclude with a cautionary reflection on exempting sub-threshold intermediaries from supervision, drawing on a legislative precedent with comparable characteristics introduced in 1991. At that time, a dual-tier system was established for financial intermediaries. Smaller entities were entered in the general register pursuant to Article 106 of the Italian Consolidated Law on Banking (TUB) and subject only to a limited set of essential requirements, primarily aimed at ensuring compliance with anti-money-laundering obligations. By contrast, larger intermediaries were included in a special register under Article 107 of the TUB and subject to a regime comparable to that applied to banking supervision. In the subsequent years, numerous instances of misconduct and financial distress emerged among the intermediaries under Article 106, ultimately leading to many entities exiting the market.¹⁴ Industry participants and commentators often struggled to appreciate the fact that supervisory authorities had very limited power over these intermediaries. In other words, the conceptual and operational distinction between a registration regime and a full supervisory regime was barely recognized.

There is, of course, a significant difference between that historical precedent and the registration framework introduced by the present reform of the TUF. The former intermediaries under Article 106 of the TUB operated across all categories of clients, including retail investors, whereas access to sub-threshold intermediaries is now restricted to professional investors and to clients with advanced financial knowledge and capabilities. Nevertheless, the experience of the '106 intermediaries' provides valuable lessons: broader operational independence for intermediaries necessarily implies greater responsibility to their clientele. Investors - depending on their degree of professional competence and financial capability - are, in turn, required to take direct control of a range of risks that extend beyond strictly financial considerations.¹⁵

Today's seminar provides a chance to hear directly from those who helped shape the reform and will conclude with a panel discussion in which market participants may make their own assessments. It is a valuable opportunity to put forward any suggestions, as the enabling legislation provides scope for further amendments to the reform.

I wish you all a productive and stimulating discussion.