Check the prescribed authorizations
If someone proposes an investment, you should check that they are duly authorized.
In Italy anyone proposing financial investments must be authorized in accordance with the law and this is an important form of protection for investors. In fact authorizations are granted only when a series of requirements are satisfied and, once authorized, financial intermediaries are subject to constant supervision.
It is quite easy to carry out this check, thanks to the Internet, which makes it possible to access the information possessed by the supervisory authorities. The various types of authorization provided for by law are described below.
In the first place, anyone who proposes (or promotes) an investment service
in Italy must be duly authorized. The authorization is granted by Consob or the Bank of Italy in accordance with the Consolidated Law on
Finance (Legislative Decree 58/1998).
The following are the intermediaries eligible to provide investment services:
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Italian investment firms (società di intermediazione mobiliare - SIMs) may be authorized by Consob to provide the whole range of investment services or just some. You can check that they have been authorized on Consob's website under Intermediaries/Investment
Firms ;
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Italian banks may be authorized by the Bank of Italy to provide the whole range of investment services or just some. You can check that they have been authorized on the Bank of Italy's website (www.bancaditalia.it ).
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Italian asset management companies (società di gestione del risparmio - SGRs) may be authorized by the Bank of Italy to provide individual asset management services. You can check that
they have been authorized on the Bank of Italy's website (www.bancaditalia).
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financial intermediaries entered in the register provided for in Article 107 of the Consolidated Law on Banking and kept by the Bank of Italy may only be authorized to deal for own account in derivative financial instruments and to provide placement services. You can check that they have been authorized on the Bank of Italy's website (www.bancaditalia).
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EU banks may provide the services they are authorized to provide by their home country supervisory authority. You can check that they have been authorized by applying to the Bank of Italy;
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EU investment firms may provide the services they are authorized to provide by their home country supervisory authority. You can check that they have been authorized on Consob's website under Intermediaries and/Investment Firms ;
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non-EU banks may be authorized by the Bank of Italy to provide the whole range of investment services or just some. You can check that they have been authorized by applying to the Bank of Italy;
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stockbrokers entered in the single national roll kept by the Treasury Ministry may provide the services of dealing on customer behalf, placement, individual asset management and the reception and transmission of orders. You can check that they have been authorized on the Treasury Ministry's website (www.dgt.tesoro.it).
Authorized intermediaries normally operate on their own premises (head offices and branches), where customers go to make their investments. Sometimes, however, investment services and financial products are promoted or proposed elsewhere, including investors' homes, by means of what is conventionally known as "door-to-door selling". Parliament considered it
necessary for investors to be particularly well protected in such cases and accordingly Italian law:
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requires authorized intermediaries to use financial salesmen, who, after passing an exam, are entered in a register kept by Consob. You can check whether a person is duly registered on Consob's website under Intermediaries/Financial Salesmen ;
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gives investors 7 days from the conclusion of a contract in which to change their minds and exercise their right of withdrawal from the contract at no expense.
These rules also apply to contracts concluded in so-called financial shops. These are usually financial salesmen's offices, which they use to carry on their activities and which have recently become much more widespread.
Obtain the necessary information
Information is a prerequisite for a good investment. You should learn as much as possible about the products on offer, among other things by carefully reading the documentation available.
In this learning process authorized intermediaries (and financial salesmen) play an important role. In fact they must:
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inform potential investors adequately before a contract is concluded about the nature of the investment and the related risks;
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give potential investors a copy of the contract and of the document on risks, drawn up in the manner established by Consob;
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in the case of public offerings, give potential investors a copy of the prospectus for the financial instruments on offer.
Financial salesmen must also give potential investors a copy of the declaration issued by the intermediary they work for containing the ID of the intermediary and the financial salesman, together with a copy of the document setting out the main rules of conduct financial salesmen must comply with in their dealings with customers.
You should insist that intermediaries perform all their information obligations. For your part, you should collaborate actively in this exchange of information by providing the financial salesman and the intermediary with information about your experience in investing, financial situation, the objectives you wish to achieve and your willingness to take
risks.
Intermediaries are under an obligation to ask you to provide all the above information. Naturally, you are free to refuse, but such a refusal may prevent the intermediary from providing the investment service to the best of its ability. In fact, a complete exchange of information allows the intermediary to match investments to your requirements and to
your preferred risk/return profile.
Beware of proposals that are too good to be true
If a proposal is too good to be true, it probably is. Don't trust investments that offer a high yield compared with the general market level or that are supposed to be risk free. As a rule high-yield investments involve extremely high risks and sometimes they are scams.
Beware of "chain letter
" investments, where the profit depends on a continuous stream of new participants (who those who sign up often have to find). Schemes of this kind cannot guarantee a return since they are normally
fueled exclusively by the new persons who join. In other words, when the money put in by new participants is no longer sufficient to pay out the "interest" promised, the scheme inevitably collapses.
Beware of vague and generic investment proposals that do not specify how the money collected will be used: what kinds of securities will be bought, on what markets, the risks that will be involved (interest rate risk, exchange rate risk, counterparty risk, etc.) and what instruments, if any, will be used to hedge against these risks.
Think twice about investing in risky products
The nature of some products makes them objectively risky. You should therefore:
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give very careful consideration to the purchase of securities that are not listed on regulated markets or widely distributed among the public. It is difficult to know the price of these securities and you may find it hard to sell them when you want or need to or you may be forced to sell them at a low price. You can check on the website of Borsa Italiana (www.borsaitalia.it) whether the financial instruments you are thinking of buying are listed and on Consob's website under Società / Emittenti titoli diffusi, remembering that "widely distributed among the public" does not mean "listed";
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always assess purchases of derivatives, structured bonds and covered warrants very carefully;
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be very cautious when considering proposals that involve intermediaries, companies or securities of "exotic" countries or tax havens.
