SUBJECT: Fee structures of UCITS distributed to retail customers and rules of conduct - Notice.

Recent supervisory activities have identified a growth in the collection of UCITS governed by foreign law, including foreign funds instituted by Italian intermediaries (round trip), regulated by the UCITS IV Directive.

On the basis of the analyses carried out it has been found that, despite the increasing harmonisation of European legislation, there are still areas of non-uniformity between the various States, particularly regarding UCITS fees⁽¹⁾. There are significant differences in terms of performance-fee profiles.

With the aim of aligning the interests of investors and managers, Italian legislation, and specifically the Bank of Italy Regulation on collective-investment management⁽²⁾ (Title V, Chapter I, Section II, Paragraph 3.3), set out specific conditions for applying the fees in question in the context of funds governed by Italian law.

Similar guidelines aimed at aligning the interests of intermediary and customer are not found to be in place in any other EU Member State.

The existence at EU level of non-uniform provisions regarding 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.

This said, in the distribution phase⁽³⁾, without prejudice to the obligation to inform investors regarding all fees related to the product⁽⁴⁾, we call for intermediaries to pay the utmost attention to the customer's interests.

Specifically, intermediaries are required to identify and manage any conflicts of interest⁽⁵⁾ 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 the products to offer/recommend 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.

It should be remembered that 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".

THE CHAIRMAN
Giuseppe Vegas

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1. In this regard, guidelines have been in place since 2004, supplied by IOSCO, in the document “Elements of International Regulatory Standards on Fees and Expenses of Investment Funds”.

2. Adopted with Bank of Italy Provision of 19 January 2015.

3. This call also applies to the provision of personal management services.

4. These costs are also highlighted in the Key Investor Information Document (KIID), the provision of which to the customer is mandatory.

5. Art. 23 (1) (2) of Consob-Bank of Italy regulation. In this regard, it is recalled that in point 27 of Directive 2006/73/EC, it is specified that “the disclosure of conflicts of interest by an investment firm should not exempt it from the obligation to maintain and operate the effective organisational and administrative arrangements required under Article 13(3) of Directive 2004/39/EC. While disclosure of specific conflicts of interest is required by Article 18(2) of Directive 2004/39/EC, an over-reliance on disclosure without adequate consideration as to how conflicts may appropriately be managed is not permitted.”