Distance promotion and marketing via the Internet(Communication DI/99052838 of 7.7.99) - sent to Abi, Assosim, Unionsim, Assogestioni, Assofiduciaria, Assoreti and Anasf.

---

A number of questions have recently been put to the Commission concerning distance promotion and marketing via the Internet. In view of its importance, the Commission has decided to examine the matter in depth.

This Communication therefore addresses the following questions:

1) is the Internet to be considered a means of distance communication within the meaning of Article 72.1 of Consob Regulation 11522/1998 (1) and, more specifically, is it to be considered a means of communication permitting individualized communication and immediate interaction with investors that would require the use of financial salesmen under Article 76 of Consob Regulation 11522/1998?

2) if the answer to the question in point 1) is yes, how should the obligation to use financial salesmen in distance communication via the Internet be complied with in practice?

1. The Internet as a means of distance communication

As regards the question in point 1), in the first place it should be noted that:

- Article 32.1 of Legislative Decree 58/1998 defines means of distance communication as means of contacting customers, other than advertising, which do not involve the simultaneous physical presence of the customer and the offeror or a person appointed by the offeror.

- Article 72 of Consob Regulation 11522/1998 delimits the means of distance communication that are relevant for the purpose of applying the provisions governing distance promotion and marketing by specifying that they shall be such as permit contact to be made with individual investors:
 

a) with the possibility of dialogue or other forms of rapid interaction;

b) with or without the possibility of rapid interaction where the documents or messages have a contractual content or are not limited to describing the nature and characteristics of the offeror or the investment services or financial instruments offered.

In the second place it is necessary to establish what is meant by the Internet as a means of distance communication. In this respect, the term Internet can be taken as referring: - to the operation of a web site; or
- to e-mail.For the purposes of this analysis, a site can contain: i) information on financial products and investment services;

ii) indications as to how to contact an intermediary in order to receive contractual proposals involving financial products and investment services;

iii) instruments with which to make contact with an intermediary (e.g. step-by-step instructions for sending e-mail messages, hypertext links, etc.);

iv) standard contract proposals, acceptance of which in various ways (e.g. by post), including methods made available on the site (e.g. e-mail), permits investors to buy or subscribe for financial products or establish contractual relationships whose object is the supply of investment services.

On the basis of the considerations set out in points ii), iii) and iv), it is clear that a site is potentially a means of distance communication within the meaning of Article 72 of Consob Regulation 11522/1998, both because it can contain mechanisms permitting interaction with customers, even if only in standardized form, and because it can contain documents and messages having a promotional or contractual content.

At this point it is worth looking at the question of initiative. In other words, it is necessary to examine the question of whether a site can be classified as a means of distance communication even though it cannot be used to contact customers, insofar as it is customers who go to a site at their own initiative.

From a legal point of view it should be noted that neither Article 32 of Legislative Decree 58/1998 nor the provisions of Consob Regulation 11522/1998 require the contact with investors to be established at the initiative of the operator of the means of distance communication for the rules on distance promotion and marketing to apply.

Legal considerations apart, it must also be stressed that, from a substantial point of view, certain features of web sites, such as:

- the ease of access (anybody with a PC and an agreement with a provider can visit a web site unless the site operator imposes restrictions);

- the low cost of access (consisting normally in the cost of the call to the provider and a share of the periodic cost of the provider’s services);

- the presence of interactive mechanisms which may affect the psychological state of investors and lead them to take actions they had not previously planned;

- the possibility of involuntary access by activating hypertext links or using search engines on the Internet,

make the inability of site operators to establish contact with investors at their own initiative appear irrelevant for the purpose of applying the rules on distance promotion and marketing. The presence on a site of interactive mechanisms or promotional or contractual messages can in fact be considered equivalent to a permanent offer aimed at the general public.

Lastly, e-mail, for which the problem of initiative does nor arise, can be used:

- to send investors documents and messages containing information or promotional or contractual material; and

- to dialogue with investors, individually or otherwise.

This undoubtedly signifies that e-mail is potentially among the means of distance communication referred to in Article 72 of Consob Regulation 11522/1998.

2. The Internet as a means of distance communication

Taking it as given that both web sites and e-mail are means of distance communication, it is necessary to establish when their use amounts to the distance promotion and marketing of products in Italy.

The answer is easy for e-mail. In this case what counts is whether the e-mail messages are sent to investors resident in Italy.

It is more difficult to determine when there is distance promotion and marketing in Italy via a web site, regardless of whether or not it is located in Italy.

Without prejudice to what was said above concerning the irrelevance of the absence of initiative on the part of site operators, it is necessary to establish which sites having a promotional and contractual content involving financial products or investment services (hereinafter financial sites) are to be considered as aimed at investors resident in Italy and hence as falling within the scope of Article 32 of Legislative Decree 58/1998 and Articles 71 and 77 of Consob Regulation 11522/1998.

In the first place the Commission does not consider a financial site to be aimed at investors resident in Italy if it excludes such persons from acting on promotions or offers present on the site. Such a situation can arise in the three following circumstances:

- the site contains explicit and sufficiently visible indications that the content of the site is targeted exclusively at residents of states other than Italy (the indication may state that the site is not targeted at investors resident in Italy or list the countries, other than Italy, at which the content of the site is targeted) because it does not comply with the law in force in Italy (the indication may state explicitly that the content of the site does not comply with the law in force in Italy or specify that the content of the site does not comply with the law in force in countries other than those at which it is expressly targeted);

- the site operator adopts procedures that permit it to reject all acceptances and applications coming from investors resident in Italy (i.e. procedures that permit the site operator to determine unequivocally whether persons contacting the site are resident in Italy);

- the site operator effectively rejects all acceptances and applications coming from investors resident in Italy.

According to the Commission, financial sites that do not meet the foregoing criteria are to be considered as targeted at Italian investors only if their contentor related circumstancesmake it presumable that the promotion and marketing activities are aimed, exclusively or otherwise, at persons resident in Italy.

As far as contentis concerned, the following is a non-exhaustive list of what can result in a site being deemed to be aimed at persons resident in Italy:

- the presence on the site of facts or circumstances regarding Italy (e.g. economic or financial indicators, information on taxation, the yields of financial products and investment services, company affairs and sectoral developments, market trends, and studies and analyses, etc.);

- the use of the Italian language;

- the indication of prices and amounts in Italian lire.

As for related circumstances, the following is a non-exhaustive list of those that suggest a site is aimed at persons resident in Italy: - the fact that intermediaries (or other persons who have not been authorized) are operating in Italy through which it is possible to follow up promotions or take up offers;

- the diffusion of information in Italy, inter aliaby propaganda and advertising campaigns, aimed at individuals or the general public, that is analogous to that on the site in question using any of the various means of communication available, regardless of whether they can be considered means of distance communication;

- the possibility of gaining access to the site by way of search engines that are Italian or specialized in Italian affairs or that allow selective searches to be made on sites of interest to persons resident in Italy.

Naturally, regardless of whether a financial site can be considered as aimed at persons resident in Italy on the basis of the criteria set out above (exclusion of persons resident in Italy, content and related circumstances), the Commission may deem that promotion and marketing activity has been carried on in Italy via a web site on the basis of a specific assessment (taking account, for example, of the number of persons resident in Italy who have followed up a promotion or taken up an offer).

Consob also retains the right to take supervisory action against any activities carried on via the Internet in violation of the rules and regulations governing the financial sector in Italy.

3. The Internet as a means of communication falling within the scope of Article 76 of Consob Regulation 11522/1998

The question addressed in point 2) above is whether there is an obligation to use financial salesmen to carry out promotion and marketing activities via the Internet.

Article 76 of Consob Regulation 11522/1998 requires that financial salesmen be used where a means of distance communication permits individualized communication and rapid interaction with investors. The obligation does not apply where the activity is performed at the initiative of investors, unless this has been solicited with messages addressed to them personally.

Here again it is necessary to distinguish between e-mail and web sites.

The use of financial salesmen to carry out promotion and marketing activities on a site is impossible owing to the technical characteristics of the web.

By contrast, the interaction between intermediaries and investors based on e-mail must be handled by financial salesmen. If the interaction is initiated by investors, intermediaries may nonetheless employ persons who are not financial salesmen to use e-mail to send:

- messages confirming the execution of investors’ instructions;

- at the unsolicited request of investors, documents, including contractual documents needed to buy or subscribe for financial products or to enter into agreements for the supply of investment services by the intermediary in question or by other intermediaries;

- information that only describes the offeror or the investment services or financial products offered.

Even where it is the investor who takes the initiative, non-financial salesmen must therefore abstain from using e-mail to send proposals having a promotional or contrasctual content.

In this respect it should be remembered that Article 56.2 of Consob Regulation 11522/1998 requires intermediaries to establish procedures serving to reconstruct the how, the when and the what of action taken in supplying services. It is therefore up to intermediaries to put procedures in place making it possible to check whether investors have received e-mail having a promotional or contractual content from staff charged with carrying out e-mail interaction.

p.p. THE CHAIRMAN
Lamberto Cardia

---

Note:

1.  The resolution and the annexed regulation are published in Supplemento Ordinario no. 125 to the Gazzetta Ufficiale della Repubblica no. 165 of 17 July 1998 and in Consob, Bollettino no. 7/98. Resolution 11520 of 1 July 1998 abrogates Consob Resolution 10943 of 30 September 1997 and Consob Resolution 10418 of 27 December 1996 and subsequent amendments. Consob Regulation 11522/1998 has been amended by Consob Resolution 11745 of 9 December 1998, published in Gazzetta Ufficiale della Repubblica no. 297 of 21 December 1998 and in Consob, Bollettino no. 12/98.