Consob Resolution 99065403 of 3 September 1999 - CONSOB AND ITS ACTIVITIES
Bullettin
Promotion and marketing of mutual fund shares via the Internet(Communication DI/99065403 of 3.9.99) - sent to an asset management company
The asset management company in question asked the Commission to give its opinion on the arrangements it intended to adopt for the direct marketing of mutual fund shares on the Internet.
In particular, these arrangements provide for:
- the prospectus of the mutual funds to be marketed to be made available to the public on the asset management company’s web site together with the subscription form;- a customer information card to be available on the site for the asset management company to collect the information referred to in Article 28.1a) of Consob Regulation 11522/1998 (1)(investors’ experience in investing in financial instruments, financial situation, investment objectives and propensity to incur risks) and the document on the general risks of investments in financial instruments referred to in Article 28.1b) of the same Regulation;
- all the foregoing documents (prospectus, subscription form, customer information card and the document on investment risks) to be printable on paper by individual investors;
- the organization of the site to oblige investors to visit the pages containing the prospectus before arriving at the subscription form;
- the first subscription of shares of a fund to be effected by investors sending the asset management company, by conventional mail, the subscription form filled in and manually signed, a photocopy of an identity document and the customer information card filled out and signed;
- subsequent subscriptions to be effected over the Internet (presumably by e-mail), after investors have entered the password assigned to them, and confirmed by the asset management company by e-mail (the query submitted referred to a "confirmation letter" to be sent by e-mail);
- redemption orders to be sent by conventional mail, as laid down in the funds’ rules.
In response to the query, the Commission made the following clarifications: a) the obligation to give investors the prospectus for units or shares of collective investment undertakings is established in Article 22.2 of Consob Regulation 11971/1999 (2). Moreover, the prospectus and related subscription form are among the documents that Article 36.1c) of Book III of Consob Regulation 11522/1998 also requires investors to receive and that, pursuant to Article 75.3 of the same Regulation, may be delivered using means of distance communication, provided the latter’s characteristics are compatible with the transmission of the documents and permit the addressee to store them on a permanent medium. In view of the fact that the Internet is fully compatible with the requirement to provide investors with information and since this can be printed, there is no legal impediment to the delivery of the prospectus over the Internet.b) analogous considerations apply to the delivery over the Internet of the document on the general risks of financial investments;
c) the rules and regulations in force do not lay down specific procedures for the acquisition of the information on investors referred to in Article 28.1a) of Consob Regulation 11522/1998. The choice of these procedures is therefore left to the discretion of intermediaries (provided they comply with the criteria established in Article 21.1d) of Legislative Decree 58/1998 and Article 56.2 of Consob Regulation 11522/1998). In this connection it is nonetheless worth recalling that in Consob Communication 99052838 of 7 July 1999 (3) the Commission clarified that, in the light of Article 76.1 of Consob Regulation 11522/1998, there cannot be an obligation to use financial salesmen to carry out promotion and marketing activities on a web site owing to the technical characteristics of the web (the clarifications contained in the same Communication where it is a question of e-mail rather than a web site are also applicable);
d) acceptance of the public offering by returning the subscription form investors have downloaded from the asset management company’s web site by conventional mail is in conformity with Article 13.4 of Consob Regulation 11971/1999.
e) as the Commission recently clarified in Consob Communication 99051449 of 1 July 1999 (4), subscriptions made after the first (and transfers between funds covered by the same prospectus) are deemed to be parts of a single operation that began with the initial transaction, so that the related instructions do not necessarily have to be sent to the asset management company using the subscription form The use of e-mail to receive instructions (including those concerning disinvestments) subsequent to the initial subscription, which the asset management company would receive by post, is certainly permissible in view of the broad discretion granted to intermediaries in deciding how to carry on their business. It is nonetheless necessary that the methods used should guarantee the confidentiality of messages;
f) as regards the "confirmation letter" mentioned in the query, it should be noted that the provisions currently in force require investors to be issued with an order confirmation notice (Article 60 of Consob Regulation 11522/1998) and an execution confirmation notice (Article 61 of the same Regulation). Both notices can be sent by e-mail in view of the organizational and procedural discretion granted to intermediaries referred to above. This solution must, of course, allow investors to store the notices on a permanent medium and guarantee the confidentiality of the messages;
g) in carrying on business in the manner described in the query, the asset management company must ensure compliance with the applicable provisions of Book III of Consob Regulation 11522/1998, with special reference to Article 29 (Inappropriate transactions). It is necessary to assess the suitability not only of initial subscriptions but also of all subsequent transactions.
The Commission concluded that the arrangements for carrying on business described in the query conformed with the legal framework outlined in Legislative Decree 58/1998 and with the related implementing regulations.
As regards compliance with anti-money laundering law, it should be noted that the asset management company’s apparent intention of acquiring only a photocopy of investors’ identity documents does not conform with the guidelines of the Italian Foreign Exchange Office (UIC), according to which it is necessary at present for investors to be identified directly by at least one intermediary. In particular, according to the UIC, either a person appointed by the intermediary concerned must identify a new customer directly at the start of the relationship or, where this is not possible, the intermediary must acquire a suitable declaration from an intermediary that has already identified the customer for its own purposes (see Treasury Ministry communiqué of 5 June 1992).
To conclude, it should be noted that the service described can only be activated where the arrangements for its provision — with special reference to those described in points d), e) and f) — are explained in the prospectuses of the funds offered (in accordance with what is expressly laid down in the model prospectuses attached to Consob Regulation 11971/1999).
THE CHAIRMAN
Luigi Spaventa
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.
2. The resolution and the annexed regulation are published in Supplemento Ordinario no. 100 to the Gazzetta Ufficiale della Repubblica no. 123 of 28 May 1999 and in Consob, Bollettino no. 5/99.