Resolution no. 21171

Precautionary measure pursuant to Article 7-quater, paragraph 4, of Legislative Decree No. 58/1998, against Hoch Capital Ltd, a Cypriot investment firm authorised to act in Italy through the freedom to provide services

The COMMISSIONE NAZIONALE PER LE SOCIETÀ E LA BORSA
(The National Commission for Companies and the Stock Exchange)

HAVING REGARD to Law No. 216 of 7 June 1974, as amended;

HAVING REGARD to Directive 2014/65/EU (hereinafter "MiFID II"), which grants EU investment firms authorised by the competent supervisory authorities to provide investment services in their home Member State the right to provide the same services to investors of other Member States through the freedom to provide services;

HAVING REGARD to the principle of ‘home country control’, recognised by the same Directive 2014/65/EU, according to which the activity of EU companies under the freedom to provide services shall be subject to the supervision of the home Member State Authority and which does not confer supervisory powers on the Authority of the host Member State;

HAVING REGARD to Article 24 of MiFID II, which lays down general principles to be complied with in the provision of investment services, and to Annex II to that Directive, which governs the criteria for identifying professional clients;

HAVING REGARD to Legislative Decree No. 58 of 24 February 1998, as amended (hereinafter referred to as the “Consolidated Law on Finance") and, in particular, Article 7-quater, paragraph 4, of the aforementioned decree transposing Article 86(1) of MiFID II, which establishes that if there is a well-founded suspicion that an EU investment firm or an EU bank acting in Italy under the freedom to provide services is not complying with the obligations arising from the provisions of the European Union, the Banca d’Italia or Consob shall inform the competent authority of the Member State in which the intermediary has its registered office for the necessary measures to be taken. If, despite the measures adopted by the competent authority, the intermediary persists in acting in such a way as to prejudice the interests of investors or the orderly functioning of markets, the Banca d'Italia or Consob, after informing the competent authority of the Member State in which the intermediary has its registered office, shall adopt all necessary measures, including the imposition of a prohibition on engaging in new transactions in Italy. The Banca d'Italia or Consob shall proceed after consulting the other authority and shall inform the European Commission of the measures taken;

HAVING REGARD to Article 86(1) of MiFID II, under which, where the competent authority of the host Member State has clear and demonstrable grounds for believing that an investment firm acting within its territory under the freedom to provide services infringes the obligations arising from the provisions adopted pursuant to that Directive, it shall refer those findings to the competent authority of the home Member State. If, despite the measures taken by the competent authority of the home Member State or because such measures prove inadequate, the investment firm persists in acting in a manner which is clearly prejudicial to the interests of host Member State investors or the orderly functioning of the markets, the competent authority of the host Member State, after informing the competent authority of the home Member State, shall take all the appropriate measures needed in order to protect investors and ensure the proper functioning of the markets, which shall include the possibility of preventing offending investment firms from initiating any further transactions within their territories;

WHEREAS Hoch Capital Ltd is an investment firm under Cypriot law registered, from May 2014, in the Consob list of EU investment firms authorised to act in Italy solely under the freedom to provide services and therefore subject to the supervision of the Cyprus Securities and Exchange Commission ("CySEC") as home Member State Authority. The investment services notified in Italy are the following: "execution of orders on behalf of clients", "reception and transmission of orders concerning one or more financial instruments" and "portfolio management";

WHEREAS Consob has received complaints/reports from Italian investors against Hoch Capital Ltd, that complain of specific circumstances relating to the company's activities in contracts for difference ("CFD"), such as aggressive commercial practices; failure to execute requests for reimbursement; irregularities in the classification of clients; transactions not authorised by clients; losses, sometimes up to the entire amount of the invested capital, incurred by investors in some cases also in response to ‘advice’ received from ‘personnel’ of the intermediary; continuous requests to make further payments to open trading accounts; malfunctioning of the trading platform;

WHEREAS Consob has taken steps to involve CySEC, in its capacity as home Member State Authority competent to supervise the company, also with regard to its activities in Italy under the freedom to provide services pursuant to MiFID II, for the pertinent assessments and determinations, transmitting the complaints received on each occasion and highlighting the most critical issues reported in said complaints;

WHEREAS the European Securities and Markets Authority ("ESMA"), with Decision (EU) 2018/796 of 22 May 2018, adopted, pursuant to Article 40 of Regulation (EU) No. 600/2014 (hereinafter "MiFIR"), with effect from 1 August 2018 for a term of three months, temporary product intervention measures on contracts for difference ("CFDs"), prohibiting the marketing, distribution or sale to retail clients of CFDs and rolling spot forex unless, inter alia, all three of the following conditions are met:

- presence of predefined limits to the maximum leverage applicable in relation to the different underlying CFDs and rolling spot forex;

- automatic closing of open positions when the margins deposited to cover the trading account fall to less than 50% of the initial value (so-called "margin close-out");

- a mechanism to protect a negative balanceon the trading account ("negative balance protection").

By Decisions (EU) 2018/1636, 2019/155 and 2019/679, ESMA renewed the aforementioned CFD product intervention measures three times, for a period of three months each, with effect from 1 November 2018, 1 February 2019 and 1 May 2019.

With resolution no. 20976 of 20 June 2019, Consob, at national level, adopted permanent measures pursuant to article 42 of MiFIR and article 7-bis of the Consolidated Law on Finance to protect retail investors applicable to the offer of CFDs, similar to the aforementioned measures previously adopted temporarily by ESMA. These measures, which came into force on 29 June 2019, shall apply from 1 August 2019, until they are revoked if the conditions of Article 42, paragraph 6, of MiFIR are met;

WHEREAS Consob has received - also after the aforementioned restrictive measures on CFDs came into force - complaints/reports by Italian investors, who have complained of particularly critical circumstances of alleged non-compliance with the obligations arising from European Union provisions, and of detriment to investors, including the total loss of the capital invested, also in response to pressure and ‘advice’ from ‘personnel’ of Hoch Capital Ltd, which are signs of business conduct that does not comply with the provisions of the aforementioned restrictive measures of ESMA and, in particular, with the close-out margin rule, which establishes the obligation to automatically close open positions when the margins deposited to cover the trading account fall to less than 50% of their initial value;

WHEREAS, in a letter dated 8 May 2019, Consob transmitted further complaints and asked CySEC, pursuant to the aforementioned art. 86, par. 1, of MiFID II, to inform Consob of the measures taken by CySEC itself, as home Member State Authority competent to supervise Hoch Capital Ltd in order to ensure the complete and definitive resolution of the critical issues reported by Italian investors, pointing out that if - despite the measures CySEC might have adopted - the critical issues reported should continue, Consob reserved the right to take all measures deemed necessary against Hoch Capital Ltd, including the possible imposition of a prohibition to undertake further transactions in Italy;

WHEREAS the Cypriot supervisory authority responded to the abovementioned Consob request on 5 July 2019, explaining, inter alia, the corrective measures Hoch Capital Ltd had declared to the Cypriot authority that it had taken, and the further steps initiated with regard to the same company;

WHEREAS, on 2 August 2019, Consob transmitted to CySEC further complaints by Italian clients about Hoch Capital Ltd, relating to events that occurred until July 2019, regarding aspects on which the company had told CySEC it had already taken specific corrective actions or in respect of which CySEC had communicated that it had initiated measures, which suggested that the company continued to act in breach of the provisions of Union law and to the detriment of the interests of Italian investors. In this context, Consob has, inter alia, again asked CySEC, as the authority competent to supervise the company, to promptly verify the actual and effective implementation of the above corrective measures by the company and reiterated the need to be informed of any further action taken or intended to be taken by CySEC against the company, in order to ensure that the critical issues complained of by Italian investors were completely and definitively resolved, reserving the right, in the absence of appropriate measures, to intervene pursuant to art. 86, paragraph 1, of MiFID II;

WHEREAS Consob solicited a response by CySEC to the aforementioned request on 20 August 2019 and 11 October 2019. In particular, with the letter of 11 October 2019, further complaints by Italian clients, relating to events that occurred in the period June-September 2019, were transmitted, complaining of irregularities similar to those reported in the complaints previously sent; the requests already made to the competent Cypriot supervisory authority were reiterated, and Consob requested a response by 21 October 2019;

WHEREAS CySEC has not yet responded to the request of 2 August 2019, the reminder of 20 August 2019 and the request of 11 October 2019, despite interim communications on 4 November 2019 and 15 November 2019, and the deadline of 21 October 2019 passed without receipt of a response;

WHEREAS, following the transmission to CySEC of the aforementioned letter of 11 October 2019, Consob received 3 further complaints from the company's Italian clients who complained of particularly serious circumstances, which occurred in August 2019 and September 2019, namely, the total loss of invested capital, the classification as a professional client in the absence of the requirements, and the exercise of pressure to make further deposits by personnel of the company;

WHEREAS the circumstances complained of by the Italian investors - regarding, specifically, the use of aggressive marketing techniques, infringements of disclosure obligations towards clients and irregularities in the classification of clients in order to circumvent restrictions on the distribution and sale of CFDs to retail investors - are particularly critical and significant as they are signs of conduct by the company that does not comply with the provisions of the legislation on investment services, including, in particular, Article 24, paragraph 1, 3, 4 and 5, and Annex II of MiFID II;

HAVING ALSO CONSIDERED that the complaints relating to the total loss of invested capital could indicate that Hoch Capital Ltd is not acting in line with the provisions set forth by the aforementioned ESMA product intervention measures on CFDs or in the similar intervention measures for the protection of retail investors on the offer of CFDs adopted by Consob and, in particular, with the so-called close-out margin rule;

WHEREAS the complaints received by Consob and transmitted to CySEC, also relating to recent events, prove that, despite the measures adopted by the competent Cypriot supervisory authority, Hoch Capital Ltd persists in acting contrary to the obligations arising from the provisions of the European Union and in such a way as to prejudice the interests of Italian investors;

WHEREAS, without prejudice to the duty of supervision of CySEC, in its capacity as competent home Member State Authority and due to the inadequacy of the measures adopted to date by said Authority with regard to the activity of Hoch Capital Ltd, it is necessary to ensure prompt protection of Italian investors, pending the acquisition from CySEC of evidence of the definitive resolution by the company of the critical issues complained of by clients in the complaints received by Consob;

HAVING ESTABLISHED, therefore, that the conditions of necessity and urgency for the adoption of the measure referred to in Article 7-quater, paragraph 4, of the Consolidated Law on Finance exist;

HAVING OBTAINED THE OPINION of Banca d’Italia;

HAVING INFORMED CySEC;

IMPOSES:

On Hoch Capital Ltd, with registered office in Cyprus, in Limassol, Griva Digeni & Kolonakiou 125 Grosvenor Tower, with effect from the notification of this measure, the prohibition to provide services in Italy, to solicit and acquire new clients in Italy and to continue relations with existing Italian clients, with the exception of the closure of their accounts (liquidation of outstanding positions and return of their funds to clients), in accordance with any instructions given by said clients.

This measure will be notified to Hoch Capital Ltd and published in the Consob Bulletin.

An appeal against this measure may be lodged with the Regional Administrative Court of Lazio within sixty days from the date of notification.

December 5, 2019

THE CHAIRMAN
Paolo Savona