Regulation containing rules on the organization and operation of compensation systems referred to in Article 35.2 of Legislative Decree 415/1996 transposing Directive 93/22/EEC on investment services in the securities field (adopted by the Minister of the Treasury with Decree 485/1997)⁽¹⁾

Article l
(Definitions)

l. For the purposes of this regulation:

a)"compensation systems" shall mean private-law entities having legal personality and possibly set up in the form of consortium companies established to protect claims on firms and intermediaries referred to in subparagraphs b), c) and d);

b)"investment firms" shall mean EU and non-EU investment firms as defined in Articles 1.5e) and 1.5f) of Legislative Decree 415/1996 (hereinafter the "Decree");

c)"financial intermediaries" shall mean financial intermediaries entered in the register referred to in Article 107 of Legislative Decree 385/1993 (hereinafter the "Consolidated Law on Banking") authorized to provide investment services pursuant to Article 2.4 of the Decree;

d)"intermediaries" shall mean Italian banks, Italian securities investment firms (società di intermediazione mobiliare), financial intermediaries, EU and non-EU foreign banks, and investment firms;

e)"investors" shall mean clients that entrust cash or financial instruments to investment firms in connection with investment transactions;

f)"investment transactions" shall mean the investment services defined in Article 1.3 of the Decree and the non-core service referred to in Article 1.4a) of the Decree;

g) "group" shall mean that defined by the Bank of Italy pursuant to Article 6.4 of the Decree.

Article 2
(Recognition of compensation systems)

l. For the purposes of the recognition of legal persons referred to in Article 1.1a), the legal representative thereof shall submit an application to the Ministry of the Treasury. The application must be accompanied by a copy of the constituent instrument and the draft operating rules.

2. Compensation systems referred to above shall have their registered office in Italy.

3. The constituent instrument shall specify the aims, the number of members and their contribution obligations, the criteria and procedures for contributions, providing for all intermediaries that apply to be able to join.

4. The constituent instrument shall also establish the criteria and procedures for paying claims to investors having entitlement and lay down rules for the representative, governing and control bodies and their operation. From the operational standpoint, the administrative and accounting principles governing operations must be laid down in the bylaws and the details of the internal administrative procedures left to the operating rules.

5. The Ministry of the Treasury, upon verifying that the prescribed conditions are satisfied, shall decide within 90 days of receiving an application with all the necessary documentation after consulting the Bank of Italy and Consob; the Ministry of the Treasury may request clarifications and additional matter, including documents, upon the receipt of which a new time limit of 60 days shall apply.

6. Intermediaries must disclose their membership of a compensation system.

7. The legal representatives of compensation systems shall send the names of members to the Ministry of the Treasury, the Bank of Italy and Consob, specifying the investment services and non-core services they are authorized to provide.

8. Article 62.1 of the Decree shall be unaffected.

Article 3
(Intervention of compensation systems)

1. Compensation systems shall pay claims to investors:

a)in cases of compulsory administrative liquidation of Italian banks and Italian securities investment firms;

b)in cases of bankruptcy or composition with creditors of stockbrokers and financial intermediaries;

c)in cases of intervention by compensation systems of the home countries of foreign banks and investment firms that have branches in Italy or, if compensation systems are not provided for in such countries, in cases in which such intermediaries are subject to procedures analogous to those specified in subparagraphs a) and b).

Article 4
(Claims eligible for payment)

1. Compensation systems shall pay claims, consisting of sums of money and financial instruments deriving from investment transactions, of investors on:

a) Italian banks, Italian securities investment firms, investment firms and their Community branches;

b) branches in Italy of foreign banks and investment firms that join a compensation system, exclusively with reference to the activity carried on in Italy;

c)stockbrokers.

2. Compensation systems may also provide for the payment of claims referred to in paragraph 1 of investors on non-EU branches of Italian banks, Italian securities investment firms and financial intermediaries;

3. The claims of the following categories of persons shall not be eligible for payment by compensation systems:

a)investors who have been condemned for crimes referred to in Articles 648-bis and 648-ter of the penal code;

b)investors who contributed to the insolvency of the intermediary, as ascertained by the bodies responsible for the insolvency procedure;

c) banks, Italian securities investment firms, financial companies referred to in Title V of the Consolidated Law on Banking, investment firms, insurance companies, collective investment undertakings and pension funds;

d)international organizations, government departments and local authorities;

e)companies belonging to the same group as the intermediary;

f)shareholders who hold, through nominees or otherwise, at least 5 per cent of the intermediary's capital;

g) directors, managers, members of the board of auditors of the intermediary or of other companies belonging to the same group as the intermediary who were in office in the last two financial years;

h)spouses and persons related by consanguinity within the fourth degree to persons specified in subparagraphs a), b), c), f) and g).

4. Transactions carried out through nominees by persons referred to in paragraphs 3f) and 3g) shall not be eligible for any compensation whatsoever.

Article 5
(Cover)

1. The payment of the claims of each investor shall be made up to a maximum amount corresponding to 20,000 ecus. Claims verified pursuant to Article 35.5 of the Decree entered in the statement of liabilities shall be eligible net of any partial allotment made by the bodies responsible for the insolvency procedure. The translation into Italian lire shall be made at the exchange rate obtaining on the day the statement of liabilities was filed and became effective or the decision ratifying the unappealable composition with creditors was filed.

2. For the purposes of compliance with the limit referred to in paragraph 1, the claims of each investor deriving from individual investment transactions and the part pertaining to the investor in question of claims deriving from joint investment transactions by two or more investors shall be summed. In the case of joint transactions claims shall be understood to be divided in equal parts among the investors unless specified otherwise.

3. In the case of a joint investment transaction involving two or more persons in their capacity as shareholders of a company or members of an association, the investment shall be considered as having been made by a single investor for the purposes of the limit referred to in paragraph 1.

4. No investor may benefit from a payment larger than the total of the corresponding claims. Payments made under this regulation may not be in addition to payments made under Article 96-bis of the Consolidated Law on Banking. To this end compensation systems shall adopt appropriate forms of coordination with the bank deposit protection systems referred to in Legislative Decree 659/1996.

5. Pursuant to Article 35.4 of the Decree, compensation systems shall succeed to the rights of investors vis-à-vis the intermediary up to the amount of payments made to them. Compensation systems shall inform the body responsible for the insolvency procedure of the payments made and, within such limit, shall receive the sum of partial allotments.

Article 6
(Procedures and time limits for payments)

l. Compensation systems shall specify in the operating rules referred to in Article 2.1 the procedures and time limit for the submittal to the system of applications for payment by investors admitted to the statement of liabilities of the compulsory liquidation or bankruptcy procedure or to the composition with creditors of the intermediary. Such time limit may not be less than 5 months, starting from the date investors were notified of the definitive admission of their claims to the statement of liabilities or the decision ratifying the unappealable composition with creditors was filed. Expiration of the time limit may not prejudice investors who show that they were unable to comply with it for reasons not imputable to them.

2. Payments shall be made within three months of the expiration of the time limit referred to in paragraph 1. In cases in which, owing to exceptional circumstances, a compensation system is unable to comply with such time limit, it may apply for an extension to the Ministry of the Treasury, which shall decide after consulting the Bank of Italy and Consob. The extension may not be more than three months.

Article 7
(Financing and forms of insurance)

1. Compensation systems shall establish the criteria procedures for extraordinary additional contributions by member intermediaries serving to ensure they are able to meet their payment obligations within the time limits referred to in Article 6.2.

2. The contribution obligations may differentiated according to general criteria and non-discriminatory and fair objectives.

3. The sums accruing to compensation systems in respect of contribution obligations must be deposited with leading banks, identified on the basis of the characteristics specified in the constituent instrument referred to in Article 2.1. Compensation systems may make investments to the extent and in the forms decided by the governing body exclusively in:

a)government and government guaranteed securities issued by OECD countries or residents thereof;

b)debt securities traded on regulated markets recognized under Article 51 of the Decree or regulated markets in the United States, Japan or Canada;

c)units of UCITS that may not invest their assets in securities other than those referred to in subparagraphs a) and b).

4. Compensation systems may take out insurance policies with insurance companies authorized to issue such policies in terms of line of business and size of risks. Even where such policies exist, compensation systems shall remain directly responsible vis-à-vis persons having entitlement to payments under this regulation.

Article 8
(Exclusions)

l. Intermediaries may be excluded from a compensation system in the event of exceptionally serious failures to fulfill the obligations deriving from membership of the system. The exceptionally serious failures that trigger exclusion and the procedures for this to be publicized shall be established in compensation systems' bylaws.

2. Compensation systems shall notify such failures to intermediaries and grant them twelve months in which to fulfill the obligations deriving from membership, informing the supervisory authorities accordingly. Upon expiration of such time limit to no effect, the compensation system, subject to authorization by the Ministry of the Treasury and after consulting the Bank of Italy and Consob, shall inform the intermediary in question of its exclusion and arrange for this to be publicized in accordance with the procedure referred to in paragraph 1.

3. The exclusion procedure may not be started or continued for banks or Italian securities investment firms that have been placed under special administration.

4. In the event of a failure to fulfill the obligations deriving from membership of a compensation system on the part of an Italian branch of a Community bank or investment firm, the compensation system shall notify the failure to the intermediary and grant it twelve months in which to fulfill its obligations, informing the supervisory authorities that issued the authorization accordingly. Upon expiration of such time limit to no effect, the compensation system, subject to agreement by the authorities that issued the authorization, shall inform the intermediary of its exclusion

5. Investors' claims deriving from investment transactions carried out up to the date of the announcement of the exclusion of the intermediary from the compensation system shall be met by the compensation system.

Article 9
(Measures vis-à-vis excluded intermediaries)

l. Where the intermediary that failed to fulfil the obligations deriving from membership of a compensation system is an Italian bank, an Italian securities investment firm, a financial intermediary, a stockbroker, an Italian branch of a non-EU bank or investment firm, the authorities that issued the authorization to provide investment services shall revoke it when the intermediary ceases to be a member of the compensation system. The possibility for Italian banks and Italian securities investment firms to be placed in compulsory administrative liquidation shall be unaffected. Investors' claims deriving from investment transactions carried out up to the revocation of the authorization shall be met by the compensation system.

Article 10
(Control body)

1. One member of the control body and one alternate shall be appointed by the Minister of the Treasury. The appointments shall be made within thirty days of the recognition of a compensation system.

2. The chairman of the control body shall be the member appointed by the Minister of the Treasury.

Article 11
(Changes to compensation systems
and revocation of the recognition thereof)

1. Every change to the bylaws and operating rules of a compensation system that entails changes to the conditions and acts referred to in Article 2 must be approved in advance by the Ministry of the Treasury after consulting the Bank of Italy and Consob.

2. The Ministry of the Treasury acting on a proposal from the Bank of Italy or Consob may revoke the recognition of a compensation system if one or more of the conditions referred to in Article 2 are no longer satisfied.

Article 12
(Adaptation of the National Compensation Fund)

l. The management committee of the National Compensation Fund shall approve, under Article 62.2 of the Decree, the amendments to its bylaws needed to adapt its organization and operation to this regulation. The bylaws, in addition to what is prescribed in Article 2, must establish the rights and obligations of member intermediaries and provide for a members' meeting, a governing body and a control body. The management committee shall also approve the operating rules governing the Fund's interventions.

2. The bylaws and operating rules referred to in paragraph 1 shall be approved by the Ministry of the Treasury after consulting the Bank of Italy and Consob within sixty days in a measure published in the Gazzetta Ufficiale della Repubblica italiana. As of such date of approval, the effects of Article 62.4 of the Decree shall be produced and other compensation systems may be recognized.

3. The chairman of the management committee shall convene the first meeting of the members of the Fund within six months of the entry into force of the acts referred to in paragraph 2.

4. The management committee of the National Compensation Fund shall remain in office until the appointment of the new bodies provided for in the bylaws; the board of auditors in office shall be supplemented with the appointment of alternates.

5. Subsequent amendments to the bylaws and the operating rules shall be subject to Article 11 of this regulation.

This decree, bearing the state seal, shall be included in the official collection of legislative acts of the Italian Republic. All persons required to do so shall observe it and have it observed.

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footnotes:

1. Published in Gazzetta Ufficiale della Repubblica italiana no. 13 of 17.1.1998.