CONSOB repealed its communications on illiquid and complex products

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With a notice published on 3 February 2022 (CONSOB Notice), CONSOB clarified that the specific domestic regime applicable to complex and illiquid products adopted by the Italian securities regulator will no longer be in force and withdrew both 1) Communication no. 9019104 of 2 March 2009 (The intermediary's duty to behave fairly and transparently when distributing illiquid financial products) and 2) Communication no. 0097996 of 22 December 2014 (Distribution of complex financial products to retail investors) (the Communication on Complex Products).

CONSOB Notice clarified that such Communications were adopted in the context of MiFID I with the purpose of providing greater protection to retail investors while waiting for a new and expected European regime moving into the same direction.

In particular, the Communication on Complex Products identified, inter alia, a non-exhaustive list of “soft banned products” not to be sold to retail investors (unless certain precautionary measures were implemented by the relevant intermediaries), including:

• Asset Backed Securities;
• financial instruments convertible into shares, upon initiative of the issuer or subject to certain conditions (e.g. Contingent Convertible Notes or financial products qualified as “additional tier 1” under Art. 52 of Regulation (UE) n. 575/2013);
• credit-linked financial instruments;
• structured financial instruments not traded on trading venues, in relation to which the reimbursement of the sums paid by the investor is not guaranteed;
• derivative financial instruments; and
• alternative undertakings for collective investment.

The possibility to distribute complex products, including those mentioned above, to retail investors should now be assessed only in accordance with the European rules, ESMA clarifications and guidelines, and domestic rules governing certain specific products (e.g. subordinated bonds).

CONSOB Notice emphasizes that, on a general level, since the adoption of the Communications, not only a number of Directives and Regulations have entered into force (including Directive 2014/65/EU (MiFID II), Regulation (EU) no. 600/2014 (MiFIR) - enhancing retail protection from the creation/development phase of the products and the definition of target market to the strengthening of powers attributed to Supervisory Authorities -and Regulation (EU) no. 1286/2014 governing the key information documents (KID) that must be provided to retail investors for the purpose of distributing PRIIPs, but also ESMA itself has adopted level 3 guidance (Guidelines, Q&As, Statements, Opinions) that must be followed by national Authorities.

On a more specific level in addition to the above, restrictions on the distribution of certain products to retail investors have been adopted by sectoral regulations such as Regulation (EU) no. 2017/2402 (STS Regulation) on simple, transparent and standardized securitisations, Regulation (EU) no. 2015/760 (ELTIF Regulation) on long-term European investment funds, Directive (EU) 2019/879 (BRRD II) on instruments subject to bail-in mechanisms and Directive (EU) 2016/97 (IDD) on the distribution of insurance investment products (IBIP).

In light of the above and the European legal framework that has entered into force since the adoption of the Communications, able to ensure a level of maximum protection for investors, CONSOB expressly revokes its Communications governing, as mentioned, illiquid and complex retail products.