by Davide Nervegna and Vincenzo D’Antoni

As known, although the United Kingdom’s exit from the European Union is to backdate to 1 st February 2020, European legislation will continue to apply in the respective jurisdictions until 31st December 2020, as if the United Kingdom is still a Member State while its representation in the European Institutions has already ceased.

With regard to banking, financial and insurance services, in particular, the Italian Ministry of Economy and Finance with Press Release no. 19 of last 31st January also confirmed the legal extension of the mutual recognition regime for authorizations and the supervisory system (the so-called European passport regime), by ensuring until 31st December 2020 operational and relational continuity of the financial market infrastructures, intermediaries and clients to and from the United Kingdom, in addition to the protection of depositors and investors.

Starting from 1st January 2021, the question to address for pension funds is whether and how they can continue to delegate or sub-delegate the management of their assets to intermediaries located in the United Kingdom, as well as in other Non-EU Countries.

First of all, on the basis of Articles 46, 47 and 48 of EU Regulations no. 600/2014 (the socalled MiFIR), a third country company can provide investment services in favour of qualified counterparties and professional clients, according to Directive no. 2014/65/EU (the so-called MiFID) located in the European Union (as such also in Italy) without having established a branch as long as they are registered in the register of third countries’ companies kept by ESMA – thus remaining subject to supervision of competent authority in the country of origin.

This is a registration subject to certain conditions, the most important of which is the equivalence decision expressed by the European Commission in order to certify that the legal and supervisory regime of a third country guarantees the compliance of its authorized companies to requirements legally binding in terms of behavioural and prudential rules, with equivalent effect to EU requirements.

Having said that, we point out that in the absence of an equivalence decision of the European Commission or where this decision is no longer in force, Non-EU companies (even without an established branch) are nevertheless allowed to exercise their business, even if it is on each Member State’s responsibility to provide for rules and conditions of access of such Non-EU intermediaries within its own territory.

In Italy, in this regard, art. 28, par. 6 TUF provides that third country investment companies can perform investment services and activities to qualified counterparties and/or professional clients without the establishment of branches in Italy, once obtained Consob’s authorization, issued upon Bank of Italy’s consent. This is, for example, the way already taken by several investment firms based in the UK and already operating in Italy before Brexit.

It can be assumed therefore, as confirmed by Commissione di Vigilanza sui Fondi Pensione1 (the so-called COVIP, National Authority responsible for the supervision of Italian pension funds), that third country’s intermediaries, authorized ex art. 28, par. 6 TUF, or according to the aforementioned decision of equivalence, to provide investment services or activities in Italy under art. 1, par. 5 let. d) TUF, are among those entities which (i) can enter into a portfolio management agreement with pension fund pursuant to art. 6, par. 1, let. a) Legislative Decree no. 252/2005 (on the Regulation of supplementary pension schemes) or (ii) in turn to be sub-delegated by the delegated manager.

But there is more. COVIP2 has also expressed its opinion in relation to the possibility of delegating all or part of the pension fund assets management to Non-EU intermediaries which are neither registered as “equivalent” nor expressly authorized by Italian Authorities pursuant to art. 28, par. 6 TUF.

This address a relevant market need that has remained unsatisfied for long time and which today finds a favourable legal context in the most recent EU regulatory framework. Art. 32 EU Delegated Regulation no. 2017/5653 and art. 78 EU Delegated Regulation no. 231/20134 , actually provide that, once certain requirements and conditions are met, it is possible to outsource the management of investments and portfolios to third countries suppliers as long as, in particular (a) these intermediaries are authorized in the country of origin to provide such services/activities; (b) (relevant)5 collaboration agreements are in force between Supervisory Authorities of the delegating and the delegated parties.

In relation to all the above, COVIP therefore concludes with the possibility to consider also admissible the delegation of functions from the managers of the pension funds, pre-existing and open funds, also to third countries’ intermediaries, for example the United Kingdom, albeit under the conditions just illustrated and other operational conditions imposed by the aforementioned EU legislation.

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1 In its answer to Quesito in tema di mandati di gestione a seguito della Brexit (July 2020).
2 In the same answer mentioned in note 1 before.
3 To be read with Directive 2014/65/UE.
4 To be read with Directive 2011/61/UE.
5 “Relevant” is added by the writers.

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