1. New trends on support to SMEs

In recent years, in Italy a constant growth in investments to emerging Italian companies (i.e. the "start-ups") has taken place. Although the phenomenon is still limited, in 2017 the amounts invested were EUR 240 million whilst in 2018 have reached EUR 500 million. In this view, in 2019, a growing trend is expected to happen with an increase of between EUR 800 million and EUR 1 billion in amounts invested in start-ups ⁽¹⁾. In the Italian Government's perspective, the need to have a tool able of relaunching and increasing investments in start-ups has therefore been taken into account.

The Simple Investment Company ("SIC") is the new structure for these companies in order to ensure the granting of more financial resources for Italian SMEs and therefore support their growth and competitiveness, by operating outside the ordinary banking channel. In this regard, the regulation governing Simple Investment Companies has been introduced into the Italian legal system by Decree Law No. 34, issued on 30 April 2019 ("Urgent measures for economic growth and for the resolution of specific crisis situations", hereinafter the "Decreto Crescita"), Article 27 of which intervened by amending Articles 1 and 35-undecies of Legislative Decree No. 58 of 24 February 1998 (the Consolidated Financial Act, hereinafter the "CFA"). The Decreto Crescita become enforceable the day after its publication in the Italian official journal (30 April 2019).

Ultimately, it is worth pointing out that the Decreto Crescita, as compared to the preliminary text discussed on 2 April 2019 during the Council of Ministers meeting, does no longer provide for a complete legal exemption of SIC activities with respect to the collective investment undertaking authorisation in compliance with the general regulatory framework set by the directive 2011/61/EU ("AIFMD").

2. Investment activities of Sic

The SIC takes the form of a Closed-end Investment Company with fixed capital ("Società di Investimento a Capitale Fisso" or "SICAF"). For this very reason, the SIC is similar to the structure and regulatory framework of the Alternative Investment Funds under Italian law ("AIF") referred to in AIFMD, the Consolidated Financial Law and related national implementing provisions⁽²⁾.

Taking inspiration from the general principles applicable to SICAF under Italian law in the absence of specific indications contained in the Decreto Crescita, given the intrinsic characteristics with which the SIC must comply (infra § 3), the activities that can be carried out by the SIC are:

1. investment and management of its own funds;
2. marketing of the financial instruments issued by the SIC to professional investors (infra § 5);
3. other administrative, ancillary and instrumental activities to the above within the limits of the specific legal reserves provided for by our legal system.

 With reference to the management of its own assets, the SIC:

1. directly supports small and medium-sized enterprises not listed on regulated markets (the "SMEs") that are in the early stage of their activities (testing, incorporation and start-up phase)⁽³⁾;
2. invests its funds in the purchase and subscription of the following assets:
   • financial instruments issued by SMEs, including (i) equity instruments (i.e. shares of companies and other equity-like financial instruments of companies) and/or (ii) bonds, "minibonds" and other debt securities;
   • receivables and notes representing claims, proceeding with the purchase or granting of financing from its own funds of the same SIC pursuant to Article 46-bis of the CFA.

3. Features of the SIC

The Simple Investment Company, whose name must contain the indication of "società di investimento semplice per azioni a capitale fisso":

1. is a AIF:
   • in form of a closed-end investment company set up as a joint-stock company with fixed capital, with registered and administrative office in Italy pursuant to Article 1, paragraph 1, letter i-bis, of the CFA (i.e. SICAF)⁽⁴⁾; and
   • reserved for professional investors only, as defined in Article 1, paragraph 1, letter m-undecies of the CFA⁽⁵⁾;
2. when adopting its own by-laws which establish an exclusive company purpose aimed at investing the funds raised in SMEs not listed on regulated markets that are in the early stage of their activities (testing, incorporation and start-up phase), also derogating the provisions of Article 35-bis, paragraph 1, letter f);
3. when having a share capital of at least EUR 50 thousand in line with the requirements of the Bank of Italy for the establishment and authorisation of a "below the threshold" SICAF reserved for professional investors⁽⁶⁾;
4. when managing its own funds directly, which must not exceed the threshold of EUR 25 million;
5. under no circumstances may it use the financial leverage.

As explained below, certain important derogations from the standard regulatory regime for AIF apply to the SIC, as well.

4. Authorisation to carry out investment activities: an overview

The SIC must takes the structure of the SICAF in a form of closed-end company and reserved for professional investors, and before starting to operate, pursuant to Article 35-bis CFA, shall:

1. submit a specific request to the Bank of Italy;
2. receive the authorisation of the Authority, which shall be issued within 90 days;
3. be registered in the SICAF register pursuant to article 35-ter of the CFA.

For the purposes of the authorisation procedure, in the Decreto Crescita have been specified that:

1. pursuant to Article 15 of the CFA, with respect to the shareholders of SIC who manage or have a qualified holding of at least 10% of its share capital and/or relating voting rights, only the requirements of integrity referred to in Article 14 of the CFA must be verified, thus exempting the potential purchaser from further checks on the requirements of correctness, competence and financial stability;
2. under no circumstances may one or more SIC be set up by:
   • an individual who controls a SIC, directly or indirectly through subsidiaries or parent companies or companies under common control, and has already invested sums amounting to an overall limit of EUR 25 million in one or more SIC;
   • individuals performing administrative, management and control functions in one or more SIC.

5. Fundraising activity

The SIC, being structured in the form of SICAF, cannot issue bonds. The fundraising activity is performed through equity or other equity-like instruments (i.e. "strumenti finanziari partecipativi"). To this end, SIC shall promote to existing or potential investors the subscription of the financial instruments, as provided for in the by-laws.

The offer to investors of the financial instruments issued by SIC is subject to the prior notification procedure to CONSOB, as for all SICAFs under Italian law, since this is an activity attributable to the marketing of AIFs reserved under Article 43 of the CFA.

The notification to the CONSOB, which must follow a precise procedure established by the CFA, requires a minimum of 20 working days. Marketing cannot proceed until the Authority has informed the SIC that there are no grounds to prevent the offer to professional investors of the SIC financial instruments.

6. Main regulatory advantages for SIC compared to "Ordinary SICAF"

The applicable regulatory framework for SICAFs authorised in Italy pursuant to Article 35bis CFA ("Ordinary SICAF") provides, pursuant to Article 6, paragraphs 1, 2 and 2-bis CFA, for specific obligations regarding (i) capital adequacy, (ii) risk assessment, (iii) information to be disclosed to the public, (iv) corporate governance, administrative and accounting organisation, (v) internal audit system and (vi) outsourcing of important operational functions. In addition, the SICAF must comply with the transparency and conduct correctness obligations towards its customers in the provision of the collective portfolio management service.

Most of the obligations mentioned above, and implemented on the basis of precise regulations issued by the Bank of Italy and CONSOB on collective portfolio management, are not applicable to the SIS as under express derogation set by the Decreto Crescita (Article 27, paragraph 2).

All this is justified by the lower operational complexity of the SIC, however limited to investments of its own assets within EUR 25 million, and by its activity is being expressly and solely addressed to professional investors⁽⁷⁾. Therefore, following an approach based on the principle of proportionality, it is reasonable to believe that the SIS can rely on the possibility of operating:

1. through a simpler and lighter organization;
2. by bearing costs related to the organizational structure and internal audit system that are decidedly more contained than an Ordinary SICAF;
3. by supporting a smaller number of supervisory controls and reports in carrying out the ordinary investment activity, although the Supervisory Authority itself may at any time request data, news, and carry out remote inspections regarding the performance of the activities performed by the SIC; this is in addition, as already mentioned above, to supervise the authorisation process and marketing phase (see §§ 4 and 5).

However, the SIC is required to:

• sign a professional indemnity insurance appropriate to the risks arising from the activity carried out;
• implement an "adequate governance and control system to ensure the sound and prudent management of the SIC, and compliance with the applicable provisions". This profile will be evaluated by the Authority when granting authorisation.

The following table summarizes the main regulatory advantages from which the SIC can benefit compared to an Ordinary SICAF of Italian law.

^[1] Decree-law scheme on urgent measures for economic growth. Explanatory report of 2 April 2019.

^[2] "SICs are created with the aim of offering investors investment tools dedicated to the venture capital activities in compliance with the limitations set by the European legislation on collective investment undertaking.Considering the reduced size and the operational constraints, SICs are subject to a facilitated regime compared to the other forms of collective investment undertaking regulated by the TUF, see Italian Chamber of Deputies, draft laws and reports of 30 April 2019, "Conversione in legge del decreto-legge 30 aprile 2019, n. 34, recante misure urgenti di crescita economica e per la risoluzione di specifiche situazioni di crisi" (Conversion into law of law decree 34 of 30 April 2019, containing urgent measures for economic growth and for the resolution of specific crisis situations), page 21.

^[3] Small and medium-sized enterprises' are companies which, on the basis of their most recent annual or consolidated financial statements, meet at least two of the following three criteria: (a) an average number of employees during the financial year of less than 250, (b) a balance sheet total not exceeding EUR 43 000 000 and (c) an annual net turnover not exceeding EUR 50 000 000 as defined in Article 2(1)(f) of Regulation (EU) No 2017/1129 of the European Parliament and of the Council of 14 June 2017

^[4] "Given that the SICs' activity falls within the definition of collective investment undertaking set forth in AIFMD and Article 32 TUF, SICs fall under the alternative fund managers category pursuant to the TUF; in particular, SICs are set up as closed-end investment company with fixed capital ("Sicaf") referred to in Article 1, paragraph 1, lett. i-bis) TUF". Italian Chamber of Deputies, draft laws and reports of 30 April 2019, "Conversione in legge del decreto-legge 30 aprile 2019, n. 34, recante misure urgenti di crescita economica e per la risoluzione di specifiche situazioni di crisi" (Conversion into law of law decree 34 of 30 April 2019, containing urgent measures for economic growth and for the resolution of specific crisis situations), Technical Report, page 65.

^[5] Professional Investors means (1) entities who are required to be authorised or regulated to operate in the financial markets, whether they are Italian or foreign such as: a) banks; b) investment firms; c) other authorised or regulated financial institutions; d) insurance firms; e) collective investment bodies and related management companies; f) pension funds and related management companies; g) dealers on own account in goods and derivatives on goods; h) entities who deal exclusively on own account in financial markets tools and who participate indirectly in the liquidation service, as well as in the clearing and guarantee system; i) other institutional investors; j) exchange agents; (2) large companies having at single company level at least two of the following size requirements: (a) total of balance sheet: EUR 20 000 000; (b) net turnover: EUR 40 000 000; (c) own funds: EUR 2 000 000; (3) institutional investors whose main business is to invest in financial instruments, including entities engaged in the securitisation of assets or other financial transactions; (4) other professional investors on demand that are in line with legal requirements.

^[6] See Bank of Italy Regulation on Collective Investment Management, Title III, Section III - SICAV AND SICAF SUB SOGLIA. This provision contains an express derogation from the standard requirements for the authorisation of the SICAF set out in Article 35 bis (1) (c) of the CFA.

^[7] "Considering the reduced size and the operational constraints, SICs are subject to a facilitated regime compared to the other forms of collective investment undertaking regulated by the TUF", see Italian Chamber of Deputies, draft laws and reports of 30 April 2019, "Conversione in legge del decreto-legge 30 aprile 2019, n. 34, recante misure urgenti di crescita economica e per la risoluzione di specifiche situazioni di crisi" (Conversion into law of law decree 34 of 30 April 2019, containing urgent measures for economic growth and for the resolution of specific crisis situations), Technical Report, page 65