C-356/00

TESTA AND LAZZERI

OPINION OF ADVOCATE GENERAL GEELHOED delivered on 7 February 2002 1

I — Introduction directive is to effect only the essential harmonisation necessary and sufficient to secure the mutual recognition of authori- sations and of prudential supervision sys- tems, making possible the grant of a single 1. The Tribunale amministrativo regionale authorisation valid throughout the Com- per la Toscana (Regional Administrative munity and the application of the principle Court, Tuscany) asks the Court for clarifi- of home Member State supervision. cation of the term 'investment service' as defined in Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field. 2 By its questions, the national court seeks to ascertain whether a national provision which is not fully 3. Under Article 14(1) of the directive, any consistent with the definition in the direc- investment firm recognised in one Member tive is permitted under Community law. State is entitled to provide investment services within the territories of all the Member States either by the establishment of a branch or under the freedom to provide services.

I I — Legal framework

4. Article 1(2) of the directive defines 'investment firm' for the purposes of the directive as any legal person the regular occupation or business of which is the provision of investment services for third A — Community legislation parties on a professional basis.

2. According to the third recital in the preamble, the approach adopted in the 5. In accordance with Article 2(1), the directive is to apply to all investment firms. 1 — Original language: Dutch. Only a few provisions of the directive apply 2 — OJ 1993 L 141, p. 27. to credit institutions the authorisation of

7. The term 'investment service' is defined in Article 1(1) of the directive as 'any of the services listed in Section A of the Annex relating to any of the instruments listed in 10. Legislative Decree No 415/96 of Section B of the Annex that are provided 23 July 1996 (hereinafter also 'the for a third party'. decree'),4 which contains a set of rules governing investment firms and services, was adopted to implement the directive in 3 — This recital is reflected in the final subparagraph of Article 1(2) of the operative part of the directive. The scope of that provision is limited to the activities referred to in Point 1(a) of Section A of the Annex. 4 — GURI No 186 of 9 August 1996, supplement No 133, p. 3.

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TESTA AND LAZZERI

Italy. Article 1(3)(d) lists under 'investment to prior written consent ('previo consenso services' and related activities inter alia scritto'), act in their own name and on 'managing investment portfolios on an behalf of their clients. individual basis on behalf of third parties'. 5

14. Under Article 18(1) of the decree, 11. Article 2(1) of the decree allows stock- contracts for the services covered by the broking firms and banks to engage on a decree are to be drawn up in writing and professional basis, in accordance with the the client is to be provided with a copy provisions of the decree, in the provision of thereof. any of the abovementioned investment services which are offered to the public.

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OPINION OF MR GEELHOED — CASE C-356/00

III — Facts, procedure and questions promoters had prior consent from the referred for a preliminary ruling clients concerned, they were guilty, accord- ing to Consob, in view of the manner in which they acted (large number of con- temporaneous transactions between sub- funds within the same investment trust, 18. Mr Testa and Mr Lazzeri are financial circular course of those transactions), of promoters who, under an agency agree- 'covert management' or 'management with ment, act on behalf of Banca Fideuram prior consent' of securities. Under the SpA, which offers its investment services Italian legislation concerned, that form of both on and away from its premises. They management is reserved to specific persons, undertook switch transactions on behalf of in this case stockbrokers, who must be duly clients who were investors, making authorised by the national supervisory switches from one sub-fund to another authorities. within the same investment trust.

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TESTA AND LAZZEIU

22. Mr Testa and Mr Lazzeri are supported the requirement of a mandate. By an order in the main proceedings by Banca Fideuram registered at the Court on 26 September as intervener. According to Banca Fideu- 2000, the Tribunale amministrativo ram, it follows from the definition under regionale per la Toscana therefore referred Community law that a mandate conferring the following questions for a preliminary discretion must be given. That is an essen- ruling: tial element in the definition. All cases in which clients who are investors themselves make disposals within their own financial sphere are therefore excluded from that definition. Consob thereby unlawfully extended the scope of the Community legislation by imposing new prohibitions ' 1. Must Point 3 of Section A of the Annex in relation to activities of financial pro- to Council Directive 93/22/EEC of moters and thus also in relation to those of 10 May 1993 on investment services stockbrokers who rely on the activities of in the securities field, which contains the former in order to be able to offer their the definition "[m]anaging portfolios services. of investments in accordance with mandates given by investors on a dis- criminatory, client-by-client basis" be interpreted as meaning that that Com- munity provision is infringed by a national provision which departs from it and which, in this case, does not require that the management of port- 23. Consob argued in the main proceedings folios of investments should be on "a that, although the national legislation does discriminatory, client-by-client basis" not expressly incorporate those elements and "in accordance with mandates from the directive, the legislature was given by investors"? entitled to adopt a broader definition of matters covered than the Community legis- lation because the directive in question aims to achieve essential, and not full, harmonisation.

28. I share the view of Testa and others and 26. By its questions referred for a prelimi- the Commission that the reference is most nary ruling, the Tribunale amministrativo certainly admissible. According to settled regionale per la Toscana seeks to ascertain case-law, it is for the national court before whether a national provision may depart which the dispute has been brought, and from a Community definition given by the which must assume responsibility for the directive. However, the fundamental issue subsequent judicial decision, to determine before the referring court is primarily one in the light of the particular circumstances of national law and of fact and, in my of the case both the need for a preliminary opinion, to a lesser extent one of Commu- ruling in order to enable it to deliver nity law. judgment and the relevance of the questions which it submits to the Court. 7

30. The national court needs an answer from the Court in order to establish whether the activities of Mr Testa and Mr 33. However, the questions submitted by Lazzeri at issue are to be regarded as the national court are not aimed at defining 'managing portfolios of investments' within the powers of the financial promoters the meaning of the directive. In particular, themselves in the light of the directive. it may need a ruling on the scope of the They do not relate to the personal scope of requirement of the discretion conferred on the directive and in particular do not the investment firm by the investing client concern the interpretation of the afore- under a mandate. If a mandate conferring mentioned passage in the preamble regard- discretion is always a prerequisite for ing the activities of tied agents of an management, as argued by Testa and others investment firm. The interpretation of in the main proceedings, there are clearly 'managing portfolios of investments' will no grounds for the penalty imposed by enable the referring court to assess the Consob for 'covert management'. activities of persons who are described in Italian law as financial promoters. Viewed thus, the question whether financial pro- moters fall within the scope of the directive, or whether, in the present case, Mr Testa and Mr Lazzeri must be regarded as 'tied 31. The referring court is therefore reques- agents', is irrelevant. Those are matter on ting the Court to give an interpretation of a which the national court will have to substantive provision of the directive, so decide. that it can indicate the limits of the powers which individuals have under national law.

B — Substance 38. The activities complained of consist of a large number of identical switch trans- actions carried out on behalf of a substan- tial proportion of investing clients and characterised by movements at short inter- vals from one sub-fund to another within the same investment trust. It is assumed 35. Both the referring court's questions that the clients gave the investment firm seek to ascertain from the Court whether prior consent for the transactions in ques- Point 3 of Section A of the Annex to the tion, although the significance of such prior directive, in which the term 'investment consent must also be examined. 9 service' is defined as '[m]anaging portfolios of investments in accordance with man- dates given by investors on a discrimina- tory, client-by-client basis...', must be inter- preted as meaning that that provision precludes a national provision which does 39. In the present case, the operations in not require that the management of invest- question must be examined in the light of ment portfolios take place 'on a discrimi- the definition of the service of 'managing natory, client-by-client basis' and 'in portfolios of investments' within the mean- accordance with mandates given by inves- ing of Point 3 of Section A of the Annex to tors'. the directive. The definition of that service includes three cumulative conditions by which the service is distinguished from the other services listed in Section A, such as the straightforward reception and trans- mission, on behalf of investors, of orders in relation to securities and the execution of such orders, within the meaning of Point 1. 36. In order to provide the national court with a helpful answer, I must first examine whether the operations carried out by Mr Testa and Mr Lazzeri, assuming that they were entirely for the account of Banca Fideuram, are permitted by the directive. 40. First, there must be 'mandates given by investors'. The Commission points out that

this condition assumes a qualifying and 43. It is beyond dispute that the trans- enduring relationship between the investor actions undertaken in the name of the and the firm, in the context of which the Banca Fideuram related to transferable firm is entrusted with taking investment securities. Since the transactions took place decisions on behalf of the investor. within different sub-funds of one invest- ment trust, it may be assumed that the investor himself made the strategic invest- ment choice. If the manager — in this case Banca Fideuram or its tied agents — holds a general authorisation from clients, no further prior consent is required for the specific individual transactions, assuming that those transactions are covered by the authorisation. 41. Second, portfolios must include 'one or more of the instruments listed in Section B'. The list in Section B includes inter alia the instrument of 'transferable securities'. The instruments belong to the investors and are 44. It may therefore be assumed that the managed by the investment firm in the operations undertaken by Mr Testa and Mr interests and on behalf of the investors. In Lazzeri remain within the scope of the this context, Article 10 of the directive powers which the directive grants to invest- prohibits an investment firm from using ment firms which offer an 'investment investors' securities for its own account, service' as provided for in Point 3 of except with the investors' express consent. Section A of the Annex. Moreover, the directive does not preclude the provision of such a service away from the offices of an investment institution.

47. The directive seeks to secure the mutual Community concept which, as such, must recognition of authorisations and of pru- be interpreted uniformly throughout the dential supervision systems in the field of Community. In that respect, the directive investment services in transferable secur- does not allow the national legislatures any ities. Firms which provide the investment margin of discretion as regards content. services covered by the directive must hold Any different interpretation would be liable an authorisation issued by the home to jeopardise the harmonisation envisaged Member State. Authorisation is granted if by the directive. It could in fact result in the conditions laid down in or pursuant to dissimilarity in the types of firm entitled to the directive, which are intended to protect apply for Community authorisation in each investors and the stability of the financial Member State. system, are fulfilled. An authorisation granted in the home Member State is valid throughout the Community. The invest- ment firm concerned is thus able to exercise its right of establishment or its freedom to provide services. 50. Any departure from that definition in national legislation would have been con- ceivable only if the directive itself had authorised it. However, the wording of the directive does not expressly provide for any departure from the fundamental defi- nition of 'investment service' as set out in Point 3 of Section A of the Annex. More- 48. The Community definition of the term over, the directive also does not authorise 'investment service' in Article 1 therefore Member States to apply a broader defini- has a direct effect on the scope ratione tion of 'investment service' in order to materiae of the directive. The definition is achieve a higher level of protection for fundamental in the light of the 'essential investors. harmonisation necessary and sufficient' of national laws, which the directive seeks to achieve. Consequently, as Testa and others and the Commission have, in my view, rightly argued, Member States cannot in principle depart from the definitions with- 51. In my opinion, the directive thus pre- out prejudicing the content and objective of cludes a Member State's legislation which, harmonisation. in defining the term 'investment service', does not require that the management of portfolios of investments should be on a discriminatory, client-by-client basis and in accordance with mandates given by inves- tors.

54. The Commission and Testa and others also draw attention to the duty under Community law for the national court to 53. Those parties argue that the Italian interpret national law in conformity with definition contained in Article l(3)(d) of the directive. Legislative Decree No 415/96, 'managing investment portfolios on an individual basis on behalf of third parties', must be read in the context of the decree. In spite of the words 'on an individual basis', the need for a mandate to be given by the client, with discretion for the investment firm, is pres- ent by implication in the Italian definition. The very existence of a contract giving a proper mandate is in likely to ensure that a 55. On that point, I think it sufficient to qualifying and enduring relationship is observe that, in the context of these pro- established between the client and the ceedings for a preliminary ruling, the Court investment firm under the best possible can leave the question regarding the precise conditions and in such a way that the and full transposition of the directive into requirements and limits to which the man- Italian law to the national court. It is for agement of the portfolio must be subject that court to establish whether the activities are clearly indicated. Moreover, the necess- undertaken by Mr Testa and Mr Lazzeri ary presence of such a mandate is to be involve a form of investment portfolio management which, by reason of its char- acteristics, is consistent with the objectives 10 —Case C-96/95 Commission v Germany [1997] ECR of Community law and, therefore, with 1-1653, paragraph 35. those of the Italian legislation.