For more information, see our article on this update here.

The analysis is used to provide preliminary policy considerations from a financial stability perspective.

The paper highlights the importance of "establishing a clear perimeter for financial regulation and of developing global rules to address financial stability risks in the areas covered by financial regulation in accordance with the 'same risk, same regulatory outcome' principle". 

In order to operate in Italy, VASPs will now need to communicate their business to the Organismo per la gestione degli elenchi degli Agenti in attività finanziaria e dei Mediatori creditizi (OAM) and enroll in a dedicated section of the register of money exchangers kept by OAM.

The main recommendations concern:

• FinTech and digital payments: fostering the developments of blockchain technology applied to payments in Italy would have a significant positive economic impact on the market and allow Italy to become an important hub at a global level in this industry.
• AML: the AML legal framework requires intermediaries to conduct AML checks vis-à-vis customers, including KYC. In this context, the blockchain technology may be used to trace and record the KYC carried out by an intermediary in order for other market operators to take advantage of such identification. The use of the blockchain would thus drastically reduce the time and cost to comply with KYC obligations.
  In this regard, the adoption of Self Sovereign Identity (SSI) solutions would also have a significant impact. Additional benefits may arise if the application of simplified customer due diligence measures were to be allowed under the applicable AML legal framework for cryptoasset exchange transactions below a certain threshold. The thresholds currently provided with respect to e-money products may be used also in this case.
• Initial coin offering and security token offering (ICO/STO): the lack of a harmonised framework at an EU level on this causes uncertainty and concerns among market players. To avoid any negative consequences for Italy in terms of international competition, both ICO/STO definitions should be clarified, ensuring a widely offering of them in the market. The recommendations also suggest providing a definition of utility and security token. Please also see our previous newsflash. 
• Cryptoassets: the Italian AML legal framework provides a definition and regulation of virtual currencies which differs with respect to the provisions set out under Directive (EU) 2018/843 (so-called 5AMLD). It would be necessary to align the Italian legal framework as well as to introduce a distinction between custodian and non-custodian wallet providers. Finally, the Ministry of Economy and Finance is still to enact the long awaited decree setting out the registration requirements for virtual currency services providers in a dedicated section of the OAM register. The draft of the mentioned decree published under consultation in February 2018 should be reviewed accordingly and the requirements applicable to merchants accepting virtual currency as remuneration for their goods or services set out therein should be deleted. 
• Central bank digital currency (CBDC): Italy may promote vis-à-vis the European Central Bank the development of a CBDC. The relevant recommendation highlights many positive aspects of the CBDC including, among other things: (i) reduction of the costs of cash management; (ii) facilitation of access to banking services to people who normally do not have it through the use of blockchain; (iii) increase of digital money as well as smart contracts, resulting in greater use of electronic payments.

 The consultation ends on 20 July 2020.

The report contains CONSOB feedback to the comments stakeholders submitted during the public consultation in relation, among others, to the following points. 

Criteria for identifying cryptoassets

• Distinction from financial instruments: CONSOB intends to create an autonomous category of cryptoassets, different from financial instruments under MiFID and financial products (i.e. PRIPs, PRIIPs and IBIPs). Some stakeholders asked clarifications regarding criteria which imply or exclude a classification of cryptoassets as financial instruments or products. In this regard, CONSOB responded that the relevant EU legal framework does not allow the introduction of additional criteria at the national level. Therefore, in order to classify cryptoassets, it is necessary to compare their features with the existing categories.
• Relationship between blockchain and distributed ledger technologies (DLTs): while in the consultation paper CONSOB seemed to consider DLTs and blockchain as synonyms, CONSOB clarifies that blockchain is a type of DLT, the latter being a broader category (including other technologies, such as security tokens). With respect to cryptoassets which do not qualify as financial instruments, only DLTs as already defined by the Italian legislator under Law Decree No. 135 of 14 December 2018 – as converted by Law No. 12 of 11 February 2019 – are to be taken into account.
• Reference to an entrepreneurial project: in the consultation paper, cryptoassets are defined as digital recordings representing rights linked to investments in entrepreneurial projects. While stockholders indicated that this definition could be too limiting, CONSOB stressed the need to preserve the quality of the investments. Therefore, the underlying business of the project must be an economic activity either at an initial stage or at a more advanced stage, carried out both by traditional companies and networks of developers.
• Destination to trading: trading on secondary market is essential for the definition of cryptoassets. The destination to trading will have to be verifiable through the information contained in the offer document (so-called white paper), which must also provide evidence of the agreement between the ICO promoter and the exchange platform. 

Issuance and trading platforms

• Managers of platforms for the promotion and issuance of cryptoassets: under the opt-in scenario, crowdfunding platforms – authorised pursuant to CONSOB Regulation No. 18592 of 26 June 2013 – will be allowed to promote and issue cryptoassets, provided there is separation from the crowdfunding activity itself. CONSOB, however, does not intend to overly limit this phenomenon that is still under development and, therefore, would also allow offers and issuance of ICOs outside crowdfunding platforms, provided that they do not trigger a breach under the Italian Consolidated Financial Act where the token is classified as a financial product. Under this opt-out scenario, investors would not benefit from the regulatory guarantees of regulated and supervised platforms.
• Cryptoassets exchange platforms: both the liquidity of the investment in cryptoassets and the reliability of the trading facility are to be ensured. To this end, the token being offered would be traded on a cryptoasset exchange facility enrolled in the register kept by CONSOB or on a cryptoasset exchange facility established in a country other than Italy, provided that it is subject to a regulatory and supervisory regime in line with the Italian rules and provided that CONSOB has entered into a specific co-operation agreement with the foreign authority.
• Minimum requirements for ICO promoters and duties of the platforms: generally, ICO promoters may be either companies or natural persons or networks of product developers. CONSOB would not set out organisational/financial requirements for promoters, while great attention would be given to transparency in terms of: (i) publication of an initial offer document with a minimum set of information (white papers) relating to the transaction, cryptoassets and exchange facilities where cryptoassets will be traded; (ii) publication of annual updates of the white paper; (iii) publication of extraordinary updates of the white paper on the occurrence of extraordinary events. Platforms are required to assess the validity of the transactions proposed, also considering the target investors, and the reliability of the technology used (by imposing minimum validation/certification requirements and setting out modalities for verifying the compliance with such obligations). 

Exchange facilities 

• Business models: CONSOB agrees that a technologically neutral approach is preferable, provided that the managing entity of the facility is: (i) clearly identifiable and defines the trading rules, the functioning and the monitoring of the facility; and (ii) able to identify the participants to the facility.
• Requirements of the trading facilities: also in this context, CONSOB envisaged an opt-in/opt-out scenario, similar to the one set out for platforms for the promotion and issuance of cryptoassets. Under the opt-in scenario, for the purposes of enrolment in the CONSOB register, additional requirements in terms of compliance, business continuity, due diligence, transaction monitoring, information on cryptoassets and cyber security could be set out in detail at a secondary level of legislation, on the basis of a proportionality principle, also to allow initial exchange offerings (IEOs). However, even already existing platforms (such as crowdfunding platforms or trading platforms of financial instruments) may be used in the context of the opt-in scenario.
  General requirements and measures, however, will have to be adopted even under the opt-out scenario.

• Cryptoassets not offered through regulated ICO platforms: in order to attract a wider range of cryptoassets to the regulated area, CONSOB will likely allow exchange facility managers registered with CONSOB to trade also cryptoassets that have not been initially offered through regulated ICOs platforms, provided that sufficient information is available to the public. 

Custody and transfer of cryptoassets 

• Custodial wallet providers: while the consultation paper seemed to be based on the assumption that exchange platforms also offer custodial wallet services, it seems appropriate to consider regulating these services independently. To this end, the regulatory proposal could be supplemented so as to identify the requirements that the providers of custodial wallet services should meet, in order to apply for enrolment in the dedicated register to be established by CONSOB.

Among others, the agreement provides for the planning of periodic educational projects reserved to the staff of both institutions as well as to special research projects of training partnerships, aimed at the study of economic and financial events also with regard to the risks connected with the spread of cryptocurrencies.

According to the Communication, in the past few years, the number of suspicious transactions reported in respect of activities related to virtual assets received by the FIU has increased significantly. 

In this context, the FIU provided a non-exhaustive list of anomalous indicators that intermediaries should take into account on a case-by case-basis in order to assess whether to file a suspicious transaction report with FIU or not.

The FIU also reiterated the need to carefully assess any such transaction.

For this purpose, the FIU also published specific instructions for the reporting concerning suspicious use of virtual assets.