Five strategic areas for 2022 are:

• Monitor and update the prudential framework for supervision and resolution 
• Revisit and strengthen the EU-wide stress-testing framework 
• Banking and financial data: leverage the EUCLID 
• Digital Resilience, Fintech and Innovation: deepen analysis and information-sharing 
• Fight AML/CFT and contribute to a new EU infrastructure.

Two horizontal priorities for policy work

• ESG: provide tools to measure and manage risks
• COVID-19: monitor and mitigate the impact.

The measures aim to enhance the existing EU framework by taking into account new and emerging challenges linked to technological innovation. These include virtual currencies, more integrated financial flows in the Single Market and the global nature of terrorist organisations

The package consists of four legislative proposals:

• A Regulation establishing a new EU AML/CFT Authority;
• A Regulation on AML/CFT, containing directly-applicable rules, including in the areas of Customer Due Diligence and Beneficial Ownership;
• A sixth Directive on AML/CFT (“AMLD6”), replacing the existing Directive 2015/849/EU (the fourth AML directive as amended by the fifth AML directive), containing provisions that will be transposed into national law, such as rules on national supervisors and Financial Intelligence Units in Member States;
• A revision of the 2015 Regulation on Transfers of Funds to trace transfers of cryptoassets (Regulation 2015/847/EU).

A Q&A on the proposals was also published.

The Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021, which gives effect to the European Union’s Fifth Anti-Money Laundering Directive, requires VASPs to register with the Central Bank for AML/CFT purposes only. 

VASPs established in Ireland and carrying on business as a VASP immediately prior to the 2021 Act coming into force, have three months to apply to the Central Bank for registration. It will be a criminal offence to operate as a VASP in Ireland in the absence of registration.

For the purposes of the legislation, VASPs are firms that provide any of the following services relating to virtual assets:

a) exchange between virtual assets and fiat currencies;

b) exchange between one or more forms of virtual asset;

c) transfer of virtual assets, that is to say, to conduct a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another;

d) custodian wallet provider; and

e) participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset or both.

The regulator said that it takes a technology neutral approach, looking at the "substance" of the activity in question, rather than "the form". As such, certain activities related to tokens are already captured by existing regulatory framework.

 The guidance said:

"In the Isle of Man, any person carrying on regulated activity, or any business which requires registration under the Designated Business (Registration and Oversight) Act 2015 must comply with the Anti-Money Laundering and Countering the Financing of Terrorism Code 2019."

 The guidance covers:

• Security tokens.
• E-money tokens.
• Unregulated token activities and anti-money laundering/combating the financing of terrorism requirements.

The FMLC expressed its concerns in respect of the limited definition of "virtual currencies" in the Fifth Money Laundering Directive, which it said could lead to "unintended and unhelpful consequences".

"These include the direct consequences of under-regulation and confusion as to the categorisation of virtual currencies and how legislative definitions apply thereof, as well as the indirect consequences of increased criminal activity and attempts by entities to remain outside the regulatory perimeter. The result of the exclusions in the definition of 'virtual currencies' is that it leaves loopholes by the means of which persons or entities might be able to engage in those activities," the letter said.

Central bank digital currencies are also excluded from the definition, but the FMLC argued that excluding any exchange token which may have reached the "legal status of currency or money" may exclude from regulatory oversight the very actors and types of virtual currencies likely to be used for money laundering, "namely wallet providers or providers of exchange services between virtual and fiat currencies."

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.