Italy towards the implementation of a legal framework on Blockchain
The Ministry of Economic Development launched a public consultation setting out recommendations for DLT and blockchain in several fields, including the regulatory banking and financial industry. The plan is to set out a competitive legal framework for promoting investments.
On 18 June 2020, the Ministry of Economic Development issued for public consultation a document including recommendations on how DLT and blockchain may be utilized to and improve the business in several fields, including the regulatory banking and financial industry (the “Recommendations”).
The main Recommendations concern:
- FinTech and digital payments: promoting the developments of blockchain technology applied to payments in Italy would have a vital positive economic impact on the market and enable Italy to become an essential hub at a global level in this industry.
- AML: the AML legal framework needs intermediaries to manage AML checks vis-à-vis consumers, including KYC. In this context, the blockchain technology may be utilized to trace and record the KYC carried out by an intermediary so that other market operators can take benefit of such identification. The application of the blockchain would thus drastically decrease the time and cost to comply with KYC obligations. In this regard, the adoption of Self Sovereign Identity (SSI) solutions would have a meaningful impact. Added benefits may occur if the application of simplified consumer due diligence measures were to be provided under the applicable AML legal framework for crypto-asset exchange transactions below a certain threshold. The thresholds recently offered concerning e-money products may also be used in this case.
- Initial Coin Offering and Security Token Offering (ICO/STO): the lack of a harmonized framework at an EU level on this causes uncertainty and concerns amongst market players. To avoid any pessimistic consequences for Italy in terms of international competition, both ICO/STO definitions should be clarified, ensuring a wide offering of them in the market. The Recommendations also suggest defining utility and security token.
- Cryptoassets: the Italian AML legal framework presents a definition and regulation of virtual currencies, which deviates from the provisions set out under Directive (EU) 2018/843 (so-called 5AMLD). It would be required to align the Italian legal framework as well as to interject a difference between the custodian and non-custodian wallet providers. Finally, the Ministry of Economic and Finance is still to establish the long-awaited decree, setting out the registration requirements for virtual currency service providers in a dedicated section of the OAM register. The draft of the mentioned decree issued under consultation in February 2018 should be reviewed accordingly. The requirements applicable to merchants receiving virtual currency as remuneration for their goods or services set out therein should be deleted.
- Central Bank Digital Currency: Italy may encourage vis-à-vis the ECB the development of a CBDC (Central Bank Digital Currency). The relevant Recommendation emphasizes many assertive 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.
Blockchain would have a meaningful impact on the financial and banking sector. However, there are still many difficulties to overcome to secure greater usage of this technology, involving the lack of general awareness and understanding of advanced technological systems. A national legal framework intended at establishing regulatory certainty and promoting European dialogue on blockchain may further address these challenges.