Cryptoassets for investment and financing
Regulatory threshold
What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in your jurisdiction?
The regulatory regime applying to cryptoassets in Italy depends on their nature and features
Cryptocurrencies are tokens that are used as virtual currencies and are subject to the Italian rules on VASPs, imposing the duty for virtual asset service providers (VASPs) to register in the VASP Register and comply with Italian anti money laundering (AML) obligations. A virtual currency is defined as a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency, but is accepted as a means of exchange for the purchase of goods and services or for investment purposes, and which can be transferred, stored and traded electronically. Pure cryptocurrencies (such as Bitcoin, Ehter, etc) fall within the scope of this definition. The assessment on whether other types of tokens are also subject to these rules must be made on a case-by-case basis.
Investment or security tokens, namely tokens that are issued or used for investment purposes, or reflect equity or debt claims towards an issuer, can be subject to the Italian rules on financial products or financial instruments.
The classification of a token as financial instrument is made on the basis of the categories of financial instruments listed in the Italian provisions implementing the MiFID2. Cryptoderivatives or tokens representing equity or debt claims issued in the context of an STO generally fall within the scope of such definition.
Tokens that do not qualify as financial instruments may still be classified as financial products under Italian law. The notion of financial products is based on the following criteria: (1) investment of capital, (2) the promise of financial return (ie, the person investing the capital must make such investment because of a promise that the value of the investment will increase), (3) undertaking of a risk that is directly connected with the investment of capital.
The notion of financial product is something specific to the Italian regulatory framework, as it does not derive from the EU legislation.
The issue and use of payment tokens, stablecoins and e-money tokens may trigger the application of the rules on payment instruments and e-money implementing the PSD2 and EMD2 Directives. A token can be classified as electronic money if it (1) is electronically stored, (2) has monetary value, (3) represents a claim on the issuer, (4) is issued on receipt of funds, (5) is issued for the purpose of making payment transactions and (6) is accepted by persons other than the issuer.
Stablecoins can be subject to the rules on e-money. Once the MiCA Regulation will be approved, specific rules will apply to the issue of ‘e-money tokens’ and ‘asset-referenced tokens’.
Utility tokens do not normally fall within the scope of specific regulatory obligations, except for certain reporting obligations to the Bank of Italy if they qualify as payment instruments subject to the ‘limited exemption exclusion’ under the PSD2.
As in the case of utility tokens, non-fungible tokens (NFTs) are generally not subject to specific regulatory restrictions or obligations. Under certain circumstances though NFTs can be qualified as financial products and trigger, among others, the obligation to publish an offering prospectus.
Investor classification
How are investors in cryptoassets classified and treated differently?
There is no specific classification applying to investors in cryptoassets.
In case of investment or security tokens, different rules can apply depending on whether the investor qualifies as retail or professional investor in accordance with the Italian provisions implementing the MiFID2.
The following entities are considered to be per se professional clients:
- regulated financial institutions (eg, credit institutions, investment firms, insurance companies, etc);
- large undertakings meeting at least two of the following size requirements on a company basis: balance sheet total of €20 million, net turnover of €40 million or their own funds of €2 million;
- certain public institutions; and
- other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.
Investors that are not included in any of the above categories can ask to be treated as professional clients if two of the following criteria are satisfied:
- the investor has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
- the size of the client’s financial instrument portfolio, defined as including cash deposits and financial instruments exceeds €500,000; and
- the investor works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.
All other investors are classified as retail clients.
The distinction between professional and retail clients can be relevant in case of investment or security tokens, for instance because the Italian rules on prospectus, door-to-door sales and distance marketing of financial products or instruments do not apply if the offer is made only towards professional clients.
Initial coin offerings
What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?
There are no specific rules or restrictions concerning ICOs.
With respect to ICOs concerning virtual currencies, the government recently clarified that the issuer of an ICO is not subject to the duty to register in the VASP Register, unless it offers other services that are relevant in this respect (eg, negotiation, etc).
If the tokens offered in the context of an ICO qualify as financial products or instruments, the ICO is subject to the Italian prospectus obligations – unless the offer is made only towards professional investors or benefit from other exemptions provided for under the Italian framework (eg, minimum subscription amount or nominal amount of €100,000, offer made to fewer than 150 investors, amount of the offer totals less than €8 million, etc).
Security token offerings
What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?
If the security tokens qualify as financial instruments in accordance with the Italian provisions implementing the MiFID2, the STO is subject to the Italian prospectus obligations, unless an exemption applies.
In addition, any entity providing placement, distribution (eg, execution of orders, reception and transmission of orders, etc.) or advisory activities in respect of the STO would need to be licensed to provide investment services in accordance with the Italian provisions implementing the MiFID2.
Stablecoins
What rules and restrictions govern the issue of, and investment in, stablecoins?
There are no general rules or restrictions concerning stablecoins.
Stablecoins may, however, fall within the scope of the definition of electronic money. According to the guidelines given by EU authorities, a token can be classified as electronic money if it (1) is electronically stored, (2) has monetary value, (3) represents a claim on the issuer, (4) is issued on receipt of funds, (5) is issued for the purpose of making payment transactions and (6) is accepted by persons other than the issuer. If the above conditions are satisfied, the issuer of a stablecoin must be licensed to operate as electronic money institution in accordance with the Italian provisions implementing the EMD2 Directive.
Specific rules on stablecoins will be introduced as a result of the entry into force of the Proposal for a Regulation on Markets in Cryptoassets published by the European Commission in September 2020 (the MiCA Regulation).
In particular, under the MiCA Regulation stablecoins can be classified as (1) e-money tokens, being a type of crypto-asset the main purpose of which is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is a legal tender, or (2) asset-referenced tokens, which are those cryptoassets that purport to maintain a stable value by referring the value of several fiat currencies that are legal tender, one or several commodities or one or several cryptoassets, or a combination of such assets.
According to Recital (26) of the MiCA Regulation, the ‘algorithmic stablecoins’ are not considered to be asset-referenced tokens. This notion includes stablecoins that aim at maintaining a stable value, via protocols, that provide for the increase or decrease of the supply of such cryptoassets in response to changes in demand. The exemption applies provided that the stablecoins do not aim at stabilising their value by referencing one or several other assets.
Airdrops
Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?
Through airdrops campaigns cryptoassets are typically distributed for free to the public. Due to this element, it can be argued that airdrops are exempt from the regulations applicable to financial products, as no investment of capital is made by the persons receiving the cryptoassets in the context of the airdrop.
Advertising and marketing
What laws and regulations govern the advertising and marketing of cryptoassets used for investment and financing?
If the cryptoassets qualify as financial instruments (eg, in case of an STO) or financial products, the marketing of such assets would require the publication of an offering prospectus, unless the offer falls within one of the exemptions provided for under Italian law. Additional requirements apply in accordance with the Italian Consumer Code, as well as the Italian provisions implementing the MiFID2 – for example, on transparency of the terms and conditions of the offer, etc.
Trading restrictions
Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?
There are no specific restrictions to the trading of cryptoassets after the initial offering. However, the owner of cryptoassets qualifying as financial instruments or products that were originally sold to qualified investors only cannot subsequently make a public offer of such assets without publishing an offering prospectus.
Crowdfunding
How are crowdfunding and cryptoasset offerings treated differently under the law?
Equity-based crowdfunding activities are subject to a specific authorisation regime under the Italian Financial Services and Markets Supervisory Authority (CONSOB) regulations. The rules are expected to be repealed or amended in the context of the entry into force and implementation of the EU Crowdfunding Regulation, which will also apply to lending-based crowdfunding activities.
In 2019 CONSOB proposed to apply to cryptoasset service providers the same rules applicable to equity-based crowdfunding platforms under the CONSOB regulations. The proposal was never implemented though – also due to the publication of the MiCA Regulation in September 2020.
Transfer agents and share registrars
What laws and regulations govern cryptoasset transfer agents and share registrars?
There are no laws and regulations governing cryptoasset transfer agents and share registrars. The services offered by such entities may however fall within the scope of the Italian registration obligations for VASPs. A specific regime on the trading of DLT securities will apply under the Regulation on the distributed ledger technology (DLT) Pilot Regime that is going to be approved at EU level.
Anti-money laundering and know-your-customer compliance
What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?
If the cryptoassets qualify as virtual currencies – or if the business carried out in respect thereof constitutes a regulated business requiring a license to operate as investment firm (MiFID2), e-money institution (EMD2) or payment institution (PSD2) – the services performed in relation to virtual currencies are subject to the Italian AML obligations, including (1) the customer due diligence requirements, (2) the duty to monitor the relationship with the client (eg, transaction monitoring), (3) the duty to report suspicious transactions to the Italian FIU and (4) the duty to refrain from carrying out a transaction or establishing a business relationship if it is not possible to discharge the applicable AML obligations.
Sanctions and Financial Action Task Force compliance
What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism financing principles, and Financial Action Task Force (FATF) standards?
The FATF rules are implemented in Italy under the Italian AML Decree.
