Alert

Communication from the Bank of Italy with respect to MiCAR

July 25, 2024

Background

On 29 June 2023, Regulation (EU) 2023/1114 on markets in crypto-assets (“MiCAR”) partially entered into force [1], introducing in the European Union a harmonised framework for the issuance, public offer and provision of services relating to crypto assets which do not fall within the scope of existing EU provision on financial instruments or financial services.

More precisely, the MiCAR covers the following types of crypto-assets:

e-money tokens (“EMT”), aimed at maintaining a stable value by reference to the value of a single fiat currency;
asset-referenced tokens (“ART”), aimed at maintaining a stable value by reference to another value or right or a combination of the two, including one or more fiat currencies;
crypto-assets “other than”, which is a residual category covering crypto assets other than EMT and ART [2].

In particular according to MiCAR:

the issuance, public offer and request for admission to trading of ART is restricted to: (i) entities which obtained the necessary authorisations and subject to the competent authorities’ supervision; (ii) banks, subject to notification to the national authority designated for MiCAR purposes;
the issuance, public offering and application for admission to trading of EMT is reserved for banks and electronic money institutions (IMELs) upon notification to the competent authority;
crypto-assets services (such as exchange, custody and trading services, advisory services, order receipt and transmission, transfer, placement) may be offered by a new category of intermediaries specifically authorised to this purpose, the crypto-asset service providers (“CASPs”), as well as by intermediaries already supervised, in compliance with the limits provided for by the Regulation.

Bank of Italy Communication of 22 July 2024 on MiCar

On 22 July 2022 the Bank of Italy issued a communication concerning the application of MiCAR in Italy.

Based on the framework defined by the draft decree made available for consultation last February, the Bank of Italy and Consob would be designated as the competent authorities in Italy under the MiCAR.

(A) – Bank of Italy

The Bank of Italy would be provided with prudential supervisory powers with reference to: (i) EMT and ART issuers (also with respect to market access) and to CASPs; (ii) – with respect to EMT issuers – transparency, proper conduct and the protection of EMT holders in relation to the issuance of such instruments.

The Bank of Italy would be able to exercise powers of intervention on EMT as well as – when necessary to ensure the stability of the whole or part of the financial system – on ARTs and crypto-assets “other than” EMTs and ARTs.

(B) – Consob

Consob would be designated as the competent authority for the purposes of MiCAR in relation to crypto-assets “other than” EMT and ART, as well as to supervise to transparency, fairness of conduct, orderly trading and customer protection with respect to ARTs and crypto-asset services;

CONSOB will be able to exercise powers of intervention on ARTs and crypto-assets “other than” EMTs and ARTs in order to protect investors and safeguard the orderly functioning and integrity of markets.

Points of attention from the Bank of Italy

With the entry into force of the new MiCAR regime, the Bank of Italy deemed appropriate to draw the attention of the various stakeholders and users to the differences existing among the various categories of crypto-assets, with respect to characteristics, functions and risk profiles with a specific focus on payments made by means of crypto-assets.

In particular Bank of Italy warned that:

crypto-assets “other-than” EMT and ART are not suitable to be used for payment purposes;
the addressees of the communication must pay particular attention when ARTs are offered to customers for payment purposes;
only EMTs have an inherent payment function by virtue of their legal qualification and characteristics including, in particular, the right of redemption recognised in favour of the holder of the token at any time and at par value.

The Bank of Italy provided also with an ad hoc set of points of attention addressed to the different stakeholders taking part to crypto-currencies market.

(A) – points of attention to EMT holders

It shall be ensured that potential holders are fully aware of both the potential risks associated with the technology employed and their rights and obligations in relation to the specific crypto-assets held and, in particular, the right to redemption at par value and the procedures and conditions for exercising such right.

(B) – points of attention to banks and e-money institutions as issuers of EMTs

Banks and e-money institutions intending to issue EMTs are invited to adapt, among other things, their procedures for handling complaints to take into account the specific characteristics of the issuance activity and the relationship with EMT holders.

(C) – points of attention to entities subject to supervision of the Bank of Italy and CONSOB

Supervised entities intending to carry out activities subject matter of the MiCAR should have adequate expertise (including within the board of directors) and shall ensure the full involvement of corporate bodies and control functions from the planning stage of new initiatives adopt procedures to adequately identify, measure and mitigate any financial and operational risks.

Supervised entities shall also pay attention to the management of risks arising from the high degree of interconnection among supervised entities themselves and among them and specialised third parties, (including those which are not supervised entities).

(D) – points of attention to supervised entities outsourcing certain activities

In case of outsourcing to third parties, it will be essential that entities operating in the crypto-asset markets conduct a thorough screening of potential suppliers before entering into the relevant agreements, so as to ensure that the use of third parties does not jeopardise the ability of those same entities to comply with their obligations.

(E) – points of attention to supervised entities performing new activities

Those involved in carrying out the new activities will have to ensure full compliance with the provisions on contrasting money laundering and terrorist financing, including by ensuring the adequacy of the relevant organisational and control structures.

In particular, key to this extent are safeguards aimed at mitigating the risks associated with: (i) transactions involving self-hosted addresses, (ii) the enablement of anonymity processes, (iii) any inconsistency between volumes and types of cryptocurrency transactions and the subjective profile of customers, and (iv) links with high-risk jurisdictions.