As a member state of the European Union, Italy's financial regulation framework is subject to EU directives and regulations including key legislation such us the Prospectus Regulation, the Markets in Financial Instruments Directive (MIFID), the Alternative Investment Fund Managers Directive (AIFMD) and the Anti-Money Laundering Directive.
Italy's main financial supervisory authorities are the Bank of Italy (entrusted to supervising the sound and prudent management as well as the financial stability of financial intermediaries) and CONSOB (entrusted to ensure investors protection and that financial intermediaries offer investment products in a fair and transparent manner).
To date, there are no specific laws or regulations in Italy directly addressing digital token sales, neither Bank of Italy nor CONSOB have issued any statement on this. Yet, pursuant to the principle of technological neutrality of the regulation, token sales may well fall within the scope of the existing legal framework regarding the offer of "financial products".
Instead, "virtual coins" have recently been defined and regulated by the Italian Anti-Money Laundering Code.
Italian Consolidated Law on Finance
The applicability to ICOs of the provisions set forth by the Italian Consolidated Law on Finance (TUF)232 - which include most of EU's regulatory framework on securities - must be assessed on a case-by-case basis. With regard to the requirements to publish a prospectus, the investigation should be aimed at verifying:
the qualification of digital tokens as "financial products" pursuant to art. 1, paragraph 1, lett. u) of TUF, which includes both "financial instruments" (such us stocks, debentures, units of undertakings for collective investments, derivatives etc.) and "any other investment having a financial nature";
the existence of a communication by the issuer aimed to enhance the purchase or subscription of these financial products and, consequently, at least to represent the main features of the same; and
if the offer is directed to investors domiciled in Italy.
If the offer meets all three of these requirements, a token sale should be treated as a public offer of financial products, as defined in art. 1, paragraph 1, lett. t) of TUF, resulting in the obligation to publish a prospectus.
In most cases the qualification of tokens as "financial products" will essentially depend on whether tokens should be qualified as falling within the residual category of "any other investment having a financial nature". According to CONSOB consolidated position, the notion of "investment having a financial nature" requires the coexistence of the following conditions:
a capital investment;
expectation of a financial return; and
assumption of a risk directly connected to the capital investment.
From a broker perspective, the qualification of the token as a "public offer of financial products" may also result in the application of the provisions of TUF on (i) "investment services and activities"; (ii) collective asset management (in case of upstream management of resources collected by third parties).
Italian Anti Money-Laundering Code
The Italian Anti-Money Laundering Code233 has introduced a definition of (i) "virtual coins", and (ii) "exchangers" of virtual coins.
In particular, virtual coins are defined as "the digital representation of a value, not issued by a Central Bank or Public Authority, [...] used as an exchange instrument for the purchase of goods and services and transferred, stored and negotiated electronically", while exchangers are defined as "persons providing [...] on a professional basis services relating to the use, exchange, and keeping of virtual coins and to their conversion into fiat currencies".
Therefore, generally speaking, cryptocurrencies exchange platforms shall comply with anti-money laundering provisions (KYC, etc.).
Italian Consolidated Law on Banking (E-money)
Art. 1, paragraph 1, lett. h-ter) of the Italian Consolidated Law on Banking, 234 implementing the E-money Directive,235 defines electronic money as "electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions [...], and which is accepted by a natural or legal person other than the electronic money issuer".
However, Bank of Italy (see par. II hereinafter) has confirmed that cryptocurrencies do not fall within the scope of e-Money regulations.
Italian Law on Payment Services
Payment services are regulated by Italian Legislative Decree no. 11/2010, as amended. Generally speaking, to the extent that cryptocurrencies (and/or tokens with "currency" nature) should not be considered as e-Money according to the Bank of Italy position, they should not be subject to the regulatory framework on payments services.
In Italy, commodities are mainly considered by TUF in the context of the provisions on "derivatives on commodities". In this respect, there are no elements which appear to be particularly significant for the purposes of this paper, except that it is not possible to exclude that digital tokens may also present typical features of derivatives.
Italian Consumer Protection Code
The Italian Consumer Protection Code contains provisions to protect "consumers" (i.e. "any natural person acting for purposes which are outside his trade, business, craft or profession") when dealing with "professionals", (i.e. "persons who act for purposes relating to their trade, business, craft or profession and anyone acting in the name of or on behalf of a trader"). In this respect, any promotional activity connected to an ICO when carried out between a professional and the generality of consumers shall comply with such regulatory framework (see also par. III). In addition, if the token sale is carried out by distance, provisions on "distance marketing of consumer financial services" will apply if the tokens can be qualified as "financial services" (meaning for the purpose of the Italian Consumer Protection Code "every service having a banking, credit, payment, investment, insurance or social security nature").
Critical thoughts and comparative analysis
Although there are no specific laws or regulations in Italy directly addressing digital token sales, token sales - pursuant to the principle of technological neutrality of the regulation - may well fall within the scope of the existing legal framework regarding the offer of "financial products", resulting in the potential application of provisions on prospectus, investments services, alternative investment fund managers etc. However, there may be a high degree of uncertainty on many issues including, for instance, whether and under which circumstances (i) utility tokens should be qualified as "financial products"; (ii) investment tokens should be qualified as financial instruments or as financial products; (iii) tokens that qualify as "financial products" are subject to all the provisions on investment services; (iv) "reverse solicitation" exemption applies to token exchange platforms. A statement from CONSOB or Bank of Italy addressing these issues is needed.
The ICO phenomenon does not seem to be satisfactorily captured by existing Italian and EU regulations. A "Regulation Crypto" - introducing ad hoc rules for token sales - is probably necessary to adequately ensure investor protection and to give certainty to the issuers and intermediaries, kicking "cowboys" out of the market.****
Author - Francesco Dagnino, LEXIA Avvocati (www.lexia.it)