Different opinions and views from the Bank of Italy on the crypto issue: encourage or discourage them?
The debate on what action to take for the Bank of Italy has been going on for a while now as it looks for new ways to integrate blockchain technology according to EU laws. Let’s take a detailed look at what’s going on.
Summary
Bank of Italy and crypto: all the actions being taken
The Bank of Italy is looking for new ways to implement distributed ledger technology (DLT) and is preparing for the advent of the Markets in Crypto-Asset (MiCA) regulation, said bank governor Ignazio Visco at a congress of Assiom Forex, the Italian financial markets association, on 4 February.
DLT can offer benefits such as cheaper cross-border transactions and greater efficiency in the financial system, Visco said.
The Italian central bank is focused on identifying areas where DLT can contribute to financial stability and consumer protection.
Visco expressed a desire to see regulations dividing the cryptocurrency market to separate highly risky instruments and services that take resources away from productive activities and collective welfare from those that bring tangible benefits to the economy.
Indeed, he stated:
“The spread of the latter can be encouraged by developing rules and controls similar to those already envisaged in the traditional financial system; the former, on the other hand, must be strongly discouraged.”
Visco also specifically mentioned “crypto-assets without intrinsic value” as belonging to the first group. The Bank of Italy is working at the European and global level to develop technology and a standards framework, Visco said.
It is also working with CONSOB and the Ministry of Economy and Finance to initiate the “authorization and supervisory activities” of MiCA. Italy recently imposed a 26% capital gains tax on crypto-asset trading of more than 2,000 euros ($2,150).
However, Italian taxpayers can choose to pay a 14% tax on their cryptocurrency holdings starting 1 January. This alternative is intended to incentivize taxpayers to declare their digital holdings.
Visco estimated that only 2% of Italian households hold crypto assets and said these holdings were “modest amounts on average.”
Italian capital gains tax on crypto-asset trading
On 29 December 2022, just days before the end of the year, the Italian Senate approved the budget for 2023, which includes an increase in taxation for cryptocurrency investors.
A 26% tax on capital gains on cryptocurrency trading over 2,000 euros (about $2.13).
The approved legislation defines crypto assets as a digital representation of value or rights that can be transferred and stored electronically, using distributed ledger technology or similar technology.
Previously, cryptocurrencies were treated as foreign currencies in the country, with lower taxes. Instead, the new bill also stipulates that taxpayers will have the option to declare the value of their digital assets starting 1 January and pay a 14% tax.
Incentives aimed at encouraging Italians to disclose their digital assets. Among other changes introduced by the budget law are tax amnesties to reduce penalties on missed payments, tax incentives for job creation, and lowering the retirement age.
Also included are 21 billion euros ($22.4 billion) in tax breaks for businesses and households facing the energy crisis.
The Italian legislation follows the passage of the Markets in Crypto Assets (MiCA) bill on 10 October, which establishes a consistent regulatory framework for cryptocurrencies in the 27 member countries of the European Union. MiCA, in turn, is expected to take effect in 2024.
Bank of Italy follows EU on crypto regulation
As anticipated, the Bank of Italy is also working on various applications of distributed ledger technology (DLT), including the EU pilot project for market infrastructure regulation.
European Union (EU) regulators have determined how to apply to operate a financial market based on distributed ledger technology (DLT), paving the way for a new pilot scheme that is expected to begin this month.
Lawmakers on the bloc believe the technology behind cryptocurrencies could eliminate middlemen when trading financial instruments such as stocks, bonds and other securities.
However, there have been concerns about whether regular retail investors will be able to access the benefits in practice, especially since they will have to test the issue first.
The guidance issued in December by the EU, referring to distributed ledger technology, states the following:
“When the users of the platform are ordinary people, rather than, for example, an investment banker, the applicant should clearly indicate to the national competent authority for its assessment what the experiences are (e.g. through his education, training, experience professional, etc.) who demonstrate a sufficient level of knowledge of the operation of DLT technology.”
In any case, there were concerns that the obstacle could prove to be a deterrent to the use of DLT compared to existing ways of accessing financial markets, especially if each EU country does it differently.
The guidance from the European Securities and Markets Authority (ESMA) is non-binding, but national authorities will have to explain any decision not to follow it. Even though they take effect this month, along with the rest of the rule changes, applicants are strongly encouraged to bring forward the formal entry into force of the guidance, ESMA says.
In principle, the new regime is open to existing markets and new entrants. Comments on the draft were received from firms representing investment firms, trading venues and securities depositories, ESMA said.
Italy failed to verify the compliance of its crypto firms: here’s what happened
This summer, a number of major crypto companies, including Coinbase, Binance and Crypto.com, announced that they had obtained regulatory approval to continue operating in Italy.
Indeed, the companies were listed in a registry established to ensure that the companies complied with the country’s anti-money laundering standards. The “Organismo Agenti e Mediatori (OAM)”, a supervisory body in Italy that maintains lists of financial agents such as credit brokers and money changers operating in the country, has been indeed working hard.
While regulators are usually criticized by the industry for delays in processing applications, Italy’s OAM quickly added 73 cryptocurrency companies to its new list of virtual currency service providers, which was only opened in May.
Gaining regulatory approval or qualifying for registration with a local regulator indicates to investors that a company has been vetted by the country’s competent authorities.
However, in Italy, the regulatory approval alluded to in these statements may not carry the security weight it implies.
In fact, although registration with the OAM is now mandatory to continue operating in the country, no company has been vetted before being added to the list.
The OAM has confirmed that it is still deciding how to collect relevant data from companies and will probably not start collecting information until next year.
This means that Italian regulators are not currently monitoring the flow of funds or the controls in place to prevent criminals or malicious people from using these platforms to move money.
