The Legislative Decree adapting the national rules to the EU Regulation "MiCAR".

On 24 June 2024, the Council of Ministers approved the draft Legislative Decree adapting the national rules to the EU Regulation, so-called MiCA. While, on the one hand, the Regulation defines what is to be understood by cryptocurrency, on the other hand, the Government regulates on the domestic side supervisory powers, controls, violations and related sanctions.

Approved by the Council of Ministers the Decree regulating, in the field of crypto-activities, in continuity and in complementary connection with the MiCA Regulation, the activity of supervision, control, as well as violations, pathological situations in general and the sanctioning regime.

Supervision: Consob and Bank of Italy.

Supervisory competences are entrusted to Consob and the Bank of Italy. These competences are complementary and differ in their areas of operation and specific objectives.

In particular, Consob's supervisory power over crypto-assets will be exercised in these areas:

1. compliance with the rules on the transparency and propriety of the conduct of crypto-assets market operators;

2. publication and content of the crypto-assets white paper;

3. marketing communications and ongoing information to holders of asset-linked tokens.

Consob has investigative powers, such as personal hearings, inspections and the gathering of information from supervised entities. It can impose administrative sanctions and take corrective measures in the event of regulatory violations.

It will also be the contact point for cross-border administrative cooperation with ESMA (European Securities and Markets Authority) and the competent authorities of other Member States.

Consob will also have powers aimed at investor protection. Specifically, it will ensure that token issuers and cryptocurrency service providers act in the best interests of token holders. It will also oversee the management of conflicts of interest and complaint-handling procedures.

The Bank of Italy's powers will primarily concern prudential supervision: it will oversee the capital adequacy and risk containment of issuers of asset-linked tokens and service providers for crypto assets; it will also have investigative and supervisory powers, including the possibility to conduct inspections and collect information. It will be able to impose administrative sanctions and corrective measures, including the suspension of operations in case of serious irregularities.

The Bank of Italy will also have a role in crisis management, and will be responsible for resolution procedures for token issuers and crypto-asset service providers. It will be able to order compulsory administrative liquidation and other extraordinary measures in the event of severe capital losses or insolvency.

It will also oversee the proper functioning of the payment system, ensuring the security and efficiency of financial transactions.

Between the two authorities, therefore, the regulatory focus is divided as follows:

• Consob: focuses on market transparency, fairness of information and investor protection.
• Bank of Italy: focuses on financial stability, prudential supervision and oversight of the payment system.

Infringements and Sanctions.

The Legislative Decree provides for a number of specific violations and related penalties of both a criminal and administrative nature. These mainly concern the regulation of crypto-activities, market transparency, investor protection and the proper management of financial assets. Specifically, the offence of abuse is introduced (Art. 30), punishable by 6 months to 4 years and a fine from EUR 2.066 to EUR 10.329. It concerns anyone who offers activity-linked tokens to the public, provides cryptocurrency services, issues electronic money tokens or offers electronic money tokens to the public without the necessary authorisations.

Violations of the provisions of Regulation 2023/1114/EU (Art. 31) are subject to administrative sanctions. They mainly concern non-compliance with the provisions on transparency, management of conflicts of interest, marketing communications, ongoing information to token holders, and regulatory and implementing technical standards. Penalties for legal persons range from EUR 30.000 to EUR 5 million or up to 3% of total annual turnover for minor violations; up to 12.5% of turnover for more serious violations. For natural persons, they range from EUR 5.000 to EUR 700.000.

Violations of the rules on insider dealing and market manipulation (Article 33) consist of insider dealing, the unlawful disclosure of inside information and market manipulation. They carry a penalty of between EUR 5.000 and EUR 5 million.

The liability of the Entity is also provided for (Article 34) for violations committed in the interest or to the advantage of the Entity concerning the abuse of inside information, the unlawful disclosure of inside information and market manipulation.

The penalty ranges from EUR 30,000 to EUR 15 million or up to 15% of the total annual turnover.

The organisation is not liable if it proves that the persons acted solely in their own interest or in the interest of third parties.

Lastly, failure to cooperate or follow up in investigations is also punished (Article 35) with penalties of between EUR 30.000 and EUR 5 million or up to 10% of total annual turnover, for legal persons, and between EUR 5.000 and EUR 5 million, for natural persons.

The framework is completed by the provision of ancillary measures (Article 36, disqualification from management functions). In the case of serious violations, disqualification from exercising management functions in cryptocurrency service providers may be applied for a period of six months to three years.

Administrative sanctions are applied by the Bank of Italy and Consob according to their respective competences. The measure applying the sanctions is published without delay on the website of the authority that adopted it.

Power of inspection.

On the inspection side, supervisory authorities have powers of intervention and investigation. They may conduct inspections, collect information and impose administrative sanctions.

The Bank of Italy and Consob may also conduct searches and seizures subject to authorisation by the public prosecutor.

In their supervisory activities, the Bank of Italy and Consob cooperate with other national and international authorities to ensure effective supervision and regulation of the cryptocurrency market.

With this Decree, the legal regulation of crypto-activities in Italy takes a further step forward and a scenario begins to emerge with which we need to familiarise ourselves, because the crypto-activity phenomenon is only in its infancy and the trend will be towards its increasing expansion and spread.

Grandfathering Clause and improvements.

The grandfathering clause, entities already registered in the OAM's registry by 27 December 2024 and which apply for a MiCA license before 30 June 2024, will be able to continue providing their services until 30 December 2025?under the current regime (or until the license application is approved / rejected).??

In particular:

• extending deadline for IT VASPs to apply for CASP license in order to benefit from a transition, from 30 December 2024 to 30 June 2025,
• extending the transition period from 10 months to 12 months (i.e. aligned with the ESMA recommendation), and
• extending the deadline for VASPs to publish info on their licensing plans from 1 Dec 2024 to 31 May 2025.?

Final Considerations.

In its current formulation, the text consists of 48 articles - as opposed to 47 articles in the draft submitted for consultation - and in particular has an additional article, number 44, which makes amendments to the so-called DL Fintech (DL No. 25/2023), now Law 52 (Dlt Pilot Regime) by introducing provisions to ensure a strategy for the issuance of digital financial instruments that are not booked with an SS DLT or a TSS DLT.

Antonio Lanotte is a Chartered Tax Adviser and Senior Auditor, International Tax Advisor and Business Consultant, Of Counsel Deotto Lovecchio & Partners and in the BOA of the Vernewell Group.

He is a GBBC Ambassador for Italy, a Member of the Dynamic Coalition on Blockchain Assurance and Standardization (DC-BAS), a Member of the Panel of Experts at EUBOF (European Commission), a Member of the Advisory Council at Blockchain for Europe, and a Member of the Scientific Committee at Italia Fintech.