Regulation (EU) 2023/1114 on Markets in Crypto-assets (MiCAR). Communication by the Bank of Italy

Following its Communication on Decentralized Technology in Finance and Crypto-assets issued on 15 June 2022 and the remarks by Governor Fabio Panetta in his speech 'Banks and the economy: credit, regulation and growth' at the annual meeting of the Italian Banking Association (ABI) on 9 July 2024, the Bank of Italy has published the Communication on the implementation of Regulation (EU) 2023/1114 on Markets in Crypto-assets (MiCAR). The Bank thus intends to draw the attention of all crypto-asset market players on issues within its remit to facilitate the application of MiCAR, with a view to helping preserve the smooth functioning of the financial and payment systems. The communication, addressed also to the users, highlights the differences between the various categories of crypto-assets, in relation to their characteristics and to the different risk profiles associated with them, especially as regards whether or not they are suitable to perform a payment function.

The EU Regulation is a significant step forward to help reduce regulatory uncertainty and bring some order to the crypto-asset market.

MiCAR has introduced a harmonized framework in the European Union for the issuance and offering to the public of crypto-assets and the provision of services involving crypto-assets. It covers the following types of crypto-assets: i) electronic money tokens (e-money tokens - EMTs), which purport to maintain a stable value by referencing the value of one official currency; ii) asset-referenced tokens (ARTs), which purport to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies; iii) crypto-assets other than EMTs and ARTs.

The MiCAR provisions shall be fully applicable from 30 December 2024. The rules on the issuance, offering to the public and admission to trading of EMTs and ARTs have become effective as of 30 June 2024.

As of the dates specified above, the issuance, offering to the public and admission to trading of ARTs or EMTs, as well as the provision of crypto-asset services, shall thus be reserved to the categories of entities expressly authorized under MiCAR.

The new EU rules on crypto-assets are supplemented by Regulation (EU) 2023/1113, also known as the Transfer of Funds Regulation recast (TFR recast), which has extended to crypto-asset service providers all the anti-money laundering requirements that apply to financial intermediaries.

At national level, draft legislative decrees laying down provisions for adapting the national regulatory framework to MiCAR and the TFR recast were submitted for public consultation on 20 February 2024. More specifically, within the framework defined by the draft decrees, the Bank of Italy and the Italian Companies and Stock Exchange Commission (Consob) will be designated as competent authorities under MiCAR and the Bank of Italy will be granted prudential supervision powers vis-à-vis both EMT and ART issuers (including with regard to market access) and CASPs. As part of its mandate, and limited to EMT issuers, the Bank of Italy will also supervise the transparency, fair conduct and protection of EMT holders in relation to their issuance. It will also be the competent authority for the AML supervision of crypto-asset service providers. This is without prejudice to the Bank's oversight powers on the smooth functioning of the payment system.

As the new regime comes into effect, the Bank of Italy wishes to draw again the attention of the entities concerned and users to the differences between the various categories of crypto-assets. In particular, the Communication: i) highlights the unsuitability of crypto-assets other than EMTs and ARTs - especially unbacked ones - to perform a payment function; ii) urges to be especially vigilant of any ARTs being offered to customers for payment purposes, as these instruments are susceptible to potential fluctuations in their value and, consequently, lack the fiduciary element which is based, first and foremost, on its redeemability at par value; iii) recalls, in accordance with MiCAR, that EMTs are instead inherently suitable as a means of payment.

With regard to the protection of EMT holders, the entities concerned will have to ensure that potential holders are fully aware of both the potential risks associated with the technology used and the rights and obligations attached to the specific token.

Moreover, the Communication points out that the specific characteristics of the different types of crypto-assets and enabling technologies and their suitability, or not, to perform a payment function are also essential to the sound and prudent management of the firm. These aspects will therefore need to be properly taken into account by those intending to start activities governed by MiCAR, so as to define sustainable business models and identify and mitigate the specific financial and operational risks, also in light of the high degree of interconnectedness between crypto-asset market players.

Furthermore, the entities interested in carrying out the new activities will have to fully comply with anti-money laundering and counter terrorist financing provisions, including by ensuring the adequacy of their organizational and control structures.

The Bank of Italy reiterates that it will carry out the tasks entrusted to it, also taking into account the impact that a crypto-asset may have on the smooth functioning of the payment system. The Communication urges all those intending to carry out the activities governed by MiCAR to assess in advance the potential effects of their initiatives and projects on the smooth functioning of the payment system and to start, at an early stage, to evaluate the actions necessary to ensure compliance with the new regulatory requirements. The Bank of Italy reserves the right to exercise the powers referred to in Article 146(2) of the Italian Consolidated Law on Banking (TUB), should the relevant conditions be met, so as to safeguard the functioning of the payment system, its reliability and efficiency and the protection of payment service users.

To help implement the new regime smoothly, as the national legislation is finalized, the Bank has declared in its Communication that it is open to informal discussions to guide any entities interested in launching initiatives in this sector. To this end, the Communication will be followed by the publication of a technical communication inviting crypto-asset market players to contact the competent bodies before formally submitting their notifications and authorization applications and providing guidance on how to submit the relevant documentation.