Italy has not implemented a direct legislation on virtual currencies. Current debate is centered on where virtual currencies should lie in the regulatory arena. Most commentators suggest that Bitcoin should fall under the regulation of an emended Electronic Money Directive (2009/110/EC). Other commentators suggest that virtual currency schemes like Bitcoin fall under the Payment Services Directive (2007/64/EC), which has been implemented into Italian law by Legislative Decree no. 11 of 27 January 2010. However, the recognition of virtual currencies appears linked with the evolution of ”payment instrument”, as defined by current regulation. In this regard, the Central Bank of Italy analyzed the case of Bitcoin ad highlighted the risks of virtual currencies on its Financial Stability Report of May 2014.
Italy has not implemented a direct legislation on virtual currencies. Current debate is centered on where virtual currencies should lie in the regulatory arena. Most commentators suggest that Bitcoin should fall under the regulation of an emended Electronic Money Directive (2009/110/EC), as this Directive uses three criteria to define electronic money: (i) it should be stored electronically; (ii) issued on receipt of funds of an amount not less in value than the monetary value issued; and (iii) accepted as a means of payment by undertakings other than the issuer. Yet for such commentators, Bitcoin probably complies with the first and the third criteria, but not with the second, and conversion into another currency is not envisaged in the Directive. In fact, Art. 11 explicitly says that “Member States shall ensure that, upon request by the electronic money holder, electronic money issuers redeem, at any moment and at par value, the monetary value of the electronic money held”. This cannot be ensured in a virtual currency scheme.
Other commentators suggest that virtual currency schemes like Bitcoin fall under the Payment Services Directive (2007/64/EC). This Directive lays down rules on the execution of payment transactions where the funds are electronic money, yet it does not regulate the issuance of electronic money, nor does it amend the prudential regulation of electronic money institutions as provided for in the Electronic Money Directive. Therefore, the new category of payment service provider it introduces – payment institutions – should not be allowed to issue electronic money. As a consequence, Bitcoin clearly falls outside the scope of the Payment Services Directive.
Directive 2007/64/EC on payment services (PSD) has been implemented into Italian law by Legislative Decree no. 11 of 27 January 2010 (the “Legislative Decree”). Following this, the Legislative Decree has been implemented by a specific Regulation issued by the Bank of Italy (the “Financial Regulator”) on July 5, 2011. Article 31 of the Legislative Decree assigns on its part to the Bank of Italy the authority to issue measures implementing the provisions of Title II of the Legislative Decree, specifically with regards to the definition of rights and obligations of parties involved in the provision of payment services, circumstance which directly affects the issue at hand (definition of payment instrument).
Under the Legislative Decree, virtual currencies may not be regarded today as a “payment service”. “Payment service” is inter alia regarded (Article (1)(1)(b)(7)) as the performance and execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device, and the payment is made to the telecommunication, IT system or network operator acting only as an intermediary between the payment service user and the supplier of the goods and services. The Legislative Decree expressly does not apply inter alia to payment transactions executed by means of any telecommunication, digital or IT device, where the goods or services purchased are delivered to and are to be used by means of a telecommunication, digital or IT system or device (e.g. online services, cable tv, etc.). In this respect, such intermediary must not be confused with the payment intermediary, which is an authorized operator actively involved in the payment intermediary process, i.e. managing an payment account on which the transfer of funds is performed between payer and payee (under the general provisions, such payment intermediary may be: a bank, a payment institution, an electronic money institution or the Postal services).
The lack of an official regulatory recognition of virtual currencies implies that such currencies may not be regarded as “payment instrument” under the Legislative Decree, defined as any personalized device(s) and/or set of procedures agreed between the payment service user and the payment service provider used by the payment service user in order to initiate a payment order (Article 1(1)(s)). This definition evolves the earlier definitions of “payment instruments” adopted in previous regulatory measures (for example, the definition contained in article 1, let. m) of Regulation of 24 February 2004 of the Financial Regulator, whereby such instruments were defined as “any paper or electronic mechanism capable of performing a money transfer or receipt”).
The Central Bank of Italy has also analyzed the case of Bitcoin, and highlighted the risks of virtual currencies on its Financial Stability Report of May 2014. In this Financial Report, the Bank of Italy defined a virtual currency as a form of unregulated, digital money, issued and controlled on the basis of computer algorithms that can be accepted on a voluntary basis by the parties to a transaction as a means of payment alternative to legal tender, in accordance with the analysis carried out by the European Central Bank. According to the Bank of Italy, the circulation of virtual currencies is substantially limited in Italy so far, representing around 12.5 million Virtual currencies in circulation for an exchange value of around €6 billion (at the average exchange rate in March 2014).
For the Bank of Italy, virtual currencies have a purely fiduciary value that is not controlled or guaranteed by any Central issuing bank, which partly explains why it is highly volatile and carries significant risks for holders. The anonymity of the transactions, by facilitating the avoidance of legal constraints on the transfer of funds, means that this virtual currency can serve illegal purposes. There are no known cases of “Bitcoin” having been used to any significant extent by regulated financial intermediaries; accordingly, to date there have been no consequences for the stability of the financial system or for the monetary policy transmission mechanism.
In addition, for the Bank of Italy, the most serious risks linked to the use of virtual currencies – aside from its serving illegal purposes – relate to consumer protection. In this regards, the Bank of Italy, following the December 2013 warning of the European Banking Authority, highlighted the insolvency of the large Japanese platform (Mt Gox) for the deposit and exchange of Virtual currencies, triggering heavy losses for users, who apparently have no protection whatsoever. On July 9, 2014, the Financial Intelligence Unit (FIU) presented its Annual Report, highlighting again that virtual currencies may generate risks for the financial integrity, given the possible assistance in money laundering schemes and financing terrorism.
The recognition of virtual currencies appears linked with the evolution of ”payment instrument”, as defined by current regulation. In this respect, it appears also clear that the valid expression of consent also plays a crucial role in the eventual acceptance of a crypto-currency, i.e. the direct utilization of a recognized title issued by the authorized operators acting in the issuing circuit and operated by authorized dealers or operators acting in the acquisition network.
It is worthy to note in this respect that a lengthy debate has evolved in Italy with respect to the draft PSD2 Directive, particularly in view of addressing issues which may arise with respect to confidentiality, liability or security of transactions by means of new electronic payment instruments. Payment services provided within a “limited network” or through mobile phones or other IT devices have been proposed, yet as of today no specific regulation has been adopted at national level, albeit the topic had been already raised during the public consultation exercise launched by the Regulator on the initial circulated draft of the Legislative Decree adopted on PSD1.