Registration requirement for cryptocurrency traders with fallout for investors

In the actual digitalized world the number of professional entities offering services pertaining to the "cryptocurrencies" or "virtual currencies" (1) is increasing. Through these subjects, it is possible to conclude many different transactions, such as the exchange and conversion of crypto to a trust currency (e.g. Bitcoin to Euro) or to other virtual currencies (e.g. Bitcoin to Ethereum).

Through such entities it is also possible to hold and store virtual currencies, as well as to receive and transmit crypto orders on one's own behalf or on behalf of third parties.

The existence of these service providers can produce strong positive effects for crypto-assets with a consequent impact on the real economy, resulting from the possibility of benefiting from increasingly fluid, efficient and instantaneous "money" transfers. Despite this, some issues may arise regarding the possible distorted use that could be made of these tools, which, are abstractly suitable to foster phenomena of money laundering and financing of illicit activities.

In this perspective, the legislator recently intervened by implementing the EU Directive 2018/843 (2). In this way, it introduced the obligation for all the subject which operate professionally in Italy, including through online platforms, to register in the special section of the public register held by the Management Body of Credit Agents and Brokers (OAM) (3).

More specifically, by Ministerial Decree of January 13, 2022, the Italian Ministry of Economy and Finance established that, as of May 16, the providers of services related to the use of virtual currencies and digital wallets must, when they intend to operate in Italy, communicate their activity to the OAM, which will proceed to their registration in the abovementioned special section of the digital register.

For the purposes of this registration, the entities shall meet the requirements set out in Art. 17-bis, Par. 2, of the Legislative Decree no. 141/10, which are:

-   individuals must have Italian or EU citizenship or, at least, elect their domicile in Italy;

-    entities, must set their registered and administrative office in Italy, or, at least, if they’re incorporated in another EU Member State, must operate in Italy with a permanent establishment.

It is important to note that, the registration procedure can be completed, for those entities which were already operating in Italy on 16 May, within 60 days from the date of entry into force of the register and, therefore, no later than 15 July 2022.

However, the Ministerial Decree provides that, once the communication has been made, the OAM has 15 days to verify that the documentation received is regular and complete and to oppose, if necessary, its refusal to registration, by giving timely and reasoned notice to the interested party, who may, in any case, then submit a new application for registration.

Should the OAM find that the legal requirements have not been complied with, without any subsequent regularization by the operator, or should the activity be exercised in the absence of timely communication by the same, the activity will be considered abusive, with the consequent application of the administrative fine referred to in paragraph 5 of Article 17-bis of Legislative Decree 141/2010 (from € 2,065 to € 10,329). 

So, while this new legislation is to be welcomed, in so far as it allows a survey to be carried out of those who professionally offer crypto-asset brokerage services on the market, monitoring their activities and their economic scope, it also presents several practical application problems. 

Apart from the high costs of registration (which range from €500 for individuals to €8,300 for legal entities), the regulatory provision does not clarify whether the registration obligation also extends to entities that exchange crypto-assets, that are not strictly usable as means of payment, such as non-fungible tokens, better known as NFT. 

It is unclear whether or not a marketplace that exchanges NFT for virtual currency has to comply with the obligations of the Decree. The answer appears to be negative, because the Italian Ministry of Economy, in its answer to Parliamentary Question No. 5-06521 of 8th September 2021, has removed from the final text of the Decree the reference to traders which accept virtual currency as remuneration for any supply of goods, services or other utilities and, therefore, also as remuneration of a virtual token. 

The regulation, therefore, would appear to cover only those entities that offer services involving cryptocurrency to third parties on a professional basis, with the exception, however, of the activity related to mere own-issue of cryptocurrencies, which, if it’s not carried out on a professional basis and on behalf of clients, do not in itself appears to be sufficient in order to qualify the operators as "service providers relating to the use of virtual currency" as required by the law (4). 

In the absence of further clarification from the Italian Authority, however, it is foreseeable that there is a risk of an excessive broadening of the scope of the regulations, with the extension of the obligations set therein also to entities or sectors that are perhaps very unrelated with the real activity of cryptocurrency brokerage.

In addition, there must be taken into account also the fallout effects that the obligation for these entities to be registered in public registers brings for the private investors
In addition to the registration duty, in fact, the Decree also requires the operators to collect and transmit information on the transactions carried out, which may, among other things, be made available to the Italian Ministry of Economic and to the Italian Tax Authority.

Specifically, the provision states that operators must electronically inform the OAM, on a three-monthly basis, by the 15th day of the month following the end of the quarter in question, with the data relating to the transactions carried out and, specifically, with the identification details of each individual customer and the summary data relating to the overall activity carried out.

The OAM, upon request, will have to provide such information to all institutional entities engaged in the fight against money laundering and tax monitoring. Prominent among the subjects are the Financial Administration, as well as the National Anti-Mafia and Anti-Terrorism Directorate. 

Through such information, the Tax Authority will be able to identity the individuals who have been trading in cryptocurrencies. 

In addition, it will be able to verify their proper compliance with their tax reporting and monitoring obligations. In this regard, it is good to remember that, even if cryptocurrencies do not have a physical nature, as digital instruments stored exclusively in electronic wallets and are issued through cryptographic codes and complex algorithmic calculations, such instruments, according to the orientation of the Tax Administration (ruling of the DRE Lombardia no. 956-39/2018, ruling of the DRE Liguria no. 903-47/2018, as well as, most recently, ruling no. 788/2021 and judgment of the T.A.R. of Lazio no. 1077 of January 28, 2020), are assimilated, both in case of investment through exchangers and in the hypothesis of direct holding of an "electronic wallet", to foreign currencies. 

As a result of this assimilation to foreign currencies, the cryptocurrencies can therefore, on one hand, generate taxable capital gains, in the case of disposal, while, on the other hand, must always, even in the case of simple holding, be declared in the income tax return (RW framework). 

In order to avoid penalties, taxpayers should, therefore, carefully verify the nature of their investment and the conditions of its management and storage for the fulfillment of their tax obligations. This is even though virtual currencies do not appear to be subject to VATFE (or IVAFE, under the Italian law), which applies only to foreign deposits and current accounts of a "bank" nature. 

In conclusion, the legislation has led to significant innovations and is intended to implement, although late, the relevant European Directive, but it still has important grey areas, which deserve action by the Legislature. In the meantime, significant progress has been made in the EU in the discussion and implementation of comprehensive regulation of the sector, specifically with the proposed MiCA (Markets in Crypto Assets) Regulation, which may soon be finally approved. In this regard, there is a real risk that the Italian regulations and the discussed related obligations could end up being much more restrictive (or even conflicting) with future European legislation and, therefore, be short-lived. The situation, in any case, should be closely monitored.

Published by: Avv. Iacopo Bissi – Dott. Andrea Zanzottera

Ph: designed by Pixabay
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(1) We refer, in particular, to service providers related to the use of virtual currency (Vasp) and digital wallet services (Wsp).
(2) Legislative Decree No. 90 of May 25, 2017, subsequently amended by Legislative Decree 125/2019, introduced two special paragraphs (8-bis and 8-ter) within Article 17-bis of Legislative Decree 141/2010, which regulates the activities of money changers
(3) Private, nonprofit association with financial, organizational and statutory autonomy, with its own legal personality, which replaced, as of 2010, the counterpart body previously active at the Bank of Italy.
(4) In this regard, a doubt had initially arisen with reference to the activity carried out by so-called miners, i.e., those individuals who generate new virtual currency on their own, exploiting the computational power of their own devices, which, however, do not appear to come under the normative definition of the Decree.