Central Bank of Italy Declares Virtual Currency Exchanges Are Not Subject to AML Requirements
The Central Bank of Italy (Banca d’Italia) is that country’s first governmental authority to issue a statement on virtual currencies. It recently published three directives:
- Warnings on use of virtual currencies (30 Jan 2015);
- Notice on virtual currencies (30 Jan 2015);
- Notice of Central Authority for Reporting on virtual currencies (2nd Feb 2015).
The “Notice About the use of virtual currencies” (published on the Supervisory Bulletin No. 1, January 2015) is a summary of guidance previously issued by the European Central Bank (ECB), the European Banking Authority (EBA), and the Financial Action Task Force. The Central Bank of Italy is the first to release any statements based on the ECB’s comments. The Notice clarifies the legal status of virtual currencies in Italy with this important statement:
“In Italy the purchase, use and acceptance of virtual currency must be considered lawful activity: the parties are free to transact in amounts not expressed in legal tender.”
The January 30 Notice on virtual currencies also contains an analysis of the guidance published by the EBA, and agrees with the EBA’s recommendation that financial institutions should avoid buying or investing in virtual currencies until a formal legal framework has been established. This means the Central Bank will not ban regulated institutions from dealing in Bitcoin and other virtual currencies, but advises them to wait until formal regulations are announced.
The Notice allows financial institutions regulated by the Bank of Italy to do business with any virtual currency companies, provided that they respect existing AML/KYC requirements for account holders and warn them about the risks involved.
The Notice of Central Authority for Reporting on virtual currencies of Financial Intelligence Unit (FIU) warns that using virtual currencies may enable money laundering and terrorist financing, as previously discussed by the ECB and other European authorities. The FIU states that businesses dealing in virtual currencies, including holding them and exchanging them for fiat currencies, are not required to comply with any AML/KYC regulations.
A reading of the documents released by both the Central Bank of Italy and the FIU indicates that a business that transacts in virtual currencies is not subject to any regulation at this time. However, the owners of such businesses would be subject to existing AML/KYC requirements when setting up a bank account or dealing with a regulated financial institution. In that case, virtual currency activities are not subject to any unique regulations; instead the activities are regulated where they intersect with the existing AML requirements of the Italian financial system.
Italy is the first country to declare that virtual currency exchanges are not subject to any AML requirements. This is in contrast to the United States, where exchanges are required to register with the Financial Crimes Enforcement Network (FinCEN) as Money Services Businesses.
The FIU concludes with a recommendation that regulated financial institutions evaluate their own clients to screen for suspicious transactions. It also recommends that financial institutions educate their staff about virtual currencies and how to identify suspicious transactions, with a particular focus on gaming operators.