STO regulation and law in Italy

The definition of “securities” provided for under Italian law mirrors the definition set out by MiFID II (Directive 2014/65/EU) and therefore does not expressly include Security Tokens.

However, the Italian supervisory authority for securities market (Consob) has recently acknowledged that the “tokenization” process is similar to the creation of securities and has stated that “investment-token” and “security-like token” would qualify as securities.
In particular, on 19 March Consob submitted to public consultation a document aiming at starting a national debate on crypto-assets, whose proposed definition would be digital registrations representing rights connected to investments in entrepreneurial projects created, stored and exchanged (in one or more exchange systems) through distributed ledger technologies / blockchain.

In such document Consob proposes to introduce a specific regulatory regime for offers and exchanges of crypto-assets, to be elected by the issuers/offerors on an opt-in basis, unless the same qualify as “securities”, in which case they would be subject to the relevant regulatory provisions applicable to their issuance, offer and negotiation (including in relation to prospectus).

A prospectus is required whenever an “offer to the public of financial products” takes place, which is defined by the Italian Consolidated Financial Act (Legislative Decree no. 58/1998) as “a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, in order to enable an investor to decide to purchase or subscribe for those financial products, including the placing of financial products through financial intermediaries”.

The Consolidated Financial Act, as implemented by the Consob Issuers Regulation no 11971 of 14 May 1999, provides for a number of exemptions from the duty to publish a prospectus (including, inter alia, if the offer (i) is addressed exclusively to qualified investors or (ii) is addressed to less than 150 non-qualified investors or (iii) is relating to financial products whose total consideration in the European Union is lower than EUR 8 million, to be calculated on a 12-month period or (iv) is relating to financial products whose total consideration per investor and per offer is EUR 100,000 or (iv) is relating to financial products having a minimum denomination of EUR 100,000).

As mentioned in para. 1, although Italian law does not regulate security tokens, in the public consultation document published on March 2019 Consob stated that the prospectus duties should apply to STOs to the extent that security tokens qualify as securities or financial products.

In this respect, it is worth noting that in the last years Consob has issued certain resolutions (in reply to specific enquiries, or to prohibit STOs) which identify the circumstances under which an STO would qualify as a public offer of financial products. In particular, Consob has expressed the view that tokens would qualify as financial products whenever they involve the presence of the following (i) a capital investment, (ii) any financial return promise/expectation and (iii) a risk taking directly connected to the capital investment.

On average it takes roughly one month.

Application of Italian KYC/AML requirements would rather depend on the type of entity offering the security tokens and on where they are established.

Italian law does not expressly provide for the possibility to “tokenize” securities. However, under Italian law (Legislative Decree no. 213/1998, the Italian Consolidated Financial Act and Consob Markets Regulation no. 16191 of 29.10.2007), securities can be dematerialized by means of a registration in an account held by an intermediary or a centralized securities management company (società di gestione accentrata), subject to the occurrence of specific requirements.

In the lack of a specific regulation for security tokens in Italy, issuers would be subject to the same provisions that are applicable to the issue, offer and negotiation of securities, to the extent that security tokens would qualify as such.

In respect of ICOs Consob has issued certain resolutions relating to specific queries /cases, identifying the circumstances under which an STO would qualify as a public offer of financial products (so triggering application of the duty to publish a prospectus). Additionally, on March 2019 Consob submitted to public consultation a document stating, inter alia, that “investment-token” and “security-like token” would qualify as securities. The outcome of the public consultation, which closed on 5 June, has not been published yet.