The highest financial authority in Italy confirms that dealing in virtual currencies is legal but implies that there are many risks that users, and banks in particular, should be aware of.

For the first time in the history of Italy, the country’s Central Bank expressed its opinion of bitcoin and other virtual currencies. This was done in a series of three whitepapers: “A Warning on the Use of Virtual Currencies” (January 30th), “A Notice on Virtual Currencies” (January 30th) и The Anomalous Use of Virtual Currencies” (February 2nd). The papers give a detailed account of virtual currencies and state that

“In Italy, purchase, use and receipt in payment of virtual currencies should currently be considered legal activities; the parties are free to take obligations in handing to each other sums even if they are not expressed in a legal tender”.

However, virtual currencies present various risks: lack of information, of legal binding norms, of control, of guarantees, high volatility, vulnerability to hacks, and, finally, the risk of use for criminal activities and fiscal risk for everyone involved. And the list of these threats is not even exhaustive: according to the Bank,

“The phenomenon is subject to rapid evolution and it is possible that last-generation virtual currencies would present ulterior risks”.

The Banca d’Italia agrees with the European Banking Authority that “identified risks are greater than possible benefices that virtual currencies could bring to their users, even considering the advantages from the point of view of price and time of transaction and financial inclusiveness”. Banks and other financial intermediaries should be discouraged from working with virtual currencies, say the papers. It is especially important as the legal framework for virtual currencies is not yet ready and some of the operations could possibly fall under the Italian penal code.

And if they do work with virtual currencies, the Central Bank recommends that they should be very attentive to avoid the misuse of virtual currency for money laundering and the financing of terrorism. They should be attentive to the profile of the client, to the country of his residence, and all other relevant information. In case of a suspicious operation, they should instantly report it to the Unity of Financial Information of the Italian Central Bank. 

These provisions are broadly sinilar to the Bitlicense published yesterday by the New York State Department of Financial Services. But it is important to note that they are not legally binding. Waiting for the legislative framework to emerge, the Italian financial authorities are only giving recommendations, not forbidding anything.