The future is FinTech

The opportunities that digital technologies can offer give rise to a dynamic and innovative FinTech landscape in Italy. One of the most disruptive elements will certainly be the changes in banking, finance and insurance – characterized by automated, simplified and sped up processes.

The Italian FinTech ecosystem is driven by new players – startups – which have given a strong push to innovation. Meanwhile, traditional companies are developing their own digital solutions or partnering with FinTech startups.

We have found that financial services, in particular those dedicated to SMEs (e.g., digital lending InsurTech, digital payments), comprise a FinTech cluster with some of the highest growth potential in Italy. Such services respond to a strong market need – not only can they provide a totally digital user experience, but they take advantage of alternative sources of data and scoring, speeding up and perfecting access to the financial service, thereby fostering economic growth and development.

Dentons’ approach

We apply our global perspective of the main market trends underlying this tech revolution to understanding the new paradigms and how they impact the client. Open Banking, Open Finance, Embedded Banking and Embedded Finance involve an exchange of ideas, skills and especially all types of data (banking, financial and otherwise) between all operators, to create open innovation and value-added products for the customer.

Thanks to our established experience with Blockchain, Big Data and Artificial Intelligence – in particular Generative AI – as well as with the challenges and opportunities presented by crypto-assets, we are equipped to provide bespoke advice on the most innovative and complex tech-driven projects and financing.

As we partner with clients in these areas, Dentons’ Italian practice guarantees reliability of the past with the technology of the present. We are a recognized market leader in:

• Financial institution regulatory compliance
• Decentralized finance
• Payments processing and payments systems regulation

Moreover, we regularly provide assessments of the related legal and regulatory risks, to allow other participants involved in the sector to quickly adapt to new regulatory measures.

Regulatory landscape in Italy

The Italian government has chosen to establish a friendly ecosystem for FinTech firms. In line with this, Italy has implemented EU regulations in the most convenient way for both investors and intermediaries.

The Italian FinTech ecosystem has proven itself to be resilient to recent global circumstances, such as COVID-19 and the conflict in Ukraine, but it has also forcefully set new important records in terms of investments, thanks to a specific regulatory framework that has represented a challenge for our country.

DLT

Distributed ledger technologies have laid the foundations for a profound disruption of the entire financial sector, including loans, insurance and investments. Consequently, in the long run decentralized finance can have a strong impact on the role of current intermediaries. In Italy, from this assumption, the FinTech decree (that has been converted into law), includes urgent provisions regarding the issue and circulation of financial instruments in digital form and the simplification of FinTech experimentation.

The goal is to adapt Italian legislation to the DLT Pilot Regime, the European Union regulation that establishes an experimental regime in member countries for market infrastructures based on distributed ledger technology. Thanks to the Italian implementing decree, the tokenization of financial instruments will also be possible in Italy. In fact, it introduces into our system a definition for “digital financial instrument,” i.e. all asset classes that can be represented in the form of digital tokens that can be traded and transferred through a distributed ledger thanks to DLT technology: shares, bonds, debt securities and many other financial instruments identified by Consob regulation and the Bank of Italy, which will act as register controllers. Trading in digital securities can take place 24 hours a day, without intermediaries.

MICAR

Another significant regulatory development is the Markets in Crypto-Assets Regulation and its implementation in Italy; it sets out a comprehensive framework for the regulation of crypto-assets. This regulation brings much-needed clarity and security to the crypto-asset market, addressing the risks associated with money laundering, fraud and market manipulation.

The proposed regulation, in relation to the definitions of “utility tokens,” “asset-linked tokens,” “electronic money tokens” (and any other hybrid categories), generally has as its specific scope of application the “issuance,” the “offer to the public,” the “admission to trading” of, and the provision of services connected to these types of “crypto-assets” by any entity in the territory of the Union.

The regulation aims to clarify:

• The operational, organizational and governance requirements
• The transparency and publicity requirements
• The regulations for the protection of customers and holders in relation to the issuing, trading and custody of crypto-assets
• Measures aimed at preventing market abuse phenomena and ensuring the integrity of the markets in which crypto-assets are traded.

Crowdfunding

Italy has had crowdfunding regulations on the books since 2013. In fact, it was the first country in Europe to have specific and organic legislation relating specifically to equity crowdfunding. It wasn’t until 2020 until a comprehensive and uniform regulatory framework was introduced in the EU by regulation, which came into full application in November 2023. In the overall plan of the legislator, equity crowdfunding is seen as a tool that can encourage the development of innovative startups through rules and financing methods capable of exploiting the potential of the Internet.

In particular, the new European legislation identifies Consob and the Bank of Italy as competent national authorities:

Consob has responsibilities in matters of transparency and correct conduct, with the aim of creating a reliable “environment” capable of creating trust in investors, as well as for risk containment, capital stability and the sound and prudent management of intermediaries, with a supervisory guidance on suppliers’ specialists in crowdfunding services.

The Bank of Italy, as authorized in a special register or already authorized, may provide investment services, like banks and investment firms (securities market intermediaries (Società di Intermediazione Mobiliare or SIMs), and “managers of right” (gestori di diritto)), have reporting obligations as well as obligations concerning corporate governance, risk management and the internal control system.

DORA

Finally, we mention the Digital Operational Resilience Act, or DORA, which is part of the EU digital finance regulatory package. This package aims to strengthen “operational resilience” in the EU financial sector, imposing the adoption of standardized cybersecurity requirements, necessary to ensure that financial entities operating in Europe are able to prevent, resist and react to cyber threats where they are the targets.

DORA applies to all financial institutions in the EU but also to some entities generally excluded from financial regulation. For example, third-party service providers supplying financial firms with ICT systems and services (such as cloud service providers and data centers) must meet DORA requirements. Also affected are firms that provide critical third-party information services, such as credit rating and data analytics services, which will be directly supervised by “primary oversight bodies” belonging to the ESAs, with powers of sanction and correction.

DORA establishes the technical requirements for financial entities and ITC providers in four areas: ICT risk management and governance; incident reporting and response; digital operational resilience testing and third-party risk management.

Insights

One month before launch of special register for crypto-asset services providers

April 13, 2022

Italy: By May 18, 2022, the OAM’s register will be ready to enrol Italian and foreign entities providing (or intending to provide) cryptocurrency and digital wallet services in Italy and foreign entities will not be allowed to provide these services on a cross-border basis to the territory of the Republic of Italy.

One month before launch of special register for crypto-asset services providers (in Italian)

April 13, 2022

Italy: By May 18, 2022, the OAM’s register will be ready to enrol Italian and foreign entities providing (or intending to provide) cryptocurrency and digital wallet services in Italy and foreign entities will not be allowed to provide these services on a cross-border basis to the territory of the Republic of Italy.