- Italy’s central bank has ordered PSPs and CASPs to implement strict customer and transaction screening to prevent sanctioned entities from using their platforms and cryptocurrencies to circumvent the rules.
Banca d’Italia (BI), the Italian Republic’s central bank, has recently posted a new communication covering Payment Service Providers (PSPs) and Crypto-Asset Service Providers (CASPs). It includes guidelines to ensure compliance with existing international sanctions standards, particularly those under European Union (EU) regulations.
Italy’s Central Bank Orders Stricter Screening for PSPs and CASPs
Citing the revised Regulation (EU) 2023/1113 of the European Parliament, also known as the revised Transfer of Funds Regulation (TFR), and current European Banking Authority (EBA) guidelines, BI ordered PSPs and CASPs to adopt internal safeguards to prevent sanctioned entities from using electronic payment apps or cryptocurrencies to evade international financial restrictions. The central bank ordered these institutions to enforce rigorous customer and transaction screening for individuals and organizations using their platforms.
BI stated that PSPs and CASPs must conduct strict background checks and verification before doing business with customers. These include KYC (Know Your Customer) policies and other due diligence screenings.
Additionally, the same parties must review each transaction before settlement. They must thoroughly evaluate both the source and recipient at all times.
Moreover, Italy’s central bank requires PSPs and CASPs to align their systems with international sanctions lists so they can easily flag users and transactions suspected of bypassing the rules. They must immediately report such accounts or transactions associated with designated subjects to authorities and freeze their funds to prevent movement.
No Minimum Thresholds
BI reminded PSPs and CASPs that the restrictive measures have no minimum transaction threshold. The move aims to prevent sanctioned entities from circumventing the rules using low-value transfers.
The primary driver behind the central bank’s zero-threshold provision is to curb illicit techniques, such as “structuring” or “smurfing.” These activities involve bad actors splitting large amounts of funds or cryptocurrencies to fly under the radar of mandatory reporting limits or automated red flags from payment providers or crypto exchanges.
Punishment for Violators
Sanctioned entities face possible legal actions, including but not limited to asset freezes, seizures, or jail time. Meanwhile, if PSPs and CASPs fail to enforce the rules, they could face severe administrative and criminal penalties under EU and Italian law, including monetary fines, suspension or closure of business operations, and imprisonment of top-level company executives, depending on the nature of the offense.
