Italy

AI regulations in global focus as EU approaches regulation deal

Concerns over the potential misuse of AI have prompted the U.S., U.K., China and the G7 to speed up regulation of the technology, but Europe is already ahead.

The surge in generative artificial intelligence (AI) development has prompted governments globally to rush toward regulating the emerging technology. The trend matches the European Union’s efforts to implement the world’s first set of comprehensive rules for AI.

The EU AI Act is recognized as an innovative set of regulations. After several delays, reports indicate that on Dec. 7, negotiators agreed to a set of controls for generative AI tools such as OpenAI’s ChatGPT and Google’s Bard.

Concerns about the potential misuse of the technology have also propelled the United States, the United Kingdom, China and other G7 countries to speed up their work toward regulating AI.

Italy and South Korea central banks agree on CBDC cooperation

The central banks of Italy and South Korea announced a memorandum of understanding in the development and deployment of CBDCs.

Banca d’Italia — Italy’s central bank — announced on Dec.

According to the Italian central bank, the memorandum of understanding includes the “mutual sharing of knowledge and information” when it comes to information and communication technology (ICT) issues.

Specifically, it mentions ICT issues related to real-time settlement systems and central bank digital currencies (CBDCs).

The announcement said the meeting was attended by the general manager of the Banca d’Italia, Luigi Federico Signorini, who signed off on the agreement.

Throughout the last year, both countries have been exploring CBDCs, though with different approaches.

In Italy, the central bank has mainly been focusing on interoperability in its solutions for settling distributed ledger technology (DLT)-based transactions via hash-linked contracts rather than a wholesale CBDC approach, as is the case with other European countries.

Meanwhile, South Korea started piloting its CBDC infrastructure technology in October.

All eyes are on stablecoins: Law Decoded, April 10–17

A week before a hearing in Congress, the United States gets stablecoin regulatory framework.

Last week came in preparation for April 19, when the United States House Financial Services Committee will hold a hearing on stablecoins. The hearing will include information collected by various federal government agencies over the last year. Among the participants are Jake Chervinsky, the chief political officer at the Blockchain Association, and Dante Disparte, the chief strategy officer of Circle.

On the hearing threshold, a new draft bill appeared in the House of Representatives document repository. The draft provides a framework for stablecoins in the United States, putting the Federal Reserve in charge of non-bank stablecoin issuers. According to the document, insured depository institutions seeking to issue stablecoins would fall under the appropriate federal banking agency supervision, while non-bank institutions would be subject to Federal Reserve oversight. Failure to register could result in up to five years in prison and a fine of $1 million. Foreign issuers would also have to seek registration to do business in the country.

Among the factors for approval is the ability of the applicant to maintain reserves backing the stablecoins with U.S. dollars or Federal Reserve notes, Treasury bills with a maturity of 90 days or less, repurchase agreements with a maturity of seven days or less backed by Treasury bills with a maturity of 90 days or less, and central bank reserve deposits.

SEC targets DeFi in a vote to revisit proposal concerning the definition of ‘exchange’

The U.S. Securities and Exchange Commission (SEC) has announced it will be revisiting the proposed redefinition of an “exchange” under the agency’s rules — a move that could include crypto market participants in decentralized finance (DeFi). Under the proposal, an “exchange” would be more closely defined as a system that “bring[s] together buyers and sellers of securities through structured methods to negotiate a trade” and explicitly include DeFi.

The commission proposed similar amendments in January 2022, keeping the comment period for the public open until June. Some crypto advocacy groups criticized the SEC’s actions at the time, suggesting it was an overreach of the commission’s authority.

Arizona governor vetoes bill targeting taxes on blockchain node hosts

Katie Hobbs, the governor of the American state of Arizona, has vetoed legislation that would have largely stopped local authorities from imposing taxes on individuals and businesses running blockchain nodes. The governor vetoed Arizona Senate Bill 1236, first introduced in January. The legislation aimed to revise sections of statutes pertaining to blockchain technology, mainly reducing or eliminating regulation and taxation of node operators at the state level.

The Italian regulator sets strict guidelines for OpenAI’s ChatGPT

Italy’s data protection agency, known as Garante, has specified the actions that OpenAI must take to revoke an order imposed on ChatGPT. OpenAI must increase its transparency and issue an information notice comprehensively outlining its data processing practices. Additionally, the statement requires OpenAI to implement age-gating measures immediately to prevent minors from accessing its technology and adopt more stringent age verification methods.

In addition, the regulatory agency mandated that OpenAI allow users to object to processing their data to train its algorithms. Also, OpenAI is required to conduct an awareness campaign in Italy to inform individuals that their information is being processed to train its AIs.

First of many? How Italy’s ChatGPT ban could trigger a wave of AI regulation

A data breach and a lack of transparency led Italy to ban ChatGPT, the popular AI-powered chatbot, sparking a debate on the future of AI regulation and innovation.

Italy has recently made headlines by becoming the first Western country to ban the popular artificial intelligence (AI)-powered chatbot ChatGPT.

The Italian Data Protection Authority (IDPA) ordered OpenAI, the United States-based company behind ChatGPT, to stop processing Italian users’ data until it complies with the General Data Protection Regulation (GDPR), the European Union’s user privacy law.

The IDPA cited concerns about a data breach that exposed user conversations and payment information, the lack of transparency, and the legal basis for collecting and using personal data to train the chatbot.

The decision has sparked a debate about the implications of AI regulation for innovation, privacy and ethics. Italy’s move was widely criticized, with its Deputy Prime Minister Matteo Salvini saying it was “disproportionate” and hypocritical, as dozens of AI-based services like Bing’s chat are still operating in the country.

Salvini said the ban could harm national business and innovation, arguing that every technological revolution brings “great changes, risks and opportunities.”

AI and privacy risks

While Italy’s outright ChatGPT ban was widely criticized on social media channels, some experts argued that the ban might be justified. Speaking to Cointelegraph, Aaron Rafferty, CEO of the decentralized autonomous organization StandardDAO, said the ban “may be justified if it poses unmanageable privacy risks.”

Rafferty added that addressing broader AI privacy challenges, such as data handling and transparency, could “be more effective than focusing on a single AI system.” The move, he argued, puts Italy and its citizens “at a deficit in the AI arms race,” which is something “that the U.S. is currently struggling with as well.”

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Vincent Peters, a Starlink alumnus and founder of nonfungible tokens project Inheritance Art, said that the ban was justified, pointing out that GDPR is a “comprehensive set of regulations in place to help protect consumer data and personally identifiable information.”

Peters, who led Starlink’s GDPR compliance effort as it rolled out across the continent, commented that European countries who adhere to the privacy law take it seriously, meaning that OpenAI must be able to articulate or demonstrate how personal information is and isn’t being used. Nevertheless, he agreed with Salvini, stating:

“Just as ChatGPT should not be singled out, it should also not be excluded from having to address the privacy issues that almost every online service needs to address.”

Nicu Sebe, head of AI at artificial intelligence firm Humans.ai and a machine learning professor at the University of Trento in Italy, told Cointelegraph that there’s always a race between the development of technology and its correlated ethical and privacy aspects.

Sebe said the race isn’t always synchronized, and in this case, technology is in the lead, although he believes the ethics and privacy aspects will soon catch up. For now, the ban was “understandable” so that “OpenAI can adjust to the local regulations regarding data management and privacy.”

The mismatch isn’t isolated to Italy. Other governments are developing their own rules for AI as the world approaches artificial general intelligence, a term used to describe an AI that can perform any intellectual task. The United Kingdom has announced plans for regulating AI, while the EU is seemingly taking a cautious stance through the Artificial Intelligence Act, which heavily restricts the use of AI in several critical areas like medical devices and autonomous vehicles.

Has a precedent been set?

Italy may not be the last country to ban ChatGPT. The IDPA’s decision to ban ChatGPT could set a precedent for other countries or regions to follow, which could have significant implications for global AI companies. StandardDAO’s Rafferty said:

“Italy’s decision could set a precedent for other countries or regions, but jurisdiction-specific factors will determine how they respond to AI-related privacy concerns. Overall, no country wants to be behind in the development potential of AI.”

Jake Maymar, vice president of innovation at augmented reality and virtual reality software provider The Glimpse Group, said the move will “establish a precedent by drawing attention to the challenges associated with AI and data policies, or the lack thereof.”

To Maymar, public discourse on these issues is a “step in the right direction, as a broader range of perspectives enhances our ability to comprehend the full scope of the impact.” Inheritance Art’s Peters agreed, saying that the move will set a precedent for other countries that fall under the GDPR.

For those who don’t enforce GDPR, it sets a “framework in which these countries should consider how OpenAI is handling and using consumer data.” Trento University’s Sebe believes the ban resulted from a discrepancy between Italian legislation regarding data management and what is “usually being permitted in the United States.”

Balancing innovation and privacy

It seems clear that players in the AI space need to change their approach, at least in the EU, to be able to provide services to users while staying on the regulators’ good side. But how can they balance the need for innovation with privacy and ethics concerns when developing their products?

This is not an easy question to answer, as there could be trade-offs and challenges involved in developing AI products that respect users’ rights.

Joaquin Capozzoli, CEO of Web3 gaming platform Mendax, said that a balance can be achieved by “incorporating robust data protection measures, conducting thorough ethical reviews, and engaging in open dialogue with users and regulators to address concerns proactively.”

StandardDAO’s Rafferty stated that instead of singling out ChatGPT, a comprehensive approach with “consistent standards and regulations for all AI technologies and broader social media technologies” is needed.

Balancing innovation and privacy involves “prioritizing transparency, user control, robust data protection and privacy-by-design principles.” Most companies should be “collaborating in some way with the government or providing open-source frameworks for participation and feedback,” said Rafferty.

Sebe noted the ongoing discussions on whether AI technology is harmful, including a recent open letter calling for a six-month stop in advancing the technology to allow for a deeper introspective analysis of its potential repercussions. The letter garnered over 20,000 signatures, including tech leaders like Tesla CEO Elon Musk, Apple co-founder Steve Wozniak and Ripple co-founder Chris Larsen — among many others.

The letter raises a valid concern to Sebe, but such a six-month stop is “unrealistic.” He added:

“To balance the need for innovation with privacy concerns, AI companies need to adopt more stringent data privacy policies and security measures, ensure transparency in data collection and usage, and obtain user consent for data collection and processing.”

The advancement of artificial intelligence has increased the capacity it has to gather and analyze significant quantities of personal data, he said, prompting concerns about privacy and surveillance. To him, companies have “an obligation to be transparent about their data collection and usage practices and to establish strong security measures to safeguard user data.”

Other ethical concerns to be considered include potential biases, accountability and transparency, Sebe said, as AI systems “have the potential to exacerbate and reinforce pre-existing societal prejudices, resulting in discriminatory treatment of specific groups.”

Mendax’s Capozzoli said the firm believes it’s the “collective responsibility of AI companies, users and regulators to work together to address ethical concerns, and create a framework that encourages innovation while safeguarding individual rights.”

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The Glimpse Group’s Maymar stated that AI systems like ChatGPT have “infinite potential and can be very destructive if misused.” For the firms behind such systems to balance everything out, they must be aware of similar technologies and analyze where they ran into issues and where they succeeded, he added.

Simulations and testing reveal holes in the system, according to Maymar; therefore, AI companies should seemingly strive for innovation, transparency and accountability.

They should proactively identify and address potential risks and impacts of their products on privacy, ethics and society. By doing so, they will likely be able to build trust and confidence among users and regulators, avoiding — and potentially reverting — the fate of ChatGPT in Italy.

Italy ChatGPT ban: Data watchdog demands transparency to lift restriction

The Italian regulator sets strict guidelines for OpenAI’s ChatGPT, mandating increased transparency and age verification measures to protect user privacy before lifting restrictions.

Italy’s data protection agency, known as Garante, has specified the actions that OpenAI must take to revoke an order imposed on ChatGPT. The order was issued in March 2023 . The watchdog suspected the artificial intelligence (AI) chatbot service of violating the European Union’s General Data Protection Regulation (GDPR) and mandated the United States-based firm to halt the processing of data belonging to individuals residing in the country.

The regulator’s press release mandates that OpenAI must increase its transparency and issue an information notice comprehensively outlining its data processing practices. Additionally, the statement requires OpenAI to implement age-gating measures immediately to prevent minors from accessing its technology and adopt more stringent age verification methods.

OpenAI must specify the legal grounds it relies upon for processing individuals’ data to train its AI, and it cannot rely on contract performance. This means that OpenAI must choose between obtaining user consent or relying on legitimate interests. OpenAI’s privacy policy currently references three legal bases but appears to give more weight to the performance of a contract when providing services such as ChatGPT.

Furthermore, OpenAI must enable users and non-users to exercise their rights regarding their personal data, including requesting corrections for any misinformation generated by ChatGPT or deleting their data.

Garante has set a deadline of April 30 for OpenAI to complete most of these tasks. OpenAI has been granted additional time to comply with the extra demand of migrating from the existing, age-gating child safety technology to a more resilient age verification system.

Specifically, OpenAI has until May 31 to submit a plan outlining the implementation of age verification technology that screens out users under 13 years old (and those aged 13 to 18 who have not obtained parental consent). The deadline for deploying this more robust system is set for Sept. 30.

On Friday, March 31, following the concerns raised by the national data protection agency about possible privacy violations and failure to verify the age of users, Microsoft-backed OpenAI took ChatGPT offline in Italy.

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Italian regulator draws criticism for blocking AI chatbot ChatGPT

ChatGPT’s temporary ban in Italy over privacy concerns draws criticism from figures in the tech industry and the country, including expert Ron Moscona and Deputy PM Matteo Salvini.

Italy’s ban on conversational artificial intelligence (AI), ChatGPT, sparked significant controversy among the tech industry and the country. The Italian deputy prime minister also criticized the ban as excessive.

On Friday, March 31, following concerns raised by the national data agency about possible privacy violations and failure to verify the age of users, Microsoft-backed OpenAI took ChatGPT offline in Italy. This action by the independent agency marked the first instance of a Western country taking measures against the AI chatbot.

The Italian Deputy Prime Minister Matteo Salvini took to Instagram to share his thoughts: “I find the decision of the Privacy Watchdog that forced #ChatGPT to prevent access from Italy disproportionate,” says a translated version of his post.

Salvini said that the regulator’s move was hypocritical, as there are dozens of services based on artificial intelligence , naming examples like Bing’s chat. Salvini said common sense was needed as “privacy issues concern practically all online services.”

The ChatGPT ban could harm national business and innovation, Salvini said, adding that he hoped for a rapid solution to be found, and for the chatbot’s access to Italy to be restored.

“Every technological revolution brings great changes, risks, and opportunities. It is right to control and regulate through international cooperation between regulators and legislators, but it cannot be blocked,” he said.

Another objection to the ban was heard from Ron Moscona, a partner at the international law firm Dorsey & Whitney, and an expert in technology and data privacy. He said the ban by the Italian regulators comes as a surprise, as it is unusual to completely ban a service due to a data breach incident.

Following the request from the authorities, OpenAI has blocked ChatGPT for users in Italy. However, the company stated that it adheres to privacy regulations in Europe, and is willing to cooperate with Italy’s privacy regulatory body. OpenAI claimed that it takes measures to minimize personal data when training its AI systems, including ChatGPT, as its goal is for the AI to acquire knowledge about the world, not to obtain information about specific individuals.

The AI chatbot is also under scrutiny in other regions worldwide. The Center for Artificial Intelligence and Digital Policy (CAIDP) lodged a complaint against ChatGPT on March 31, intending to prevent the deployment of potent AI systems to the general public. The CAIDP characterized the chatbot as a “biased” and “deceptive” platform that jeopardizes public safety and confidentiality.

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Bank of Italy selectively encouraging DLT, preparing for MiCA, governor says

Italian central banker Ignazio Visco talked about fostering or discouraging crypto assets during a lengthy speech to the Italian financial markets association.

The Bank of Italy is looking for new ways to apply distributed ledger technology (DLT) and is preparing for the advent of Markets in Crypto-Assets (MiCA) regulation, bank governor Ignazio Visco told a congress of Assiom Forex, the Italian financial markets association, on Feb. 4.

DLT may offer benefits such as cheaper cross-border transactions and increased financial system efficiency, Visco said. The Italian central bank “is focused on the need to identify areas” where DLT can contribute to financial stability and consumer protection.

Visco expressed the desire to see regulations that sorted out the crypto-asset market to separate “highly risky instruments and services that divert resources from productive activities and collective well-being” from those that bring tangible benefit to the economy:

“The spread of the latter can be fostered by developing rules and controls similar to those already enforced in the traditional financial system; the former, instead, must be strongly discouraged.”

Visco specifically mentioned “crypto-assets with no intrinsic value” among the former group.

CB speech: Ignazio Visco (IT): Speech – 29th ASSIOM FOREX Congress – https://t.co/sDpA90yT5l

— Bank for International Settlements (@BIS_org) February 6, 2023

The Bank of Italy is working at the European and global levels to develop the technology and a framework of standards, Visco said. It is also collaborating with Italian securities market regulator CONSOB and the Ministry of Economy and Finance to initiate the “authorization and supervision activities” of MiCA.

Italy recently imposed a 26% capital gains tax on crypto-asset trading over 2,000 euros in 2023. However, Italian taxpayers have the choice of paying a 14% tax on their crypto-asset holding as of Jan. 1. This alternative is intended to incentivize taxpayers to declare their digital holdings.

Visco estimated the number of Italian households that own crypto assets at 2% and said those holdings were “modest amounts on average.”

Italy approves 26% capital gains tax on cryptocurrencies

The Italian Senate approved the new tax rate for crypto trading as part of the budget legislation for 2023.

On Dec. 29, 2022, days before the year’s end, Italy’s Senate approved its budget for 2023, which included an increase in taxation for crypto investors — a 26% tax on capital gains on crypto-asset trading over 2,000 euros (approximately $2,13 at time of publication).

The approved legislation defines crypto assets as “a digital representation of value or rights that can be transferred and stored electronically, using distributed ledger technology or similar technology.” Previously, crypto assets were treated as foreign currencies in the country, with lower taxes.

As reported by Cointelegraph, the bill also establishes that taxpayers will have the option to declare the value of their digital-asset holdings as of Jan. 1 and pay a 14% tax, incentives that are intended to encourage Italians to declare their digital assets.

Other changes introduced by the budget law include tax amnesties to reduce penalties on missed tax payments, fiscal incentives for job creation and a reduction in the retirement age. It also includes 21 billion euros ($22.4 billion) of tax breaks for businesses and households dealing with the energy crisis.

Giorgia Meloni, the first woman to serve as Italy’s prime minister, received wide support for her bill from the legislative body, even though she promised dramatic tax cuts when elected in September.

According to local media reports, measures from Italy’s government to reduce gas consumption across the country including over 15 days without central heating for buildings, with the population being asked to turn their heating down one degree and turn it off one hour more per day during the winter.

Italy‘s legislation follows the approval of the Markets in Crypto Assets (MiCA) bill on Oct. 10, establishing a consistent regulatory framework for cryptocurrency in the 27 member countries of the European Union. MiCA is expected to come into effect in 2024.

Italy to create the crypto art Renaissance: NFT market report

Research and Market’s latest NFT market report for Italy predicts a 47.6% growth in the country’s NFT market by the end of 2022.

Italy is one of the cultural hubs of Europe, with centuries of history, art and culture. Now, it is also posed to create the crypto art Renaissance via its nonfungible token (NFT) market, says a new report.

Data from Research and Market’s “Italy NFT Market Intelligence and Future Growth Dynamics Databook” says the country is projected to have a growth of 47.6% in its NFT market by the end of 2022.

This would make the Italian NFT market hover around a $671 million valuation.

Moreover, over the next five years, Italy’s NFT industry is forecasted to have a steady upward compound annual growth rate of 34.6%. The spending value for NFTs is anticipated to hit $3.6 billion by 2028.

According to the report, some of the country’s success with NFTs comes from its vibrant art and culture scene. Major Italian luxury fashion brands such as Gucci and Dolce & Gabbana, have been some leaders in the adoption of Web3 technologies in the industry.

They not only represented an innovation for Italy but across the entire fashion industry. Over the last year, Dolce & Gabbana generated $25.6 million worth in revenue from their NFTs, and Gucci $11.5 million.

These brands also led initiatives to bring their communities into the metaverse through digital events and wearables, many of which incorporated NFTs.

Fashion brands aren’t the only forces pushing Italy into the NFT spotlight. The country’s rich cultural history has also seen some Web3-related activities.

An NFT project called the Monuverse, which is preserving historical sites via digital assets, used the Arco della Pace, or the Arc of Peace, in Milan, Italy, as its first subject.

Italian artists even have their own management organization to help Italian NFT artists, called “crypto renaissance,” which harks back to the country’s emergence as an art leader during the Renaissance period.

Meanwhile, the general atmosphere of the crypto industry in Italy is also picking up. Recently, the blockchain developer Algorand will use its technology to help support banks and insurance guarantee platforms in Italy. In November, Gemini received the green light to operate in Italy.

On Dec.1, however, Italy released its budget documents for the upcoming year which revealed a new 26% capital gains tax to be imposed on crypto profits in the upcoming year.

Texas enforcers want Sam Bankman-Fried to attend the hearing in February: Law Decoded

The Texas State Securities Board (SSB) invited the former CEO to attend the hearing on the alleged sale of unregistered securities on Feb. 2.

Welcome to Law Decoded, your weekly digest of all the major developments in the field of regulation.

There was some substantial good news for crypto last week, but the prevailing storyline is still the unfolding of FTX. While the extradition of the failed exchange’s founder Sam Bankman-Fried seemed pretty logical from the beginning of the saga, last week, the 30-year-old got the first official call: The Texas State Securities Board (SSB) invited the former CEO to attend the hearing on the alleged sale of unregistered securities on Feb. 2. SSB’s director of enforcement Joe Rotunda hopes to get a Cease and Desist order from the judge during the hearing.

However, the man himself doesn’t rush to get back to America, even for the Congress invitation. Bankman-Fried has signaled he’s unwilling to testify before the United States Congress until he’s “finished learning and reviewing what happened.”

Meanwhile, the FTX crush continues to cause a ripple effect all over the world. In Singapore, Prime Minister Lee Hsien Loong and Deputy Prime Minister Lawrence Wong are set to face grilling questions for their failure to protect retail investors. As Singaporean state-backed investor Temasek was one of 69 investors to invest in the FTX crypto exchange’s $420 million funding round in October 2021, opposition MPs have recommended a bipartisan committee to question Temasek on its investment strategies.

In Europe, the president of the European Central Bank, Christine Lagarde, highlighted the FTX failure stating the necessity of the second package of crypto regulations after the Markets in Crypto-Assets (MiCa) would come into law. Her United States House Financial Services Committee colleagues will also pay closer attention to the FTX case during the special hearing scheduled for Dec. 13. And the Commodity Futures Trading Commission (CFTC) already held one — answering the “How did it happen?” questions its Chairman Rostin Behnam predictably asked for more power to the Commission.

Brazil passes law to legalize crypto as a payment method

And now for the good news! The Chamber of Deputies of Brazil, a federal legislative body, has passed a regulatory framework that legalizes the use of cryptocurrencies as a payment method within the country. While the document won’t make Bitcoin (BTC) a legal tender as in El Salvador, it still will include digital currencies and air mileage programs in the definition of payment methods that are under the supervision of the country’s central bank.

Apart from designating crypto as a payment method, the law enables the creation of licenses for crypto exchange platforms and for custody and management of crypto by third parties. In addition to this, the law will require exchanges to make a clear distinction between company and user funds, to avoid another incident like the FTX collapse.

Italy to impose 26% capital gains tax on crypto profits

Italy is planning to tighten regulations on digital currencies in 2023 by expanding its tax laws to include cryptocurrency trading. Included in its 2023 budget are plans to impose a 26% levy on profits larger than 2,000 euros ($2,062) made on cryptocurrency trading. Historically, digital currencies have had lower tax rates because they have been considered “foreign currency.” If the proposed bill is signed into law, taxpayers will have the option to declare the value of their digital asset holdings as of Jan. 1 and pay a 14% tax. This is intended to incentivize Italians to declare their digital assets on their tax returns.

South Korean judge dismisses arrest warrants for Do Kwon’s former associates

A judge with the Seoul Southern District Court has reportedly set aside arrest warrants for Terra co-founder Shin Hyun-seong along with three Terra investors and four developers. Judge Hong Jin-Pyo said there was little risk of Shin or the Terra associates destroying evidence related to the case against the crypto firm. Do Kwon, who’s also facing legal action in South Korea for his role in the firm’s collapse, is still unlikely to return to the country, according to the local press.