The Ministry of Finance of Serbia published the Draft Law on Digital Assets on its website, asking the site’s visitors to comment and give their suggestions about it. The Ministry of Finance proposes a full regulatory framework for the cryptocurrency business.
“By adopting the Law on Digital assets, Serbia will belong to the small group of the most innovative countries in the world that have recognized the synergy of new technologies with the financial services sector, and decided to support and improve such singing through the legislative framework, while ensuring effective investor protection, financial market integrity and financial stability of the country, Minister of Finance pointed out.
What are Digital Assets?
Digital assets are defined as a digital record of value that can be digitally bought, sold, exchanged, or transferred and which can be used as a means of exchange or for investment purposes. Virtual currency is defined as a type of digital asset that is not issued and whose value is not guaranteed by the central bank or other public authority; it is not necessarily tied to a legal tender, has no legal status of money or currency, but is accepted by individuals or legal entities and can be bought, sold, exchanged, transmitted and stored electronically.
Digital assets (crypto-assets) are inextricably linked to blockchains, as they are the blocks that make up the chains themselves. Crypto-assets come in many forms and with varying rights and functions. A crypto-asset can serve as an access key to a service (often referred to as “utility tokens”), can be designed to facilitate payments (often referred to as “payments tokens”) but can also be designed as financial instruments, such as transferable securities.
How these proposals affect the cryptocurrency business?
Digital assets service providers (and notably trading platforms, exchanges, and custodial wallet providers) will be required to have a physical presence in Serbia and they will be subject to prior authorization from a national competent authority (National Bank of Serbia) before starting their activities. They will be subject to capital requirements, governance standards and an obligation to segregate their clients’ assets from their own assets. These crypto-asset service providers will also be subject to IT requirements to avoid the risks of cyber thefts and hacks.
As regards issuers of digital assets, the proposal requires the publication of a white paper including all relevant information on the specific crypto-asset. Such information would include a detailed description of the issuer, the project, and planned use of funds, conditions, rights, obligations and risks. Members of the issuers’ management body will have to meet probity standards, and misleading market communications by crypto-asset issuers are prohibited. Compliance with all these requirements will be supervised by national competent authorities.
For issuers of asset-referenced tokens, the main requirements include the obligation to be authorized, governance requirements, rules on conflict of interests, disclosure of stabilizations mechanism, investment rules, and additional white paper requirements. For example, the obligation to disclose information on any potential claim, and minimum rights on such a claim.
Issuers of e-money tokens will be subject to the regulatory requirements of the Electronic Money Directive and the rules set out in the Regulation on Markets in Crypto-Assets.
Digital Asset service providers will be subject to prudential requirements, organizational requirements, rules on safekeeping of clients’ funds, and rules on mandatory complaint handling procedures and conflicts of interest. Besides, there specific requirements depend on the type of crypto-asset service provider.
Law on Digital Assets wants to help banks embrace cryptocurrency. More regulatory guidance will help traditional banks warm up to cryptocurrency. The proposals are trying to counter the perception held by some traditional banks that transactions involving cryptocurrencies present heightened risks that require lengthy and expensive due-diligence checks.
Who can provide digital asset services and what are those services?
Only a company registered in the Republic of Serbia can be a Provider of services related to digital assets.
Registered Providers may perform some or all of the following:
- receiving, transferring and executing orders relating to the purchase and sale of digital assets on behalf of third parties;
- services for the purchase and sale of digital assets for cash and/or funds in the account and/or electronic money;
- digital asset exchange services for other digital assets;
- storage and administration of digital assets for the account of users of digital assets and related services;
- services related to the issuance, offer and sale of digital property, with the obligation to purchase it, or without that obligation
- keeping a register of pledges on the digital property;
- digital asset acceptance/transfer services; (capital requirement 50.000 euro)
- digital asset portfolio management ((capital requirement 50.000 euro)
- organizing a platform for trading digital assets (capital requirement 125.000 euro)
The entity applying for the relevant license must have a minimum registered capital of EUR 20,000 to EUR 125,000, depending on the type of service it will be providing.
Serbia is now home to many successful fintech start-ups and many other businesses are rebuilding their models, often in cooperation with fintech companies.
Technology companies, both large and small, are increasingly diversifying into financial services. Furthermore, digital finance has helped citizens and businesses tackle the unprecedented situation created by the coronavirus pandemic.
It is estimated that the new regulations will be in effect from the beginning of next year.
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