Although the Law on Digital Assets (the “Law”) came into force in 2021, defining Providers of services related to digital assets (“Service Providers”), there haven’t been many registered legal entities in Serbia engaged in providing these services to date. One of the reasons for this might be the somewhat more complicated procedure for incorporation compared to legal entities providing other types of services. Therefore, we address here some basic yet common questions we have encountered in practice.
Who can be a Service Provider?
A Service Provider can only be a legal entity – established in accordance with the provisions of the Companies Act, and which has obtained a license from the supervisory authority.
In addition to services related to digital assets, the Service Provider may only perform those tasks and services that are directly related to services related to digital assets.
An exception to this rule is legal entities that have a license from the Securities Commission to operate as a brokerage-dealer or market organizer, which can also provide services related to digital assets (upon obtaining a license from the supervisory authority for providing services related to digital assets).
Financial institutions under the supervision of the National Bank of Serbia (“NBS”) cannot provide services related to digital assets, nor can they be users of such services. Additionally, financial institutions under the supervision of the NBS and entities or individuals connected to these financial institutions cannot be founders, nor can they have direct or indirect ownership in a legal entity providing services related to digital assets, and these entities and individuals cannot participate in the management or be members of the bodies of that legal entity or its representatives, nor can they be individuals directly managing the provision of services related to digital assets in that legal entity. An exception here is that financial institutions under the supervision of the NBS may have ownership in a brokerage-dealer company and market organizer providing services related to digital assets, unless prohibited by other regulations.
Members of the management or executives of the Service Provider must meet specific requirements, and their appointment must be approved by the supervisory authority (which can later be revoked).
Minimum Capital
The minimum capital of the Service Provider depends on the type of services the Service Provider intends to provide and ranges between €20,000 and €125,000. The minimum capital can be in cash and non-cash, but at least half of the minimum capital must be subscribed and paid in cash.
In case the capital falls below the prescribed minimum, the supervisory authority will order rectification of the irregularity, and may also impose some supervisory measures (Which can lead to license revocation).
Services related to digital assets
Services related to digital assets include:
- Receiving, transferring, and executing orders related 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 an account and/or electronic money.
- Services for exchanging digital assets for other digital assets.
- Custody and administration of digital assets on behalf of users of digital assets and related services.
- Services related to the issuance, offering, and sale of digital assets, with the obligation to repurchase (underwriting) or without this obligation (agency).
- Maintaining a register of lien rights on digital assets.
- Services for accepting/transferring digital assets.
- Portfolio management of digital assets.
- Organizing a trading platform for digital assets.
Service providers related to digital assets may also provide advisory services, which include investment advice, providing investment recommendations, advising on capital structure, business strategy, issuance of digital assets, and similar matters, etc.
On the other hand, an advisory service provider, as specifically defined by the Law, exclusively provides advisory services related to digital assets and is not obligated to obtain a license from the supervisory authority to provide these services. Unlike a service provider, which can only be a legal entity, an advisory service provider can take the legal form of a company or a sole proprietorship, or it can be registered as an individual practicing a freelance profession.
Licence for Providing Services Related to Digital Assets
A legal entity intending to engage in providing services related to digital assets must obtain licence to do so. The licence is obtained through an administrative procedure by submitting an application to the competent authority.
The authority to decide on such application is divided between the NBS and the Securities Commission, depending on the type of digital asset involved. If virtual currencies are involved, the jurisdiction lies with the NBS. If it concerns digital tokens or digital assets with characteristics of financial instruments, the Securities Commission will be responsible. Nevertheless, these authorities are obliged to cooperate and exchange data and documentation available to them.
The supervisory authority decides on the application within 60 days from the date of receiving a complete application. If the supervisory authority rejects the application, the applicant cannot submit a new application within one year from the date of the supervisory authority’s decision. Upon obtaining the licence, the Service Provider is registered in the registry of service providers maintained by the supervisory authorities.
The Service Provider may provide services related to digital assets in a foreign country through a branch or directly.
It is important to emphasize that Service Providers are obliged to inform potential users of digital assets about all risks before establishing a business relationship or conducting transactions with digital assets, including the risk of partial or total loss of funds or other assets, and that transactions with digital assets are not subject to regulations governing deposit insurance or investor protection, nor regulations governing the protection of financial service users.
Market in Serbia
As mentioned, only a negligible number of service providers have been registered in Serbia to date – only two of them, which indicates that the Serbian economy is still oriented towards traditional business practices. On the other hand, this may also imply relatively low competition and room for quicker success and advancement for those willing to take greater risks and venture into the crypto industry.
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