Having in mind the situation with COVID 19 pandemic, which has only accelerated the overall digitalization of society and business, digital assets for sure have an important place. The Bill on Digital Assets (“Bill”) is a big step forward to the development of digital technologies and the competitiveness of the Serbian economy on the global map. This step sends a powerful message, putting Serbia on the map of countries where digital assets have been introduced into the legal system, and where business can be done referring to them.
What does the Bill bring to the economy?
The Bill first defines digital assets as the digital record of values that can be digitally bought, sold, exchanged or transferred, and which can be used as a medium of exchange or an investment tool, whereby the digital assets do not include digital records of values referring to legal tender and other financial assets regulated by other laws (such as electronic money or stocks of a listed company), which is also in accordance with comparative legal practice.
The Bill assigns the National Bank of Serbia and the Securities Commission as supervisors (regulators) in the application of the future law.
Furthermore, the Bill defines a virtual currency as a type of digital asset that has not been issued and whose value is not guaranteed by the central bank nor some other public authority. It is not necessarily tied to legal tender and it is not considered money or currency, but natural persons and legal entities may use it as a medium of exchange, buy it or sell it, transmit it or store it electronically.
A special relief in connection with capital raising for both existing and startup companies, is the possibility of an initial offer of digital assets, which means that every startup company in Serbia will be able to raise capital by issuing digital tokens in accordance with this Bill.
That said, the Bill also introduces a digital token, defining it as a type of digital asset referring to intangible property right that in digital form represents one or more other property rights, including the right of digital token users to be provided with specific services.
Namely, in this way, securities such as stocks or bonds can be classified under the digital token, which opens the door to tokenization of financial instruments.
Cryptocurrencies are not considered to be money or currency
However, as the issuance of digital assets is quite simplified, the legislator has an exception prescribed for issuance and trade on the secondary market of digital assets that are qualified as financial instruments but do not have the characteristics of stocks, nor are they exchangeable for stocks issued by one issuer, and whose total value does not exceed EUR 3 million over a period of 12 months. The Bill also prescribes the conditions for trading on the secondary market which must be performed through the platform manager who is licensed to provide services related to digital assets.
Virtual currencies cannot be used as equity capital of a company, but first must be converted into money which shall later serve as a paid-in equity capital, while in-kind equity capital of the company could be in the form of digital tokens which are not related to provision of services or performance of work.
Another novelty is the introduction of the Whitepaper, which the Bill defines as a document that is published during the issuance of digital assets, which contains the data on the issuer of digital assets, the data on digital assets and risks associated with digital assets, and allows investors to make a decision based on the information they gathered from the Whitepaper.
The Bill specifically regulates that all information contained in the Whitepaper must be accurate, complete and clear, and must not be misleading. In addition, a mandatory approval by the competent authority is prescribed, without which, except in cases prescribed by the law, it would not be possible to conduct an initial offer on digital assets.
As the initial offer on digital assets is only the beginning of the trade with digital tokens, the Bill also regulates the conditions for digital assets service providers who, in order to obtain a permit from the supervisory body, first must be registered as a company, as well as have a minimum founding capital ranging from EUR 20,000 to EUR 125,000.
As with the securities, the Bill prohibits the exchange and misuse of insider information, as well as market manipulation. Furthermore, the Bill imposes the obligation for service providers to report such actions to the supervisory authority in case of justified suspicion. For the cases when the law has been broken, the Bill prescribes a prison sentence of up to 5 years in addition to a fine.
These provisions aim to criminalize and prevent a very common abuse of the law in the past, thanks to which some individuals, using loopholes, managed to deceive with impunity a large number of investors, which resulted in the loss of faith in the market and slowing down of the industry.
Equating digital assets with other forms of property undoubtedly implies a possibility of their pledge, by registration of pledge in the register of pledges kept by the digital assets service provider.
We point out that the Bill prescribes the obligation of digital assets service providers to take actions and measures to prevent and detect money laundering and terrorism financing prescribed by the Law on Prevention of Money Laundering and Terrorism Financing. The relief is in that, from now on, providers will be able to identify service users using electronic ways of communication, which will significantly facilitate the identification process, and consequently lead to an increased number of users.
Once the Bill is passed, service providers will have 6 months to adapt to the new regulations
In the event the Bill is passed, the new Act will enter into force six months after its enactment to allow sufficient time for digital property service providers to align their business and company’s bylaws with the provisions of the Act. It is envisaged for the bylaws to be adopted within 3 months upon the Act entering into force.
It is also prescribed by the Bill that the National Bank of Serbia shall adopt the bylaws in the part that concerns virtual currencies as a type of digital assets, and the Securities Commission in the part that concerns digital tokens as a type of digital assets.
Conclusion
The Bill undoubtedly represents the legislator’s support for new technologies, and a desire for Serbia to enter the development of digital investments as soon as possible.
A big dilemma concerns the pending bylaws and their practical scope, because they are about to regulate in details certain institutes from the Bill. It would be a good practice to involve the relevant comparative regulations and domestic companies in the process, as well the start-up community in order to get a perfect balance that would really foster the development of digital assets.
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