The National Assembly of the Republic of Serbia adopted the Law on Digital Assets (hereinafter: the Law), which entered into force on December 17th 2020. The Law will be applicable within six months from the day it came into force, which will provide enough time to create conditions for its implementation, as well as for all interested participants in the digital assets market to get acquainted with the provisions of the Law.
The Law regulates the issue of digital assets for the first time in the Republic of Serbia, which not only sets the rules for market participants, but also regulates the entire process of issuing and exchanging digital assets, which will certainly result in increased security for investors and businessmen from the potential risks.
The Law was drafted by an interdepartmental group consisting of representatives of the Ministry of Finance, Office of the Prime Minister of the Republic of Serbia, National Bank of Serbia, the Ministry of Economy, Securities Commission and The Chamber of Commerce and Industry of Serbia, with expert support from Digital Serbia and Serbian Blockchain Initiative. The Ministry of Finance has repeatedly pointed out that the adoption of the Law provides greater business opportunities for business entities, which will significantly contribute to business development, strengthen the integrity of the financial market, as well as contribute to the financial stability of the country.
DIGITAL ASSETS AND VIRTUAL CURRENCY
Foremost, the Law defines terms of digital assets and virtual currency. The term of digital assets also includes the term of virtual currency, as a type of digital asset.
Namely, the Law defines digital assets, i.e. virtual assets as a digital record of value that can be digitally bought, sold, exchanged or transferred and which can be used as a mean of exchange or for investment purposes. It is also pointed out that digital assets do not include digital currency records that are considered legal tender and other financial assets that are regulated by other laws.
Virtual currency is a type of digital asset that has not been issued and whose value is not guaranteed by the central bank or other public authority, which is not necessarily tied to legal tender and does not have the legal status of money or currency, but is accepted by individuals or legal entities and can be bought, sold, exchanged, transmitted and stored electronically.
It is interesting to mention that the Law prescribes the principle of technology neutrality, which means that the term of digital assets does not necessarily imply the application of blockchain technology, but leaves space for the application of other technologies.
Also, one of the important innovations is the fact that the Law allows the mining of digital assets, but provisions of the Law do not apply to the acquirers of digital assets created during mining. Miners are free to dispose digital assets, except in case of using the services of service providers related to digital assets, in which case the provisions of the Law relating to users of digital assets apply to these holders.
DIGITAL ASSETS SERVICES
The Law differentiates two categories of services related to digital assets. The first category includes services related to digital assets transactions, such as: receipt, transfer and execution of orders related to the purchase and sale of digital property 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 assets, with or without the obligation of purchasing it (sponsorship); keeping a register of pledges on digital assets; digital asset acceptance/transfer services; managing the digital asset portfolio, as well as organizing a digital assets trading platform.
The provision of the above services requires the permission of the supervisory authority for the provision of services related to digital assets. It is important to point out that the providers of these services cannot perform other tasks, except tasks related to digital assets. The Law makes a small exception only in relation to legal entities that have a license from the Commission to perform activities of a broker-dealer company or market organizer, which in addition to the core business can also provide services related to digital assets.
The second category of services prescribed by Law is advisory services related to digital assets. The Law defines them as services related to investment advising, giving investment recommendations, advising on capital structure, business strategy, issuing of digital assets and similar issues, as well as other advisory services related to digital assets.
It is important to point out that the Law explicitly prohibits financial institutions under the supervision of the National Bank of Serbia from providing or using services related to digital assets, owning digital assets or other related instruments, nor capital investments of these institutions can be in digital assets.
Thus, banks are not allowed to provide services related to digital assets, which indicates the unwillingness to give digital assets and crypto currencies, at this time, the full capacity that they could reach, but on the other hand it makes space for the creation of new companies to perform these jobs, whose way of functioning is still not clear.
However, financial institutions under the supervision of the NBS are allowed to store and administer digital assets for the account of users of digital assets and perform related services (storage of cryptographic keys). Also, the NBS is left with the possibility to prescribe the conditions and manner under which financial institutions under its supervision can invest in digital tokens that have the characteristics of a financial instrument or that are used exclusively for investment purposes. This opportunity can create an extremely important ticket for banks, insurance companies and other financial institutions in the digital assets market, which on the one hand will make their products more attractive, and on the other hand, provide easier and "modernized" business by using blockchain technology, from which can also benefit users of financial services as well.
ISSUANCE OF DIGITAL ASSETS AND WHITE PAPER
The Law differentiates between the issuance of digital assets for which a white paper has been made or approved and the issuance of digital assets for which a white paper has not been approved.
Advertising the initial offer of digital assets for which a white paper has been approved
When it comes to the issuance of digital assets for which a white paper has been made or approved, before the issuance of digital assets, the issuer makes a white paper, the content of which is regulated by Law and which is approved by the supervisory authority.
Based on the information contained in the white paper, the future potential buyer, i.e. the investor makes an informed decision regarding the purchase, i.e. investment. The content of the white paper must be accurate. In case of incorrect data in the white paper itself or in case important data on digital assets to which the white paper refers are omitted, the responsibility will be borne not only by the issuer, but also by the responsible officer in the issuer, i.e. the issuer's director, but also by independent auditors, as well as by any other person who takes responsibility for the accuracy and completeness of the information.
The issuer or an authorized person on behalf of the issuer submits a request for approval of the publication of white paper to the supervisory body, which makes a decision, within 30 days from the date of a duly submitted request, approving the publication of white paper. After the approval of the publication of the white paper, the issuer publishes the white paper within a reasonable time - at the latest until the beginning of the initial offer of digital assets. The issuer is obliged to publish the white paper on its website in Serbian.
Upon receipt of the decision approving the publication of the white paper, begins to run the period of 30 days for the beginning of the registration and payment of digital assets.
After the successful completion of the initial sale of digital assets, the issuer is obliged to immediately notify the supervisory authority, as well as to publish a report on the outcome of the initial offer on its website within 3 working days from the date of completion of the initial offer.
Advertising the initial offer of digital assets for which a white paper has not been approved
The Law has taken the position that the initial offer of digital assets for which a white paper has not been approved cannot be advertised on the territory of the Republic of Serbia. Exceptions to this prohibition imply that the issuer may advertise an initial offer of digital assets for which a white paper has not been approved in the following cases: the initial offer was sent to less than 20 natural and/or legal persons; the total number of digital tokens issued does not exceed 20; the initial offer is sent to buyers/investors who buy/invest in digital assets in the amount of at least 50,000 euro in dinar equivalent at the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia on the day of purchase/investment, per buyer/investor, as well as that the value of digital assets issued by one issuer during a period of 12 months shall be less than 100,000 euro in dinar equivalent at the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia.
SECONDARY TRADING OF THE DIGITAL ASSETS AND OTC TRADING
The Law explicitly allows both secondary trading of digital assets issued in the Republic of Serbia or abroad and for which white paper has been approved in accordance with the Law, as well as secondary trading of digital assets issued in the Republic of Serbia or abroad for which no white paper has been approved.
Trading of digital assets through the platform in the Republic of Serbia can be performed by companies that have a license from the supervisory authority for the provision of services related to digital assets, as well as all other legal entities, entrepreneurs and individuals. The Law insists that during this form of trading of digital assets, the organizer of the platform respects the principle of transparency, both before and after the transactions regarding digital assets.
The Law also allows OTC trading of digital assets. The possibility of using smart contracts is also envisioned, but it remains to be seen to what extent these provisions of the Law will be applicable in practice.
PLEDGE AND FIDUCIARY RIGHTS ON DIGITAL ASSETS
The law prescribes the essential elements of the pledge agreement, as well as the manner of acquiring the right of pledge. The right of pledge is acquired by registering in the register of the pledges. In order to register a pledge on digital assets in the register of the pledges, the Law stipulates that the digital asset that is the subject of the pledge must be previously entrusted for safekeeping and administration to a provider of services related to digital assets, who has a license to keep a register of the pledges on digital assets.
The Law also regulates the issue of the use of pledged digital assets by the pledgor. He may use digital assets, retain all earnings (if the digital assets has any), as well as pledge it again, unless the pledge agreement excludes that right of the pledgor.
The Law also introduces fiducia for the purpose of securing claims. The fiduciary creditor has the right to use the digital assets that are the subject of the fiduciary agreement and to dispose of it, and even to alienate it. Upon execution of the secured claim or simultaneously with the execution, the fiduciary creditor returns to the fiduciary debtor the received or equivalent funds.
GOOD AND BAD SIDES OF THE LAW
The Law provides legal security on the digital assets market and pulls the digital asset itself out of the gray zone, giving its status a legal shape. The Law is a good "stepping stone" but it remains to be seen whether its implementation will follow the digital assets market. A significant scope of regulations is left to be regulated by bylaws, which will regulate in more detail the issue of trading of digital assets, and whose efficiency will determine the successful implementation of the Law, as well as its "revival" in practice.
The Law does not give a clear answer about the status of the already existing, i.e. issued digital assets. Namely, it is not completely clear whether additional white paper can be requested for this property and if so, whether it will have the same status as digital assets issued after the entry into force of the Law, for which white paper will be issued.
Also, there is no regulation of the question whether transactions and acquisition of digital assets before the adoption and implementation of the Law will be treated in any way and in what way in terms of taxes, white paper, issuers, inclusion in the prescribed limits (such as the limit of 100,000 euro in dinar equivalent at the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia when issuing digital assets for which a white paper has not been approved), etc.
The Law did not clearly define which moment is considered the moment of issuing of digital assets - whether it is the moment of the announcement of the initial offer or the end of the announcement of the initial offer or some other moment.
Therefore, the Law certainly represents an extremely optimistic step forward towards the introduction of digital assets in both life and economy, we would dare to say that in some parts it may even be carelessly ambitious (e.g. in terms of introducing the institute of fiduciary). What is indisputable is that this is certainly the beginning of the regulation of the digital assets market, and that we will have to await a clear position of the legislator regarding it in the future.
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