Cryptocurrency has emerged in the modern digital landscape, challenging the traditional financial sector. Yet, looking back at the disruptions and scandals in the financial market and the consequential lack of trust in the banking system before Bitcoin (the first and most widely recognized cryptocurrency) appeared in 2009, it is clear that cryptocurrencies did not appear completely out of the blue. In fact, they arose as a response to the limitations and overcontrol of the centralized banking system.
Initially, many overlooked the potential of cryptocurrencies, viewing them as a passing trend and doubting their regulation’s necessity. However, today, this subject, along with other digital-age issues like AI, has garnered global regulatory attention.
At the same time, as a novelty, cryptocurrencies have also given many countries the opportunity to respond to them by establishing their own regulations and formulating specific financial and investment goals through such regulations. In this context, certain countries have completely banned digital assets and their markets (e.g. China), while others have gone as far as embracing Bitcoin as their official currency (e.g. the Central African Republic). The Republic of Serbia opted for a different approach.
The Serbian parliament enacted the law on digital assets at the end of 2020, which started being applicable as of 30 June 2021 (“LDA”). Serbia was one of the pioneering countries in Europe to embrace such legislation, together with Switzerland, Estonia, Cyprus, and Malta.
The main goal of passing this piece of legislation, as explained in the official Proposal of this law, was to improve the business environment and contribute to further digitization of services in the Serbian economy while adequately managing the security and financial risks inherent in this form of asset. It was also expected that this law could lead to comprehensive improvement of the Serbian capital market, as it enables, among others, the issuance of financial instruments in the form of digital assets, utilizing digital technology, avoiding the application of strict rules prescribed by the Serbian Capital Market Law.
As arising from the title of the LDA, this legal framework is based on the broader notion of digital assets (instead of cryptocurrency), which was introduced for the first time into Serbian legislation. Under the LDA, digital assets are divided into two basic types – virtual currencies or digital tokens, whereby digital tokens could emerge in different forms, such as utility tokens and investment/ security tokens.
Besides this, the Serbian Law regulates the conditions for conducting transactions with this asset through licensed service providers, supervision of their operations, and the issuance and secondary trading of digital assets in the Republic of Serbia, the provision of services related to digital assets, collateral and fiduciary rights to digital assets, supervision of the application of this law, market abuse of digital assets, and the application of regulations governing anti-money laundering and combating the financing of terrorism on service providers related to digital assets.
Generally, through the institutionalization of digital assets within this new framework, the Serbian lawmaker has aimed to enable the application of other traditional property and contractual regulations, criminal law, etc., to digital assets.
On the other hand, later, on 29 June 2023, the Markets in Crypto-Assets Act (“MiCA”), was adopted the first landmark regulatory framework in the EU that covers crypto-assets, crypto-assets issuers and crypto-asset service providers. MiCA will become applicable in part (provisions regarding asset-referenced tokens and e-money tokens) from 30 June 2024 and in other parts from 30 December 2024. Currently, there are legislative procedures undertaken at the EU level related to MiCA delegated acts (such as Regulatory Technical Standards and Implementing Technical Standards).
Here are a few distinctions between the two regulations (the Serbian and EU one).
First, there is a conceptual difference, as MiCA uses the term “crypto assets”, while LDA refers to “digital assets” which does not mean a big discrepancy itself. However, upon closer examination of both definitions, differences become apparent. Specifically, under the LDA, the concept of digital assets is not necessarily tied to distributed ledger technology (DLT), i.e., blockchain, while in MiCA, DLT or similar technology is indeed at the core of the definition of crypto assets.
Second, while MiCA completely excludes financial instruments from its scope, the LDA envisages that certain financial instruments will be considered digital assets, i.e., digital tokens. This should enable such financial instruments to be issued under a simplified regime, as issuing digital assets is significantly cheaper and simpler under this law than the process of issuing traditional financial instruments under the Capital Market Law.
Third, a significant portion of MiCA focuses on stablecoins, coins tied to other assets’ value. Following MiCA these could be in the form of “e-money tokens” (EMTs), which represent stablecoins linked to a fiat currency (such as Tether or USDC) or “asset-referenced tokens” (ARTs) whose issuers are required to maintain appropriate reserves and adhere to robust governance standards. On the other hand, the Serbian LDA only defines stable digital assets without prescribing any specific rules for these forms of digital assets. Thus, in accordance with the LDA, no issuer is required to ensure any coverage for the digital assets they issue.
Furthermore, the requirements concerning the authorization for service providers related to digital, i.e., crypto assets, are significantly stricter in MiCA than in the Serbian LDA. Moreover, MiCA also envisages explicit application of regulations aimed at consumer protection to consumers in the crypto market, whereas the LDA only defines the concept of consumers in the introductory provisions but does not prescribe specific rules for consumer protection.
Although these are just a few distinctions between these two regulations, even from these ones, it seems that the Serbian lawmaker has embraced a more favorable stance towards digital assets and their trading. Such an approach aligns with the mentioned regulatory goals, i.e., improvement of the business and investment environment and recovery of the Serbian Capital Market. However, whether these regulations will undergo certain changes and in what direction remains to be seen.
Considering the position of the Republic of Serbia and its status as a candidate for the European Union, it could be expected that amendments to Serbian laws will be made to tighten the conditions for trading digital assets, following the MiCA model. However, given the advanced Web 3 and blockchain technology, as well as the rapid development of AI, it is not excluded that the need to implement an entirely new set of regulations may arise sooner than anticipated.
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For more information, please contact Ms. Jovana Spasojevic, an attorney at Doklestic Repic & Gajin law firm.
