Draft digital assets Law

The Serbian Ministry of Finance (MoF) has published a draft of the proposed Digital Assets Law and invited the expert community and all interested stakeholders to engage in consultations on this piece of legislation. The MoF expects this dialogue to greatly enhance Serbia’s position as the South-Eastern European leader in digital finance technologies. According to MoF officials, the new rules will open new avenues for businesses to finance their innovative ideas while allowing them to participate in the digital asset market to enhance their liquidity. Companies will have a range of options at their disposal, including issuing investment tokens to raise capital and setting up digital asset exchange platforms. The value and importance of digital assets worldwide calls for effective local legislation to govern these matters.

Digital assets include crypto assets and virtual assets, defined in the proposed law as ‘a digital representation of value that can be digitally bought, sold, exchanged, transferred, or used for payment or investment’. By contrast, ‘virtual currency’ is defined as ‘a digital asset not issued or backed by a central bank or any other public authority that is not tied to a legal tender and lacks the legal status of money or currency but is accepted by natural and legal persons as a medium of exchange and may be bought, sold, exchanged, transferred, and stored electronically’. The best-known virtual currency in Serbia is bitcoin, which uses blockchain technology. A key concept in blockchain is ‘mining’, the process of both verifying and confirming transactions and earning digital assets. It is worth noting that the proposed law will not apply to the production of digital assets by engaging in mining, the electronic confirmation of transactions. In other words, mining will be allowed, but any assets so acquired will not be subject to the law. The mined assets may still be sold through a digital asset service provider, in which case the law will apply, or in the over-the-counter (OTC) market. Moreover, the law will not apply to transactions involving digital assets entered into exclusively within a limited network of persons that accept such digital assets.

Digital assets can share some characteristics of financial instruments, in which case any secondary trading or provision of services in connection with those assets is subject to the Capital Markets Law, except where the Digital Assets Law stipulates otherwise. The Capital Markets Law does not apply if the following conditions are met: 1) the digital assets lack any features of shares; 2) the digital assets cannot be exchanged for shares; and 3) the total value of the digital assets issued by a single issuer over a period of 12 months does not exceed 3 million euros.

The law prohibits financial institutions overseen by the National Bank of Serbia (NBS) from owning digital assets and providing and using services in connection with digital assets. In addition, digital assets cannot be used as collateral. Conversely, businesses may engage in digital asset transactions, but popular virtual currencies may be invested in a company only if converted into legal tender and contributed as capital.

The draft also regulates the procedure for issuing digital assets. An issuer wishing to do so will be required to produce a ‘white paper’ that discloses comprehensive information on the issuer and the assets that are required for prospective investors to make investment decisions and assess the risks connected with investing into the digital assets. The draft law prescribes the mandatory content of this white paper and the criteria for its approval and issuance. Where a white paper is approved for an initial public offering (IPO), the issuer is required to publish a report on the outcome of this IPO on its web site within three days of the IPO closing date. In some cases, the law allows advertising IPOs of digital assets where no white paper has been approved.

Secondary trading in digital assets both with and without white papers is permitted to digital asset service providers registered as platform operators. Over-the-counter trading is also allowed, but entering into and making transactions in the OTC market does not require the involvement of a digital asset service provider. 

Only businesses may serve as digital asset service providers. In addition to prescribing their form of incorporation, the draft law also mandates their registered capital threshold, licensing requirements, and compliance obligations. Digital asset advisory services do not require approval from a relevant authority, but may be provided only by a business or sole trader, or an registered self-employed individual practising a liberal profession, pursuant to special legislation.

The law also allows digital assets to be pledged, with the relevant pledge register kept by the digital asset service provider administering the pledgor’s digital assets, meaning that the law does not mandate a centralised register. This register must be public and openly available.

Implementation of law is to be directly and indirectly overseen by the Securities Commission and the NBS.

Serbia is one of the few countries that have opted to enact a specific piece of legislation to regulate digital assets. In the region, Bosnia and Herzegovina and Montenegro do not regulate this area at all, while Croatia amended its anti-money laundering/combating the financing of terrorism law in 2019, introducing a limited number of provisions that govern virtual assets and virtual currencies.