Can crypto/DLT give capital markets in Serbia a second chance to thrive?

More importantly, what is the adequate application of DLT in this sector?

OCTA IT Sourcing has been engaged in the consultation process initiated by the Serbian Securities Commission in order to potentially establish a future regulatory framework in the field of crypto-asset rights, thus creating a favorable and regulated market environment not only for local companies that have the intention to conduct investing, issuing, trading and related activities in this industry, but for foreign companies as well.

Namely, the Securities Commission’s aim is to consider the possibility, not just to regulate crypto-asset related rights, but also to implement DLT into the capital market’s infrastructure. This may be, perhaps, an even bolder and more ambitious endeavor in comparison with the crypto-asset regulation process itself. Feasibility of using DLT within the financial sector system is hardly an issue- it has been done before (i.e. in France), however, we believe that the question of suitability is more important: What would be the adequate use case for the application of this technology and what would be the scope of regulation? Both the legal and technology aspects of implementation should be considered while assessing how would this process impact the capital market in Serbia. Evidently, ‘’Me too’’ is the most common approach when it comes to adopting new legislation, due to the process of harmonization with the EU regulatory framework, however we have witnessed that this can sometimes be counterproductive, as the gap between market cultures is to great to simply ‘’copy-paste’’ regulation from countries that have greater technological awareness and economic power.

So what now?

By launching the public consultation process, Securities Commission (with the support of the Serbian Prime Minister) has shown initiative to ‘’put Serbia on the map’’ when it comes to progressive legislation in the DLT domain. The first step has been made, but now the real fun starts. 

Without going too much into details about what legal issues would need to be addressed first (crypto-asset qualification, adjustment of current capital market regulation, market abuse, AML, cybersecurity, crypto-asset agent etc.), we believe that it is important to have a broader view of the entire process. Using technology is one thing, but regulating it is another story. While we think that following the example of Malta in regards to their blockchain regulation may be a good approach, especially taking into consideration the fact that they are an EU member state, we would like to point out that the Virtual Financial Assets Act (‘’VFAA’’), which is praised as one of the most pregressive blockchain laws, is in fact part of a much larger and more complex legislative system, together with Malta Digital Innovation Authority Act ( “MDIA’’) and Innovative Technology Arrangements and Services Act (‘’ITAS’’). Therefore, it is important to understand that blockchain regulation cannot be viewed and implemented separately from the ‘’fundamental technology legal framework’’. Moreover, in order to successfully integrate ‘’blockchain norms’’ into our legal system, it is required to have an in depth understanding of the complex structure of crypto-asset’s legal nature (origin) and assess the implications that such norms may have for other fields of law ( i.e. contractual law, copyright law, data privacy and consumer rights regulation etc.). 

Easier said than done? -Absolutely.

The issue is that there is no global consensus on the legal status of crypto-assets, especially due to their economic function diversity, but this will be hardly an excuse, as big players like Facebook and JP Morgan are moving into this market, so very soon the legislators, on a global level, will have no choice but to act.

What do you think is the future of crypto-asset regulation?

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