While the use of DLT-based financial services is rapidly transforming the whole picture of financial markets for both market investors and market infrastructure providers (payment systems, stock exchanges, trading venues, securities custodians, issuing companies), these raise specifically challenges for both regulators and market participants due to the uncertainty on how the existing regulatory framework can be applied to these innovative services.
The main institutions in charge of enforcement of the Law no.66/2020, dated 21.5.2020 "On Financial Markets Based on the Technology of Distributed Ledgers" (the "Law") are the Financial Supervisory Authority ("AMF") and the National Agency for Information Society ("AKSHI"). The Law regulates the conditions for licensing, monitoring, supervising entities that issue, trade or store virtual assets, as well as the rules for licensing and supervising the activity of the virtual asset agents. Also, the Law defines cases of abusive practices and their relevant penalties.
1. Distributed Ledger Technology, Digital Tokens and Virtual Coins
The Law defines the DLT as: "...a decentralized database, in which information and/or data is securely recorded, consensually verified and distributed in a synchronized manner through a multiple network of nodes or other technical means, in accordance with the definition of innovative technology agreement and where all copies of distributed database are considered original..."
Regardless of the _mot a mot_ literal meaning given by the law, the legislator in Albania is not aiming to define the technology as such, but rather to define the decentralized databases which are enabled through this technology fulfilling certain criteria (i.e. Blockchain, etc.), as a DLT.
Notwithstanding the wide range of possibilities that DLT might provide in the future, to date it is widely used for transactions including DTs and VCs. DTs and VCs are types of virtual assets, essentially dependent on the DLT, which give users the right to own them or can be used as a payment instruments or utilities in the process of purchasing products or services.
The Law is classifying DTs and VCs as follows:
"DT" is a digital marker, which:
- is essentially dependent on DLT; and
- is included exclusively in one of the categories of DT such as:
- DT of payments (any DT used as a medium of exchange, instrument of payment, unit of calculation or value reserve and which is not included in the DT of securities and DT of services);
- DT of securities (any DT that represents the value, similar to other defined securities, according to the legislation in force for capital markets, based on Blockchain technology, confirmed by a competent national authority, which are freely transferable and provide the owner monetary rights or property rights over the project, or if it has profit sharing features, or a predetermined right, or provide decisive power to the owner in the issuer's project);
- DT of services (any DT, which enables access to an application, service or product and does not provide any value, service or applicability outside the DLT platform on which it is issued);
- DT of assets (any DT not included in the above categories of DT).
VC is one of the virtual tools that means digital representation of value, which is used as a medium of exchange, instrument of payment, unit of calculation or reserve value and which:
- is not a DT, as defined by the Law;
- has not been issued or guaranteed by a state body;
- is not necessarily related to a currency regulated by law;
- is not a currency and therefore has no legal exchange rate, but is accepted by natural or legal persons as a means of exchange;
- is issued on a special DLT platform; and
- may be transferred, deposited, and traded electronically.
2. Licensing of the centralized and decentralized DLT stock exchange, DT agents, innovative service providers, the third-party wallet custodians and automated enterprises of collective DT investment.
The licenses provided for in the Law can be further classified as (1) the centralized and decentralized DLT stock exchange (type A, B, and C), (2) the license of the DT agent, (3) the license of innovative service providers, (4) the license of the third party wallet custodians and (5) the license of automated enterprises of collective DT investment.
The licenses will be valid for an indefinite period of time, unless revoked by the owner or removed by AMF and/or AKSHI.
Any licensing entity must prove, directly or through the DT agent (as the case may be), that:
- they have paid the relevant application fee for the required license;
- they are duly registered in Albania as a joint stock company;
- they have appointed the board of directors or, as the case may be, the supervisory board and to certify, through a self-declaration that:
- their respective members have a good professional and personal reputation, have sufficient knowledge, skills and experience, have sufficient time to perform their duties and are able to clearly understand the type of activities and the risks associated with them.; and
- the requesting entity will allocate sufficient financial and human resources for the training of the members of the board of directors or, as the case may be, the supervisory board;
- the innovative technology agreement is in line with the provisions of the Law. (except for DT agents);
- has appointed a person responsible for the prevention of money laundering at the administration / management levels in the head office and in each representative office, in accordance with the Law on Prevention of Money Laundering;
- meets the criteria of being "capable and suitable" for conduction of relevant activities – in accordance with the legislation in force for the capital markets (applicable to any shareholder with more than 10% of shares, any member of the board of directors / supervisory board and any person who is entitled to the functions of administration, management or control over the legal entity);
- the company has adopted internal operating regulations, which contain:
- preventive measures and policies for money laundering and financing of terrorism, in accordance with Law on Prevention of Money Laundering;
- effective measures and policies to identify and manage conflict of interest;
- effective measures and policies to prevent market fraud and abuse.
AMF and AKSHI may adopt more detailed rules, regarding general conditions, special criteria or other additional criteria, within their area of responsibility.
The Law also provides the procedures to be followed for entities in order to obtain a license, for which the responsible authority takes a decision within 60 calendar days from the date of submission of the application and the probative documentation by the requesting entity itself or through the DT agent. After obtaining the license, each license holder must pay to AMF and/or AKSHI the annual license holder's fee. The annual fee of the license holder, as well as the payment procedures are still to be determined by sub-legal or regulatory acts for each responsible authority.
Licenses cannot be transferred without the prior approval of the competent authority (AMF, AKSHI or both, depending on the specific license). Furthermore, any license holder should be registered on the relevant register of the competent authorities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.