Category: Bulgaria

The MICA (Markets in Crypto-Assets) Regulation was formally adopted by the European Parliament on 20 April 2023 and approved by the Council of the European Union on 16 May 2023. The adoption of MICA is in response to the growing need for regulation in the rapidly evolving world of crypto-assets and represents an important step towards building a stable and secure financial system in the EU.

Given the significant amount of regulation introduced at EU level by MICA and the current absence of a national legislative framework in Bulgaria related to the functioning of crypto – asset markets, as well as the need to identify competent authorities and procedures for the exercise of their powers under the Regulation, there is a need to adopt and supplement the regulatory framework of Bulgaria. In this regard, on August 20^th, 2024, a “Bill on Crypto-assets Markets” (BCAM) was published for public consultation, which gives an indication that by the end of this year (2024) we may have a law in force. The public consultation period ended on September 20^th, 2024.

WHO WILL REGULATE THE MARKET AND WHAT IS NEXT FOR MARKET PARTICIPANTS AFTER THE ADOPTION OF THE LAW

Regulators

One of the fundamental objectives of the BCAM is the designation of a national competent authority, in our case this role is envisaged to be performed jointly by the Commission for Financial Supervision (CFS) and the Bulgarian National Bank (BNB).

The CFS will regulate the provision of services for crypto assets, as well as the public offering and admission to trading of crypto assets, except for e-money tokens, which are envisaged to fall under the jurisdiction of the BNB. In addition, the CFS will process complaints from users of services related to crypto assets.

What will be required from market participants?

The MICA and the BCAM introduce a number of obligations and requirements for participants in the market of crypto-assets. The public offering of assets and the provision of services will only take place after obtaining a license to carry out the relevant activity or notifying the CFS in applicable cases.

The public offering of crypto assets will require the preparation of a so-called “white paper” of the relevant asset and its submission to the regulator.

Crypto asset service providers will have to apply for registration of their right to provide these services in the commercial register at the Registry Agency within 7 days of obtaining the license from the FSC.

It is important to note that the Bill provides for an exception, that is applicable for people who provide services under Article 4 (38) and (39) of the Anti-money laundering act (AMLA) and are listed in the register maintained by the NRA. If the proposal is adopted, these persons will be able to continue to operate without a license until the end of 2025, but only on the territory of the Republic of Bulgaria. Only after obtaining the license will they be able to provide their services throughout the European economic space. In view of the long timeframe for the CFS’s ruling, business should consider this option, which allows for extra time and postponement of the license. The Bill sets a 6 month’s timeframe for a decision on a license application, and failure to respond within this timeframe will be deemed an implied refusal.

WHICH CRYPTOASSETS ARE REGULATED BY MICA and BCAM

In their regulation, the BCAM and MICA, attempting to cover the full variety of crypto assets, conventionally divide tokens into three main groups of crypto assets:

• electronic money tokens;
• asset-referenced tokens;
• other crypto-assets;

What all of these have in common is that all crypto assets are inherently an application of decentralized ledger technology and blockchain technology. They are a digital representation of value or rights and have the potential to generate significant benefits for market participants, including as a means of payment, a means of raising or making investments, etc.

Stablecoins

The first two groups – e-money tokens and asset-referenced tokens – are very similar in nature. These are the so-called and well-known “stablecoins”. They are a type of cryptocurrency designed to maintain a stable value against some standard, such as a fiat currency (e.g. dollar or euro) or other value. The basic idea behind stablecoins is to combine the advantages of cryptocurrencies, such as speed and security of transactions, with the stability advantage of traditional currencies. In this way, they become an extremely convenient means of payment and of storing funds, while protecting against the high volatility of other crypto-assets.

The main difference between e-money and asset-referenced tokens lies in how their value is maintained and how they are regulated. Electronic money tokens are a digital expression of the value of fiat money that is deposited with registered financial institutions. They are linked directly to official currencies and are regulated as electronic money by financial authorities. The value of an e-money token is equal to the value of the fiat currency deposited. Given their nature, e-money tokens will be supervised by the BNB.

Asset-referenced are linked to a basket of assets that contains both fiat currencies and commodities or cryptocurrencies, and their value is stable against these assets. Unlike e-money tokens, the minimum amounts in each official currency that must be held as deposits with credit institutions are specified and cannot be less than 30% of the amount pegged to each official currency. For example, suppose that an issuer markets 10 million EUR of asset-referenced tokens. He would have to maintain deposits with credit institutions of at least 3 million EUR. These reserves ensure that the issuer has sufficient liquidity to cover the value of the tokens issued and provide stability and protection for the token holders.

Other crypto-assets

Other crypto-assets are the most mainstream and widespread crypto-assets. The best known such tokens are BTC (Bitcoin) and ETH (Ethereum). It was bitcoin that kick-started and established the cryptocurrencies and initiated the financial revolution that followed. Other examples of such crypto assets are:

• Utility Tokens – These tokens provide access to certain services or features of the platform on which they are issued. They are often used to obtain special rights or services within a given blockchain platform. An example of such is BNB (Binance Coin).
• DeFi tokens (Utility Tokens) – These tokens are often used as utility tokens, providing incentives to users, for example through rewards for providing liquidity or participating in the protocol.
• NFTs (Non-Fungible Tokens) are unique tokens that are used to prove ownership of certain physical or digital assets. They are unique units that can certify ownership of things like digital art or event tickets.

It is in this broadest category of crypto-assets that allows for exceptions to the scope of the MiCA and BCAM. For example, individual NTFs will not be subject to regulation as long as the assets or rights that are granted with them are truly unique and irreplaceable. In the area of decentralized finance (DeFi), an exception is also possible, and the Regulation should not apply if a crypto asset service is fully decentralized and no intermediary is used. The application of these exemptions will be on a case-by-case basis and will depend exclusively on the decisions and guidelines of the regulator. 

SUMMARY

The market in crypto-assets is extremely vast and diverse, providing a multitude of opportunities and innovations. In addition to the assets listed above, there are many others. Each type of token is designed to perform specific functions and meet the needs of different participants in the crypto ecosystem. The wide variety of assets creates significant difficulties in regulating the crypto segment. However, with MICA and the BCAM, the legislator is taking the initiative to improve security in the sector and create rules that are equally applicable to all participants in the European market. The adoption of these laws is a clear sign that cryptocurrencies are here to stay. Their regulation is an essential step that will make their implementation possible in modern life and give certainty to investors.

By Victor Gugushev, Senior Partner, and Vladimir Petrov, Associate,  Gugushev & Partners, PONTES

CMS has advised Solar Park Trakia on the licensing of the 50-megawatt Sinotovo photovoltaic project by the Bulgarian Energy and Water Regulatory Commission as well as on its financing from Postbank.

According to CMS, “as the construction of the project is well underway, it is expected that it will reach commercial operation date in early 2025.”

Earlier this year, CMS advised Solar Partk Trakia on the development of the Sinotovo photovoltaic project (as reported by CEE Legal Matters on July 16, 2024).

The CMS team included Managing Partner Kostadin Sirleshtov, Counsel Borislava Piperkova, Senior Associates Diyan Georgiev and Elena Yotova-Yordanova, Associates Dian Boev and Viktoriya Toneva, and Trainees Boris Kirov and Niya Ivanova.

Dealmaking is a dance with a uniquely complex, dynamic and unrehearsed choreography. Numerous factors come into play. Ticking all the boxes, satisfying or waiving the conditions precedent (merger clearances, regulatory and third-party approvals, etc.), every step duly documented and catalogued in a closing memo and a closing binder, and ultimately celebrated at a stylish closing dinner.

Closing checklists, protocols, guidelines and best practices are helpful tools in the hands of project leaders. managers and coordinators (inhouse or external). Still the most important decisions and the priorities are the responsibility of the business leaders. For example:

• what is the actual value of the acquired business? which are the critical assets? are they protected, are they effectively used and utilised?
• what is the growth strategy?
• what are the cost inefficiencies? what are the leaks and how to fix them?
• what are the synergies and efficiencies? how to accelerate value creation?
• how to assemble the winning team? how to retain the star players in the team, assuming that often they are not automatically locked-in? what new recruits to add to the existing management and key employees?

The last bullet-point is critical for the accomplishment of all preceding questions. Without the right people, the execution of the most advanced and thoughtful strategy will be problematic, uncertain, incomplete, unsatisfactory and/or below expectations/projections. It is surprising though, how often the acquirer tends to pay too much attention to closing formalities, such as legal reorganisation and restructuring, and overlooks that last, but decisive aspect: retaining/recruiting and incentivising the key people – founders, directors, executive team, managers, etc. who are to implement the integration and the post-acquisition growth strategy. Of course, strategic acquirers appear immune from such fallacy, knowing the business inside out and having their own knowledgeable expert teams. Sometimes, however, parachuting outsiders into an organisation and a culture could backfire and cause delays and underperformance, and in all cases will not deliver immediate results, because a rebuilding of a team requires time and patience. Both rare commodities in the fast-pacing world of M&A… and Premier League football.

By Pavel Hristov and Dragomir Stefanov, Partners, Hristov & Partners

While economic indicators look solid for Bulgaria and there is considerable progress made in terms of its energy mix becoming more reliant on renewable energy, according to Kinstellar Partner Antonia Mavrova, the country faces ongoing challenges both in terms of keeping pace with decarbonization targets due to populist pushback and in terms of moving several projects past the finish line without a stable government.

“Recent developments indicate that Bulgaria is at a crucial juncture in its economic journey, particularly regarding its goal of joining the Eurozone,” Mavrova begins. With low inflation rates, the country strives to meet the “moving target that is the shifting timeframe for joining the eurozone, aiming for a potential transition next year.” Another key focus, according to her, “is the removal of the land border checks to the Schengen area, which Bulgaria is vigorously pursuing, but this requires a unanimous decision at the EU level that is still uncertain.”

A cornerstone of Bulgaria’s strategy is its Recovery and Resilience Plan. “The country has already received a vital initial payment of EUR 1.37 billion, opening up attractive tender opportunities for foreign investors, especially in renewable energy,” Mavrova reports adding that one particular project for battery energy storage “targets at least 3 gigawatts of additional renewable energy capacity. Additionally, the development of industrial zones is set to begin soon, with approximately EUR 100 million allocated for constructing and developing industrial plants to stimulate growth and attract new investors.”

“Bulgaria faces challenges regarding its decarbonization targets for coal mines, as the national recovery plan includes closing several coal mines to meet green criteria,” Mavrova adds. “However, there is a notable lack of political will, with considerable pushback from populist parties. In light of this, Bulgaria is preparing to continue negotiating its changes to the national recovery plan with the goal of achieving sufficient political support.”

In terms of what’s keeping consultants in the market busy, renewable energy initiatives lead the way. “The pace of energy diversification has accelerated significantly,” according to Mavrova. “For instance, solar capacity has surged from 1 gigawatt-hour in 2019 to approximately 4 gigawatt-hours today. By 2033, Bulgaria aims to achieve an additional 14,000 megawatts of solar power and 830 megawatts of wind energy, with these numbers representing the sum of RES projects already in development.” Furthermore, she reports that Bulgaria is preparing to commission two new reactors at its largest nuclear power plant, which is projected for 2034. “Hydrogen development is also on the agenda, with the National Electric Company (NEC), backed by the European Investment Bank (EIB), exploring plans for two large pumped-storage plants with a projected capacity of around 800 megawatts.”

Mavrova also reports that, while Bulgaria adopted an FDI screening mechanism back in March of this year, “it remains inactive due to a lack of supporting legislation, compounded by the political instability from the ongoing caretaker government – with the country now facing its seventh election in a row for the past four years. Once fully implemented, this mechanism is expected to complicate the entry of EU investors into the market.” Also stemming primarily from the political instability, Bulgaria is also behind schedule on major infrastructure projects, including plans for a new concession for the Varna port in conjunction with the Rousse port.

Despite such delays, Mavrova concludes with a positive forecast of a likely booming automotive/industrial sector in the country, seconded by strong growth in the logistics sector. The former, Mavrova highlights, represents close to 10% of employment in manufacturing across the CEE region and the hope is that it’ll soon have a similar impact on the local market as well with both sectors seeing signs of strategic investors looking at Bulgaria.

Popov, Arnaudov and Partners has opened a representative office in Plovdiv with Partner Sibina Eftenova at the helm.

Eftenova first joined Popov, Arnaudov and Partners in 2004 as a Lawyer and became a Partner in 2009.

“It is important for us to be close to our clients, and many of them have chosen Plovdiv as the center of their activity,” commented Managing Partner Galin Popov.

Djingov, Gouginski, Kyutchukov & Velichkov has advised the American University in Bulgaria on a campus development project aimed at “improving the student experience.”

American University in Bulgaria, founded in 1991, is a private university located in Blagoevgrad, Bulgaria. 

The DGKV team included Partner Kaloyan Krumov, Senior Associate Nikolina Stefanova, and Associate Yavor Genchev.

Boyanov & Co has advised Bulgarian pharma company Sopharma on its acquisition of a pharmaceutical product portfolio consisting of both CHC and prescription products.

According to Boyanov & Co, “the acquisition covers 68 marketing authorizations with 14 well-known brands in 10 of the traditional markets of Sopharma. The transaction will take effect in several stages, and its closing is subject to certain conditions precedent.”

In 2017, Boyanov & Co advised on Pharmastore’s acquisition by Sopharma Trading (as reported by CEE Legal Matters on March 24, 2017).

The Boyanov & Co team included Partners Yordan Naydenov, Peter Petrov, and Borislav Notovsky.

Boyanov & Co did not respond to our inquiry on the matter.

The amendments to the Bulgarian Public Health Act (PHA), introduced on 8 October 2024, are aimed at modernising the healthcare system, enhancing data management and improving patient care. They prioritise the transition to electronic health records (EHR), regulate telemedicine, and introduce a digital scheduling system for medical appointments. This article provides a high-level overview of the amendments.

1. Prioritisation of Electronic Health Records (EHR)

The revised PHA emphasises the importance of EHRs over traditional paper-based records. This shift aims to reduce the administrative burden on healthcare providers, improve data quality, and ensure comprehensive health information management. Key points include:

Mandatory EHR for all medical activities: All medical activities, regardless of how they are financed, must be recorded in the electronic health record of each Bulgarian citizen. This ensures that all health-related information is centralised and easily accessible for the healthcare providers.

Evaluation of medical software: Medical software will now be evaluated for ease of use and proper integration with EHR systems. The evaluation aims to ensure that the software is user-friendly for the medical professionals and that the data submitted through these systems are accurate, but also adequately protected.

Verification of data entry: The National Health Information System will have the capability to verify the data entry, helping to reduce errors in the recording of medical activities. This feature is expected to enhance the reliability of the recorded health data.

2. Comprehensive digital health management

The amendments introduce several measures to streamline digital health management, such as:
Regulation of telemedicine: The PHA now formally regulates telemedicine, allowing for diagnostic and other medical activities to be conducted remotely using information technologies. This regulation aims to expand access to healthcare services, especially in remote areas experiencing a shortage of healthcare providers.

Preliminary data checks: All health-related data will be checked before being entered into the health insurance system. This measure aims to reduce the risk of penalties and arbitrary actions during subsequent audits.

Online appointment booking: The PHA introduces a digital scheduling system for medical appointments in public hospitals, aiming to integrate the intrahospital doctors’ schedules and thus simplify appointment booking. Patients will be able to book appointments in public healthcare facilities online. Currently, this is an option for private hospitals and practices only. Now a similar system (as a common platform) will be available for doctors working in state or municipal hospitals and polyclinics, reducing the need for patients to wait without knowing when they will be seen.

3. Improving patient care

How the revision of the PHA will improve patient care:

• Ease for parents and patients: The telemedicine and the digital scheduling system will benefit patients with special needs or in remote areas who need to see specific medical specialists. It will also improve patients’ access to healthcare. Currently, many patients are referred to private practices, which can be financially burdensome. The new system will make it easier for them to secure appointments with medical specialists in public healthcare facilities where the services are covered by public funds.
• Regulation of private practice during working hours: The amendments also clarify that while all doctors in Bulgaria have the right to practice in private clinics, this should not occur during their working hours if they are employed in state or municipal hospitals. This regulation aims to ensure that public healthcare resources are used efficiently and that patients will receive timely care.

By Elena Todorova, Counsel, Schoenherr

 

Gugushev & Partners has promoted Antoniya Markova and Kostadinka Deleva to Senior Partners.

Antoniya Markova is the firm’s Head of the Public Procurement and Labour Law Department. She has been with the firm since 2012 and was promoted from Senior Associate to Partner in 2020.

Kostadinka Deleva Heads the Energy, Capital Markets, and Foreign Investments Department at Gugushev & Partners. She joined the firm in 2008 as a Senior Associate, having previously spent three years with IK Rokas & Partners, between 2005 and 2008.

“Their drive for excellence in every detail, their ever-growing expertise, and their ability to develop the capabilities and performance of their departments are just some of the reasons that have led them to this enviable step in their career development,” commented Founder and Managing Partner Stefan Gugushev.

Djingov, Gouginski, Kyutchukov & Velichkov, working with Linklaters, has advised BNP Paribas, Citigroup, ING, and UniCredit as the joint lead managers on the September 2024 triple-tranche sovereign bond issue by the Republic of Bulgaria under its EUR 20 billion global medium term note program. Tsvetkova Bebov & Partners, member of Eversheds Sutherland, and Clifford Chance advised the Republic of Bulgaria.

According to DGKV, the issue consists of a EUR 1.75 billion 3.625% tranche due 2032, a EUR 1.25 billion 4.250% tranche due 2044, and a USD 1.5 billion 5% tranche due 2037. The tranches are listed on the Luxembourg Stock Exchange and “the issuance attracted robust investor interest and marked the return of Bulgaria to the USD markets after 20 years.”

In 2023, Clifford Chance and Tsvetkova Bebov & Partners advised on Bulgaria’s EUR 2.3 billion sovereign bond issuance (as reported by CEE Legal Matters on December 4, 2023) and on Bulgaria’s EUR 1.5 billion sovereign bond issuance (as reported by CEE Legal Matters on February 16, 2023). In 2022, they advised on another EUR 2.25 billion sovereign bond issuance (as reported by CEE Legal Matters on October 20, 2022).

The DGKV team included Partner Gergana Monovska.

The Tsvetkova Bebov & Partners team included Managing Partner Nikolay Bebov, Partner Damyan Leshev, and Senior Associate Petar Ivanov.

The Clifford Chance team included UK-based Partner Deborah Zandstra and Senior Associate Sophie Wilkinson.