Category: Issue 11.4

Derivatives, repurchases, and securities lending transactions are often used by sophisticated financial institutions and large corporate entities in Bulgaria to manage their portfolios of investments, hedge against financial risks, or get short-term credit. Such products are predominantly offered on an OTC basis by foreign banks, with mainly the largest local banks having the know-how and resources to do the same.

A key legal matter in structuring such transactions is whether the major risk-reducing mechanism for non-defaulting counterparties – close-out netting arrangements – is enforceable in case of insolvency or restructuring of the Bulgarian counterparties under such deals. Close-out netting arrangements are contractual stipulations whereby, following insolvency or a restructuring event with respect to one of the counterparties, all due obligations of the parties may be set-off while future obligations/non-executed transactions may be terminated and replaced by their estimated values as if there had been no termination using complex formulae (estimated current exposures). Leaving aside the financial and mathematical aspects, the crucial question that needs to be addressed from a legal perspective is whether such mechanisms would be effective in the first place. In other words, it needs to be established whether the contractual arrangements for set-off, termination, and replacing terminated deals with the estimated current exposures – as elements of the close-out netting will not be affected by the mandatory moratoriums and other statutory restrictions for counterparties in distress/insolvency.

Bulgaria has piecemeal protection for close-out netting arrangements in restructuring or insolvency proceedings. It is limited to domestic laws transposing relevant EU directives (e.g., on financial collateral or restructuring/winding-up of banks and MiFID investment firms). Outside the scope of such laws, parties need to consider automatic termination clauses whereby close-out netting is agreed to take effect before the date of relevant moratoriums restricting the effectiveness of contractual arrangements. For example, contractual set-off (as an element of the close-out netting) is permitted under Bulgarian laws of contract but is overridden by mandatory insolvency restrictions, so it should be agreed to occur before the time when such restrictions are triggered.

Such automatic termination clauses, apart from being complex, result in a termination of the counterparty’s transactions at a time that the non-defaulting party has no control over, and thus may be unfavorable for the latter. Thus, if an automatic termination occurs when underlying rates/indices of a derivative are unfavorable for the non-defaulting party, it may have to pay a net sum to the defaulting party.

Following a two-year project supported by the EBRD and the EU Commission, the Bulgarian Ministry of Finance prepared a comprehensive netting legislation draft that was approved by the Bulgarian Government and was submitted to the Parliament in February 2024 (Expected Reform Law). The Expected Reform Law will supplement the currently applicable law transposing the EU Financial Collateral Directive (FCD) in Bulgaria so the close-out netting arrangements eligible for protection will broadly follow the FCD’s scope and relevant technical definitions. A list of eligible counterparties and broad functional protection for close-out netting arrangements will apply, both being similar to those under the FCD. Most importantly, close-out netting arrangements will be protected irrespective of the opening/continuation of insolvency/restructuring, the latter being broadly defined to encompass all such existing and future Bulgarian proceedings as well as foreign proceedings for Bulgarian entities whose center of main interest is abroad. The subject matter scope (i.e., the list of eligible transactions that will benefit from close-out netting protection) will encompass inter alia derivatives, repos, and securities lending transactions.

The Expected Reform Law is expected to bring legal certainty to financial transactions and reduce the need to have complex additional AET clauses. We believe counterparties may still take steps now to avail of the Expected Reform Law by having some forward-looking arrangements for a fast-track replacement of AET clauses. In particular, it may be agreed that if and when the Expected Reform Law enters into force, the financial institution counterparty that is normally more experienced will unilaterally replace AET arrangements by termination via notice of the non-defaulting counterparty. In this manner, potential losses for the non-defaulting counterparty associated with AET will be significantly reduced.

By Tsvetan Krumov, Partner, Schoenherr

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In recent years, we have been seeing that real estate developers are starting to turn to debt capital markets to raise capital for their real estate development projects in Slovenia. When issuing bonds for real estate development projects, investors usually expect to have security on the real estate property that is being developed. Similar to other finance transactions, collateral can take various forms. This article examines the possibilities of establishing collateral on real estate property for bonds in Slovenia.

In financing transactions where multiple creditors have claims against a debtor (usually arising out of the same loan agreement), such as syndicated loans, it is common to establish the collateral on real estate by using joint and several creditorship as a legal instrument. By creating joint and several creditorship, the creditors aim to provide a single source of financial security for all of their claims. Such security is created in favor of a security agent as a joint and several creditor and any collateral (e.g., mortgage, pledge of shares, pledge of movable property, etc.) is then created in favor of a security agent.

Bonds are dematerialized securities issued in the name of the bondholder and the specific rules of Slovenian law on dematerialized securities must be considered when structuring the issuance of bonds and the collateral securing them. Claims arising from dematerialized bonds are linked to and included in the bond. The legal basis for such a claim of the bondholder is the bond itself, and only the bondholder registered with the Central Securities Depository (KDD) can exercise rights related to dematerialized bonds. Therefore, only the legal bondholder can exercise rights arising from the bonds, including demanding payment or initiating enforcement. The issuer’s obligations under the bonds, on the other hand, exist only toward the legitimate bondholder registered with the KDD.

This means that a third party (e.g., a security agent) cannot become a joint and several creditor of claims arising out of bonds merely by entering into a civil agreement on a joint and several creditorship. Unlike a loan agreement, such an agreement alone does not suffice to hold claims under the bonds as a joint and several creditor because the claims arise from securities (bonds). To legitimately hold claims and exercise rights under bonds, the third party must be a legitimate and registered bondholder of all issued bonds. Furthermore, the rights arising from bonds are indivisible. Individual rights out of bonds cannot be transferred separately; they must be transferred together with the transfer of the security (bond).

An option is to create a parallel debt by means of a promissory note, which is an abstract financial instrument. The issuer may issue a promissory note in favor of a security agent for the same amount as is owed to investors under the bonds. A mortgage in the name and for the benefit of the security agent could secure the debt under the promissory note. In such a case, the issuer, the security agent, and the bondholders would set out in an intercreditor and agency agreement the mechanism for the repayment of the debt under the bonds to the bondholders, which would also ensure that the security agent is not entitled to receive more than the bondholders. In addition, the parties may also stipulate in the agreement that the agent can only have a claim for payment under the agreement if the obligation under the bonds is not paid and that any enforcement would be for the benefit of the bondholders.

In summary, the issuer must carefully consider which collateral mechanism is most appropriate for its issuance of bonds for a real estate development project. In addition to the option mentioned above, the issuer may consider other options for collateral. These include a share pledge over the business shares of the property developer. Furthermore, by way of a multi-party agreement involving all the bondholders and the issuer, a joint maximum mortgage can be created up to the aggregate value of the bonds, with direct enforceability of the individual claims of each bondholder. This benefits all bondholders by ensuring the direct enforceability of individual claims within the maximum mortgage, as registered in the land register. A multi-party agreement may also create multiple maximum mortgages, each for claims of individual bondholders and with direct enforceability of individual claims, but all with the same rank registration in the land register. 

By Maja Zgajnar, Partner, and Neza Voncina, Attorney at Law, CMS

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On January 25, 2024, the Office of the Prime Minister of the Republic of Kosovo published a list of concept notes anticipated for drafting and adoption by the Kosovo Government in the present year. The concept note, a regulatory prerequisite to the enactment of legislation within a specified domain, specifies the objectives of prospective governmental policy and the optimal modalities for their implementation.

To this end, among the roster of 2024 concept notes, the inclusion of a concept note for Financial Markets signifies a stride toward regulatory oversight and formal governmental commitment to the regulation of the financial market, thereby encompassing the capital market. It is important to note that Kosovo presently lacks legislation governing capital markets pertaining to corporate or municipal securities. The sole securities permissible for exchange, either in primary or secondary markets, are government bonds, predominantly brokered through or exclusively procured by institutional investors, such as licensed banks or Kosovar Pension Fund known as Trusti.

It merits acknowledgment that government bonds were initially tendered to retail investors in 2021 through the issuance of Diaspora Bonds, specifying commercial terms tailored to the investment capacity of retail investors – a solicitation directly targeting the retail investor investment capacity.

Adopting legislation to cover capital markets and facilitating the exchange of securities in primary and secondary markets constitutes an impressive endeavor, albeit a necessary one for Kosovar corporations and retail investors alike. For Kosovar corporations, this provides an alternative avenue for capital raising, currently operating within a sector that is traditionally dominated by banks for capital acquisition through traditional loans or analogous debt instruments. Notably, amid global surroundings characterized by escalating interest rates to combat inflation, this potentiality holds positive prospects. Conversely, for retail investors – particularly within the context of diaspora influx – this presents an opportunity to diversify investments from illiquid assets like real estate to more liquid instruments such as securities.

However, the realization of these envisaged benefits hinges upon substantial challenges, chiefly the harmonization of Kosovar legislation with the extensive corpus of EU Acquis related to capital market development, pursuant to the Stabilization and Association Agreement concluded between the European Commission and Kosovo in 2015. Noteworthy directives for transposition encompass the MiFID Directives, the Prospectus Regulation, and the Market Abuse Regulation, among others.

These challenges extend beyond mere transposition to encompass the effective implementation and enforcement of capital market legislation, ensuring market integrity and investor protection. This inevitably necessitates potential amendments to the Criminal Code to incorporate tailored criminal offenses pertaining to securities transactions, alongside the requisite training of prosecutors and judges to adjudicate market manipulation or insider trading practices, thereby safeguarding a fundamental tenet of capital markets – market integrity.

Beyond these legal complexities, two pivotal challenges exist. Firstly, the operational and investment costs related to establishing a stock exchange venue necessitate significant public investment to underwrite the requisite technological infrastructure. Secondly, the institutional dimension – whether to establish a new securities agency tasked with overseeing and implementing capital market legislation or to delegate such responsibilities to Kosovo’s Central Bank, already vested with authority for financial supervision and regulation.

Consequently, the materialization of tangible economic benefits becomes necessary to outweigh the challenges, including but not limited to capital mobilization and the increase of employment level (as an indicator of economic stability). Thus, the central issue at hand pertains to whether Kosovar corporations can successfully raise capital within domestic market venues or if listing on foreign exchange markets would prove more advantageous. Alternatively, in the spirit of regional cooperation, the prospect of establishing a regional market within the Western Balkans warrants consideration for the future. While some of these issues may fall outside of the scope of a national concept note, they nevertheless merit deliberation.

By Fisnik Salihu, Managing Partner, and Klit Shala, Senior Managing Associate, RPHS Law

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Albania, driven by its commitment to align with European Union standards, has embarked on a comprehensive journey to harmonize its financial legislation with EU directives, particularly in the realm of capital markets. At the forefront of this effort stands Law 56/2020 “On Collective Investment Undertakings” (Albanian CIU Law), a pivotal piece of legislation that encompasses the passporting of foreign investment funds into Albania. This landmark law, coupled with the recent enactment of Regulation no. 37 (Passporting Regulation) and Regulation no. 38 (Distribution Regulation) by the Financial Supervisory Authority (FSA), lays down the groundwork for the processes of passporting and distribution within the Albanian financial landscape.

As it may be noted, the detailed governing rules for the passporting (recognition and registration) are brand-new, being adopted by the FSA only last year despite the general concepts of this process being already foreseen in the Albanian CIU Law.

Within the framework of the Albanian CIU Law, only recognized management companies and designated distributors, including Albanian second-tier banks, are authorized to offer undertakings for collective investment in transferable securities with open participation. However, the scope of passporting is presently limited to management companies overseeing “undertakings for collective investment in transferable securities” with open participation (UCITS) that are regulated at the EU level. In essence, only UCITS and their affiliated management companies registered or licensed within a EU jurisdiction are eligible for passporting into Albania. While the regulatory infrastructure is in place for UCITS, the passporting of Alternative Investment Funds (AIFs) remains pending, awaiting forthcoming regulations from the FSA to address this segment of the market.

Despite the clear regulatory framework outlined in the Albanian CIU Law, practical implementation faces an additional requirement that adds a layer of complexity. The law stipulates that the FSA must consider the existence of cooperation agreements for mutual recognition of foreign administrative companies between itself and the regulatory authority in the management company’s country of origin. The FSA has made a conservative interpretation of such provision and the Passporting Regulation, in turn, has made it a condition precedent since it sets forth that a “collaboration agreement between the FSA and the relevant country’s regulatory authority is mandatory for the passporting of the management company of UCITS.”

Presently, the FSA has established mutual recognition agreements with regulatory authorities in only three EU countries: Luxembourg, Malta, and Austria. However, it’s worth noting that the recent successful passporting of Eurizon Capital S.A and its managed UCITS marks a significant milestone, signaling progress and paving the way for potential opportunities for other interested parties.

Navigating the passporting regulatory process is quite straightforward, with interested parties having to submit a comprehensive set of documents falling into two categories: regulatory approvals from the country of origin and Albanian-related documents. These encompass licenses, approvals from the relevant regulatory bodies, prospectuses, and contractual agreements with Albanian distributors. Upon receipt of the complete documentation, the FSA is mandated to issue a decision on passporting within a stipulated timeframe of three months.

While the regulatory landscape lays the foundation for passporting EU investment funds into Albania, the practical implications and market dynamics warrant a deeper exploration. The gradual convergence of Albanian financial regulations with EU standards not only facilitates cross-border investment but also fosters investor confidence and contributes to the overall development of the Albanian financial ecosystem.

In conclusion, while the passporting of EU investment funds into Albania represents a significant step toward financial integration, it also underscores the complexities inherent in aligning regulatory frameworks across jurisdictions. By navigating these challenges with diligence and collaboration, Albania stands poised to unlock new avenues for economic growth and investment, ultimately forging stronger ties with the European Union and the global financial community.

By Aigest Milo, Co-Managing Partner, Kalo & Associates

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Due to the importance of disclosure of compliance with sustainability principles in evaluating the performance of companies, to ensure transparency, comparability, and reliability of the disclosures made within the scope of environmental, social, and governance (ESG) considerations, regulations have been introduced in the Turkish legal system.

In terms of the Turkish capital markets law, the Corporate Governance Communique Numbered II-17.1 (CGC) was amended on October 2, 2020, and the Sustainability Principles Compliance Framework (Compliance Framework), which was prepared by the Capital Markets Board (CMB), was adopted. With this amendment, it has been regulated that publicly traded companies that meet the criteria specified in the CGC are subject to sustainability principles and the relevant companies will include the disclosures within the scope of the Compliance Framework in their compliance reporting with corporate governance principles. In this context, relevant companies are obliged to explain whether the sustainability principles are applied or not, and if not, the reason for not complying with the sustainability principles.

It is stated that the principles included in the Compliance Framework are the basic principles that publicly traded companies are expected to disclose while carrying out their ESG activities. Accordingly, it is regulated that publicly traded companies regulated under the CGC will include the Compliance Framework starting from the annual reports of 2021, including data from 2020. For the companies that apply/applied to the CMB for an initial public offering of their shares and/or commencement of trading on the stock exchange, the Compliance Framework will be included in the annual reports of the relevant year, including the data for the year following the year in which the shares of the companies started to be traded on the stock exchange. The Compliance Framework regulates (a) strategy, policies and objectives, implementation or monitoring, and reporting and verification under the heading of general principles; (b) environmental principles; (c) human rights and employee rights, stakeholders, international standards, and initiatives under the heading of social principles; and (d) the issues to be complied with and/or disclosed regarding corporate governance principles under articles of the framework.

According to the CMB’s Board Decision Numbered 34/977 dated June 23, 2022, the disclosures required to be made within the scope of the Compliance Framework by the companies whose shares are traded on the BIST Main Market (Ana Pazar), BIST Stars Market (Yildiz Pazar) and BIST Sub-Market (Alt Pazar) shall be made using the Sustainability Report Template (Template) which has been published by the CMB on the Public Disclosure Platform to be used starting for the year 2022. In the related decision, it is underlined that compliance with sustainability principles is voluntary, and it is stipulated that by using the Template, annual financial reports should be reported within the notification period and in any case at least three weeks before the date of the general assembly meeting. Including the Template in the annual reports is not mandated by the CMB – it is left to the discretion of the companies. The relevant Template has been prepared in parallel with the headings regulated in the Compliance Framework.

Apart from the CMB’s regulations, as a general regulation, with the amendment to the Turkish Commercial Code Numbered 6102, the Public Oversight, Accounting and Auditing Standards Authority (POA) was authorized to determine and audit the Turkish Sustainability Reporting Standards (TSRS). It is stated that the purpose of the TSRS is to ensure unity of practice and international validity of sustainability reporting and the TSRS will follow international standards. In this context, the POA has issued the TSRS 1 General Provisions on Disclosure of Sustainability-Related Financial Information and the TSRS 2 Climate-Related Disclosures. In addition, the POA has issued two assurance auditing standards and a guideline to provide assurance audits on sustainability reports.

In the announcement published by the POA, it is regulated that banks will be included in the scope of the TSRS without any criteria, while other companies will be included in the scope of the TSRS based on their total assets, annual net sales revenue, and number of employees, and they are obliged to prepare a sustainability report from the year 2024.

By Hulya Kemahli, Partner, and Zeynep Berin Manavgat, Associate, CMS Turkiye

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Investment funds in the Czech Republic are regulated by the Czech Investment Companies and Investment Funds Act (ZISIF) and by local implementing regulations (governmental decrees and decrees of the Czech National Bank – CNB).

ZISIF has broadly transposed EU regulations into Czech law – in particular, the UCITS Directive and AIFM Directive – and forms the backbone of investment fund regulation in the Czech Republic.

Types of Investment Funds in the Czech Republic

Czech law recognizes three basic types of funds: standard funds, special funds, and qualified investor funds.

Standard funds allow investments from the general public (retail investors). This type of investment fund is the most strictly regulated in the Czech Republic.

Special funds are open to both retail and qualified investors. These differ from standard funds, particularly in the range of assets they are permitted to invest in.

Qualified investor funds, on the other hand, are open only to “qualified investors.” A qualified investor is typically a financial institution or a person who declares that they are aware of investment risks and invest at least EUR 125,000 or a person who satisfies among other things the knowledge and investment experience requirements and invests at least CZK 1 million (approximately EUR 40,000).

All of these funds are regulated and must be licensed by the CNB or managed by a licensed investment company. They are also subject to rigorous reporting and disclosure requirements depending on their type.

Apart from these regulated funds, it is possible to invest in alternative funds (or “mini-funds”), which are mostly outside the scope of the ZISIF. These are regarded as the least regulated type of funds in the Czech Republic.

Alternative Funds – The Least Regulated Investment Funds in the Czech Republic

An alternative fund is a type of investment fund that intends to manage assets for a limited group of investors under a defined investment strategy. Alternative funds can invest in essentially any type of asset, including investment instruments, crypto-assets, and even collectibles, such as postage stamps and fine wines and spirits.

Alternative funds do not require a regulatory license and are not supervised by the CNB (a simple registration and reporting are sufficient). Consequently, the regulatory conditions for establishing and operating alternative funds in the Czech Republic are very lenient.

Alternative funds are intended primarily for qualified investors and they are open to retail investors to a very limited extent (no more than 20 retail investors are allowed). Alternative fund managers are also not permitted to contact the public with investment offers.

Changes to Alternative Funds

Alternative funds have become very popular in the Czech Republic due to their light-touch regulation and because they are easy to establish. However, this ease of establishment and the unlimited scope of investments have brought with them a temptation to break the rules. Indeed, retail investors have often been misled into believing that alternative funds are supervised by the CNB, which gives them false confidence in the security of their investments.

As a result, an amendment to the ZISIF was proposed (expected to come into force on July 1, 2024) which will require these funds to clearly identify themselves as venture capital undertakings. They will be prohibited from using the word “fund” in their name so as not to mislead investors into believing that alternative funds are supervised by the CNB. New disclosure and reporting obligations will also be introduced, including a mandatory warning that investing in alternative funds is high-risk and that investors could lose their funds.

A minimum investment of EUR 125,000 will be introduced for investors, with an exception for families and friends whereby up to 20 people will be entitled to invest without meeting the minimum deposit requirements.

Although Czech investment fund legislation is based on the common European framework and does not offer many surprises, it is beneficial to be aware of local specifics that include the local regulation of alternative funds. We recommend keeping an eye on developments in the Czech Republic since it is likely that establishing and operating investment funds will be subject to stricter regulatory requirements in the future.

By Filip Michalec, Head of Capital Markets, and Dominik Kralik, Associate, Wolf Theiss

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Baltic region, comprising Lithuania, Latvia, and Estonia, boasts an emerging public capital market facilitated by the unified securities trading platform – the Nasdaq Baltic Stock Exchange.

Trading Platform

Each Baltic State houses one securities exchange: Nasdaq Vilnius, Nasdaq Riga, and Nasdaq Tallinn. These exchanges operate under the unified Nasdaq Baltic Exchange group and are regulated by each country’s national bank. Utilizing a standardized trading platform and a single depository, the exchanges collectively form the Baltic securities market, offering a common marketplace for trading and information dissemination to issuers and investors.

The Nasdaq Baltic Stock Exchange facilitates the trading of company shares, bonds, and treasury notes. Listings fall into two categories: the regulated market and the First North alternative market. The regulated market meets EU standards and is compliant with IFRS and ESG reporting, etc. Nasdaq First North, an internally governed market, offers a trading facility with reduced reporting requirements. It is set to target primarily smaller cap issuances.

Market Trends

By the end of the first quarter of 2024, the Nasdaq Baltic platform saw trading in the shares of 72 companies, with 19 of them listed on the Nasdaq First North market. Concerning the trading of debt securities, as of March 31, 2024, there were 103 issuances quoted, with 34 of them in the unregulated Nasdaq First North market. At the end of the first quarter of 2023, there were 75 companies’ shares quoted, with 19 of them on the Nasdaq First North market. In the debt securities segment, there were 94 issuances quoted, with 26 of them on the Nasdaq First North market. Similarly, at the end of the first quarter of 2022, there were 73 companies’ shares quoted, with 15 of them on the Nasdaq First North market. In the debt securities segment, there were 83 issuances quoted, with 18 of them on the Nasdaq First North market. A clear increase in the number of issuances is observed in the Nasdaq First North market, with financing through the capital market becoming increasingly popular among emerging enterprises in the Baltic States.

From the perspective of turnover, trading in debt securities in the first quarter of 2024 amounted to EUR 24.6 million, of which EUR 16.3 million accounted for trading in bonds listed on the Nasdaq First North market. In the first quarter of 2023, turnover in debt securities amounted to EUR 10.9 million, with EUR 2.4 million accounted for trading in bonds listed on the Nasdaq First North market. Meanwhile, in the first quarter of 2022, turnover in debt securities was EUR 9.1 million, with EUR 2.2 million accounted for trading in bonds listed on the Nasdaq First North market.

The recent significant increase in bond trading on the unregulated market signals the attractiveness of this capital-raising instrument among both debtor and investor groups. Despite market participants being accustomed to high interest rates reaching levels of 4% and above, the recently issued debt securities often feature both fixed and variable interest rate components. The variable interest rate component linked to the EURIBOR enhances the attractiveness of the instrument under current market conditions while providing flexibility for the issuer and assurance for the creditor

Experts project a positive outlook for the M&A market in the Baltics in 2024, largely driven by expectations of interest rate reductions. However, the challenges to achieving upward performance in M&A activities may primarily stem from Competition Councils’ skeptical stance toward business consolidation deals. Furthermore, private equity firms are facing reduced investor confidence following a highly publicized and ongoing misconduct case by one of the region’s largest PE firms.

Conclusions

Given the propensity for growing entities with robust cash flow to seek higher leverage ratios in anticipation of new business cycles, there is likely to be an increased corporate proclivity toward accessing capital markets throughout 2024. Primarily, this focus will center on debt securities, as elevated interest rates adversely impact stock valuations, rendering IPOs less appealing for financing amid current market conditions.

Recent trends indicate favorable reception toward bond issuances featuring a blend of fixed and variable interest components, resonating well with both investors and issuers. Furthermore, including an early redemption option enhances the appeal of these instruments while providing issuers with viable refinancing alternatives should market dynamics shift before maturity.

Considering these factors alongside the flexible offerings of the regulated and First North markets provided by the Nasdaq Exchange, corporate bonds are poised to emerge as the primary driver for bolstering business capital market penetration throughout 2024. However, lingering uncertainties persist regarding potential challenges posed by private debt and placements or the growing traction of peer-to-peer lending platforms to the future development of the public debt market in the Baltics.

By Dziuginta Balciune, Partner, Widen

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The economic sector of the Republic of Serbia, including the capital market, offers a telling reflection of the global market’s challenges and some regional specifics. Despite periods of uncertainty and stagnation, Serbia’s capital market maintains signs of vitality and potential for growth.

Currently, the Belgrade Stock Exchange (BELEX) facilitates trading in stocks and bonds, with expectations for expanded offerings encompassing other debt securities, derivatives, deposit certificates, and additional financial instruments. The BELEX lists stocks from public joint stock companies, while bonds primarily originate from the Republic of Serbia, supplemented by offerings from Serbian construction company Energoprojekt Holding. The first quarter of 2024 evidenced overall trading progress, with notable increases observed in March. During this period, the BELEX15 index grew by 6.92%, while the BELEXline index saw a 7.17% surge. Notably, Messer Tehnogas emerged as the most traded stock in the past month, achieving a recorded turnover of EUR 535,184, followed by Dunav osiguranje with a turnover of EUR 267,310, and Naftna industrija Srbije taking the third place with EUR 230,657. Not good, not bad, with marks of positive development, but still far away from its full potential.

As a herald of positive change, the previous year brought important personnel transitions within the BELEX – the appointment of a new executive director. Such changes are understood as the beginning of a new chapter. Following Ivan Leposavic’s appointment as BELEX’s new CEO in 2023, he embarked on his tenure with a mandate to enhance market efficiency and allure new investors. Moreover, the personnel shifts within the Securities Commission also signal the commitment to fortifying the capital market and its integrity, as Marko Jankovic took the helm. Although every significant change requires time, the new energy that those personnel changes have brought to the market can be clearly seen.   

The proactivity of the Serbian government, particularly the Ministry of Finance, is something that has to be noticed and welcomed – for the first time in years, true action could be seen. Following the recent adoption of the capital market development strategy spanning from 2021 to 2026, concerted efforts have been directed toward bolstering institutional capacities, refining regulations, and fostering participation from diverse market players. Key objectives include enhancing the investing environment, legal security, innovation, and the introduction of new financial products. By promoting the issuance of diverse bonds, including green and thematic bonds, and nurturing the growth of alternative investment funds, the strategy aims to diversify funding sources for the economy. In the sense of diversification, the National Bank of Serbia is also actively working on the draft Law on Crowdfunding, following the 2024 Action Plan for Startup Development, and it should not come as a surprise that the BELEX plays a role in it.

In line with global market trends, Serbia’s capital market has embraced corporate bonds as an alternative avenue for financing companies. In response to the COVID-19 pandemic in 2020, the government introduced incentives to strengthen the economy, including streamlined procedures for issuing corporate bonds. Although only 10 companies have issued corporate bonds, the Minister of Finance has announced plans for a substantial increase in corporate bond issuance in 2024, with support from the Republic of Serbia covering issuance costs.

To give additional incentive to capital market development, in 2023, the World Bank authorized a EUR 27.7 million loan to the Serbian government. This represents a significant impetus for Serbia’s financial sector, granting optimism for the expansion and sustainability of its capital market. Through fortifying market institutions and promoting the issuance of diverse bonds, Serbia endeavors to cultivate a more resilient and diversified financial landscape, thereby promoting economic resilience and growth.

The recent reaffirmation of Serbia’s credit rating at BB+/positive outlook by S&P Global Ratings’ and BB+/stable outlook by Fitch Ratings underscores the nation’s steadfast economic policy framework and growth indicators. This affirmation demonstrates Serbia’s resilience to external shocks – a critical element in fostering sustainable economic growth and investor confidence that is expected to be a driver for future capital market development.

To summarize, recent events within the BELEX, coupled with the World Bank’s substantial loan approval and efforts of the Serbian government, particularly the Ministry of Finance, showcase the firm commitment to developing a dynamic and resilient capital market. With strategic initiatives focused on institutional strengthening, regulatory refinement, and the promotion of diverse financial products, Serbia aims to attract investment and secure economic growth, promising a brighter economic future for the capital market and its entire economy.

By Sava Pavlovic, Partner, Zivkovic Samardzic Law Office

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In The Debrief, our Practice Leaders across CEE share updates on recent and upcoming legislation, consider the impact of recent court decisions, showcase landmark projects, and keep our readers apprised of the latest developments impacting their respective practice areas.

This House – Reached an Accord

“Over the last month, we saw rapid developments in the renewable energy sector in Bulgaria,” CMS Sofia Managing Partner Kostadin Sirleshtov points out. “The long-awaited publication of the ordinance for connection of producers to the grid was completed and this streamlines the investment into wind and battery storage projects in the country.”

Ments Associate Simon Hora also highlights the recent update in the Slovak Commercial Code, originally derived “from Directive (EU) 2017/1132 relating to certain aspects of company law,” that “regulates financial assistance by a company for the acquisition of its shares by a third party.” Hora notes that, historically, “financial assistance was prohibited not only for public joint stock companies but also for private joint stock companies in Slovakia.” According to the wording of the provision, “financial assistance has been made available to joint stock companies, subject to the fulfillment of certain conditions.” Hora adds that “the provision of the Slovak Commercial Code now allows joint stock companies to provide financial assistance directly or indirectly if it is allowed by the company’s articles of association. At the same time, the following conditions must be met: financial assistance must be provided on fair market terms, the board of directors must verify the financial status of the recipient of the financial assistance, the provision of financial assistance must not reduce the company’s equity below a specific value, and the company must create a special reserve fund in the amount equal to the financial assistance provided.” Hora concludes that the “changes in the Commercial Code have the potential to improve the Slovak M&A environment as they are beneficial for M&A activity in times when external bank financing is getting expensive and provide for more flexibility in structuring the transaction.”

Drakopoulos Senior Associate Eirini Galanou highlights that in Greece, Law 5099 was published in the Government Gazette on April 5, 2024. It introduced, inter alia, “the development of a new platform by the General Secretariat for Information Systems & Digital Governance.” The new platform, according to her, “will operate under the name ‘Know Your Business – eGov-KYB’ and will be used for the authentication of the data of legal entities in accordance with the requirements set by the relevant provisions of the law on the measures of enhanced and ordinary due diligence.” In particular, Galanou points out that “Article 37 of the law provides that any natural person acting as the legal representative of a legal entity may request the extraction of certain data necessary for the authentication of the legal entity, as well as the transmission of such data to credit and financial institutions.” According to Galanou, the data extracted from the information systems of public sector bodies will include, among others, “information on the legal entity’s business activity, corporate name, distinctive title, legal form, registration number in the General Commercial Registry, tax identification number and other tax and financial data,” as well as “personal details of the legal representative, shareholders/partners, and members of the management bodies of the legal entity, including the percentage of the shareholders’/partners’ participation in the entity.” Galanou reports that “joint ministerial decisions are expected to be adopted, which will further specify the above issues and requirements, as well as the launch date of the platform.”

This House – Under Review

Sirleshtov reports that Bulgarian parliament members “are discussing changes to the environmental legislation to allow for shorter environmental assessment for new energy projects and less time for potential judicial appeals.”

In the Works

JPM & Partners Senior Partner Jelena Gazivoda draws attention to the recent energy developments in Serbia. “The highlight of March 2024 was the signing of a series of contracts pertaining to the financing of the ‘Pupin’ Wind Farm Construction,” Gazivoda says. “This forthcoming wind farm, slated for development within the Municipality of Kovacica in south-western Banat, will feature 16 wind turbines collectively generating 94.4 megawatts of power. Anticipated to cater to the annual energy demands of approximately 40,000 households, the project boasts a total investment of EUR 100 million.”

“The contract suite includes agreements for electricity purchase and balance responsibility between Enlight Renewable Energy and Elektroprivreda Srbija, spanning 15 years,” Gazivoda continues. “Additionally, a facility agreement has been established between the EBRD, Erste Bank, and Enlight Renewable Energy.”

The conclusion of these contracts, according to Gazivoda, “solidifies the financial and commercial framework for this project, poised to advance the objectives of the energy transition by generating green megawatts at competitive prices. This achievement precedes the forthcoming launch of new auctions envisaged for the second quarter of 2024, aligning with the Ministry of Mining and Energy of the Republic of Serbia’s three-year plan to integrate 1,300 new megawatts of capacity into the premium system.”

Sirleshtov additionally points to the recent energy projects in Bulgaria. “The tenders for battery storage grants under the Resilience and Recovery Plan of Bulgaria were also launched,” he says. “With the deadline set on June 12, renewable energy producers are eligible to receive up to 50% grants for their battery storage facilities.” At the same time, Sirleshtov notes that “OMV Petrom became the only title holder for the Han Asparuh offshore block in the Bulgarian Black Sea thus giving hope that following g the Final Investment Decision for Neptune block in Romania, the company will drill another well in Bulgaria in 2024/2025.”

Regulators Weigh In

Nestor Nestor Diculescu Kingston Petersen Partner and Head of Competition Anca Diaconu reports that in April 2024, “the Romanian Competition Council launched a public consultation process concerning the commitments proposed by the Romanian Poultry Producers’ Association and several companies, as part of the investigation on the poultry meat market.” According to Diaconu, the investigation concerns “an alleged exchange of sensitive information between meat producers/traders and an association they participate in (during meetings of said association) – which allegedly aimed to limit deliveries of poultry meat.” In brief, Diaconu notes that “the proposed commitments concern, in particular, the implementation of a black-box mechanism – ensuring that the association only accesses and disseminates aggregate and anonymized information received from companies.” The association, according to her, “also undertakes, inter alia, to amend its statute and to disseminate newsletters to third parties and publish them on its own website.”

On top of that, Diaconu highlights that “the investigated companies proposed the implementation of internal procedures for both internal and external information flows and competition law compliance programs. Notably, two investigated companies are no longer active in the relevant market, nor are members of the association. Should these companies decide to resume activities on the relevant market and/or to become members of the association during the monitoring period (36 months following implementation), they undertake to observe the corresponding commitments.”

In Related News

Finally, Sirleshtov highlights a recent appointment in the Bulgarian government: “With the formation of the new caretaker government and General elections happening on June 9, 2024, the former CEO of the natural gas TSO Bulgartransgaz, Mr. Vladimir Malinov, was appointed as the new Minister of Energy, thus giving hope for completion of the pending gas infrastructure projects like the Bulgarian section of the Vertical Gas Corridor.”

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On March 26, 2024, TMT/IP, fintech, and emerging technology experts from Hungary, Romania, and Turkiye sat down for a virtual round table moderated by CEE Legal Matters Managing Editor Radu Neag to discuss how Blockchain-related technologies, businesses, and legislation are shaping up in their jurisdictions.

Participants:

• Caghan Tansel, Partner, Tansel Turkiye
• Katalin Horvath, Partner, CMS Hungary
• Luca Dejan, Partner, VD Law Romania

CEELM: Blockchain has become a buzzword in many parts of the world – and certainly so in CEE. To what extent has it been a topic of discussion in your country, and what were the first instances when this subject became active? How did it evolve over time?

Dejan: The rise of Bitcoin definitely fueled blockchain’s popularity. While the technology itself isn’t new, blockchain’s visibility grew alongside the increasing value of cryptocurrency. From an investment perspective, it offered returns on multiple fronts. Here in Romania, [initial coin offerings] have become a major trend, with numerous crypto projects seeking to capitalize on it. This exposure pushed both the public and private sectors to become more familiar with blockchain.

By 2017-2018, crypto assets were a constant topic of conversation. Interestingly, the Romanian government even leveraged blockchain technology for increased security and transparency in the 2020 parliamentary elections.

Horvath: In Hungary, discussions around blockchain primarily involve collaborations between the government, industry players, and academia. These joint efforts are pretty standard here and, around 2018, we saw the formation of dedicated blockchain organizations. 

Today, blockchain is a regular topic in both business circles and government agendas. A new blockchain law was introduced in March, though it’s yet to be finalized and implemented. Just last week, a series of events coincided with the Budapest Blockchain Week. While banks and financial institutions are heavily involved in blockchain projects, a growing number of blockchain-related start-ups are also emerging.

Tansel: Similar to Hungary, Turkiye is anticipating a new law specific to crypto assets. We expect secondary regulations to follow within the next six months as of the enactment of the new law. With this evolving legal framework in place, discussions are turning towards the custody of crypto assets. It’s worth noting that Turkiye’s new cryptocurrency regulations are expected to attract new investments from various sectors. These include real estate tokenization, project financing through diverse channels, and new financial instruments such as ETFs and ETNs based on the spot price of Bitcoin. Central Bank Digital Currencies (CBDCs) are another hot topic; the Turkish Central Bank has already issued a report on them, and they’re anticipated to gain significant traction alongside stablecoins. 

Importantly, with blockchain as the underlying technology, there are already specialists offering enterprise solutions built on blockchain. Once the regulatory framework is solidified, Turkiye is well-positioned to become a significant player in this space. This year holds particular significance for this reason. By aligning Turkish regulations with the MiCA, developments in the UK Parliament, and Dubai’s regulatory landscape, Turkiye aspires to become a key player in the EMEA region.

CEELM: How are the client profiles, the matters they need assistance for, and the overall landscape looking right now?

Horvath: Due to the MiCA EU regulations, our work is primarily focused on regulatory and licensing work. We help companies navigate the licensing processes to ensure they comply with the MiCA – that’s the essential first step for any new operation in this space. Banks and financial institutions are also major clients seeking clarity on the regulations surrounding blockchain and crypto assets. Interestingly, even big banks have begun selling crypto assets as part of their crypto portfolios. We also work with wallet operators who provide services for storing crypto assets, as well as exchanges that facilitate swaps and conversions between crypto and fiat currencies.

NFTs remain quite popular, particularly within the digital art and creative space, and we have artist clients seeking legal advice in this area. Real estate tokenization is another frequent inquiry, but Hungarian law presents some challenges in this area. However, we find creative solutions to address such challenges.

Tansel: Start-ups are our primary client base. We also work with public companies holding commissions in various private sectors, particularly for matters related to real estate tokenization and project financing. Right now, there’s a sense of waiting as everyone anticipates the implementation of new crypto regulations in Turkiye. We expect these regulations to be accompanied by secondary legislation within the next six months. With a clear legal framework in place, we anticipate significant investor interest, from the energy sector, for example, especially green energy projects. We’re also liaising with banks, regulatory bodies, and clients seeking legal clarifications and comparisons, particularly in the context of the MiCA. 

Green energy holds particular promise for project financing, especially for renewable energy sources like wind and solar power, which can benefit from tokenization efforts. Tokenization, through the use of smart contracts, can also generate ongoing revenue streams that are tied to the operational lifespan of a facility. Additionally, it can facilitate ownership and distribution structures. 

However, all of these possibilities hinge on a clear regulatory framework being established. While institutional investors are a major player currently, there’s room for a broader investor base as more platforms become available.

Dejan: Romania’s well-established IT sector has fueled the growth of innovative blockchain start-ups offering technical infrastructure solutions. We’ve seen a flourishing of local and international crypto exchanges, NFT marketplaces, gaming platforms that utilize cryptocurrencies, and even payment services that allow for automatic conversion between crypto and fiat currencies when used on the platform. Tokenization was a major trend for a while, with everyone eager to tokenize everything they could, with real estate being a particularly popular target. 

However, Romanian law hasn’t been able to adapt as quickly as the technology has evolved, leading to discussions with other regulatory environments in an effort to attract investors to these tokenization projects. Our specialization in blockchain allows us to provide comprehensive legal services in this area, regardless of the jurisdiction. It’s important to note that EU regulations can be quite rigid, especially when it comes to updating established legal areas like real estate. Dubai offers a unique advantage in this regard – its open dialogue with regulators facilitates the creation of regulatory sandboxes. This allows companies to operate in Romania using Dubai’s legal structures, similar to how English law has historically been used for a wide range of international investments.

CEELM: Let’s take a step back for a second and discuss the term “blockchain.” What do you associate it with most closely?

Tansel: Bitcoin, where it all started – financial freedom – and I still definitely see myself as part of the overall, global, decentralized community. While we can talk about assets, projects, and endeavors, it all started with Bitcoin and Proof of Work as a protocol. There are some examples of Proof of Stake, but consuming energy and driving monetary value out of that to solve the double-spending issue. There are discussions about other crypto assets and issues, commodities, money, and the like, yet Bitcoin is secure and safe in its position.

Dejan: Mainly crypto assets, be it Bitcoin or service providers – this is the most popular layer you see in front of you. And, starting from a couple of months ago, medical-related AI. We had some projects that were quite popular, related to AI in the medical sector, and we are currently working on a very interesting project that managed to combine the two tech areas to make the most out of it.

Horvath: Distributed ledger technology, crypto, and NFTs. Still, in the early 2000s, we had a project connected with the food supply chain, trying to create an RFID food tracking system. Our client switched to blockchain from RFID tech, and the entire system became better and more reliable. The immutability aspect is the key factor here, especially when it comes to certifications. You can also use blockchain for tracking emission levels and certification of energy origin – so it also has ESG uses.

CEELM: What are the most promising use cases for blockchain technology across various sectors in your jurisdiction?

Horvath: A quick scan of leading blockchain start-up lists reveals a vibrant Hungarian ecosystem. Hungarian companies are leveraging blockchain for diverse purposes, from agricultural product tracking solutions to decentralized finance, metaverses, and even the gaming and gambling industries. One example is a complete ecosystem for storing and tracking game events, assets, and even virtual art tours within games. Loyalty programs and crypto advisory services, like OneBit, are additional areas where Hungarian companies are finding success with blockchain.

A particularly promising area is a smart contract platform designed for broad applicability across various event types. Furthermore, blockchain document management offers a powerful tool for companies seeking paperless workflows, streamlining processes, and impacting the work of lawyers. While some fear smart contracts replacing lawyers entirely, the reality is that complex legal matters will still require human expertise.

Dejan: The retail industry, particularly in supply chain management, presents a clear and valuable application for blockchain technology. For Romania specifically, decentralized finance holds significant potential, especially in lending protocols. Additionally, a fascinating new project aims to leverage blockchain to demonstrate the provenance and authenticity of fashion goods. The future may even hold a land registry system built upon blockchain technology.

Tansel: Despite a lack of specific regulations yet, Turkiye boasts a flourishing landscape of blockchain projects. Payment systems, digital wallets, and custody applications are at the forefront of this movement. The real estate and gaming industries are also actively exploring blockchain solutions. Importantly, business-to-business applications are emerging, encompassing document management and even tender processes. Furthermore, official and governmental bodies, including the Central Bank with its Central Bank Digital Currency efforts, are demonstrating a growing interest in implementing blockchain technology.

CEELM: How does your country’s approach to blockchain compare to other jurisdictions? Do you see it to be relatively open or conservative?

Tansel: Turkiye’s unique geographical position as a cultural and business crossroads, combined with its ongoing EU accession talks, fosters a balance between a cautious approach, risk tolerance, and entrepreneurial spirit. This translates to a relatively open approach similar to the US, with a vibrant ecosystem of blockchain projects emerging even without comprehensive regulations. Once regulations are solidified, institutional investors are expected to enter the market, further boosting activity and capital flow. 

Turkiye keeps a close eye on developments in leading jurisdictions like the US, UK, and Dubai to stay at the forefront of global trends. This vigilance allows Turkish players to assess the potential for expanding their projects into new markets. While challenging, this space offers exciting opportunities, demanding an agile and adaptable approach to constant change.

Horvath: Hungary’s government is taking a cautious approach to blockchain regulation. Following the implementation of the EU’s MiCA framework, Hungary has adopted a complementary rule treating financial instruments on the blockchain similarly to traditional instruments. Notably, there is an absence of specific Hungarian blockchain laws at this time.

Despite a seemingly open government stance, there haven’t been discussions about optimizing government structures with blockchain technology. The Hungarian National Bank has issued warnings regarding cryptocurrencies but not blockchain technology itself. Similarly, the Tax Authority and Ministry of Finance are primarily focused on payment and tax implications. Consumer protection, traditionally conservative in Hungary, extends to blockchain as well, with official guidance urging caution regarding cryptocurrencies.

Dejan: Romania leans towards an open approach, with no precise registration requirements for cryptocurrency businesses. Initially, a lack of specific regulations existed for new service providers, with the focus on ensuring tax payments and adhering to the principle of taxing “gains transferred into fiat.” Subsequently, modifications to the criminal code clarified that embezzlement and theft involving cryptocurrencies fall under existing legal provisions. The Romanian government aimed to reassure the public that existing legal frameworks also applied to cryptocurrencies.

While implementing the EU’s AMLD5 regulation, Romania only achieved partial success regarding KYC and AML requirements for wallet providers. A proposal for a comprehensive procedure for crypto asset and wallet providers was drafted but hasn’t been enacted yet. Another recent proposal has emerged, but its timing conflicts with MiCA implementation, suggesting Romania might be falling behind other jurisdictions. Also, the National Bank and Financial Services Authority have issued routine monitoring warnings regarding the crypto space.

CEELM: How are crypto assets taxed in your country? What’s the regulatory approach there?

Tansel: Turkiye currently boasts no crypto-specific taxes. Recent pronouncements from officials hint at a potentially favorable tax regime designed to foster innovation and attract both domestic and international customers. We can anticipate a more competitive tax framework emerging through legal modifications, further solidifying Turkiye’s appeal to investors and technology companies.

Dejan: Romania has established specific tax provisions for individuals. Gains exceeding EUR 150 incur a 10% tax, with social security contributions calculated based on the gain amount and subject to different thresholds. Currently, there is no distinct tax regime for companies dealing with cryptocurrencies.

Horvath: Hungary applies its general personal income tax rules to crypto assets and related income, resulting in a 15% tax rate. However, exceptions exist. For instance, a single daily transaction with a value less than 10% of the minimum wage threshold is exempt from taxation. Conversely, exceeding this limit in a single day triggers income tax liability. Companies, on the other hand, are subject to standard corporate taxation rules.

CEELM: What are the upcoming legislative or regulatory initiatives in your jurisdiction? How is your firm preparing for some possible developments in the area?

Tansel: The most anticipated legislative change in Turkiye is an amendment to the current Capital Markets Law. This will be followed by secondary regulations that provide the finer details of the regulatory framework. Additionally, a new tax law is expected as well.

The multifaceted nature of blockchain demands a multidisciplinary approach. Legal boundaries are blurring, and lawyers are increasingly expected to possess a basic understanding of finance and software development. Collaboration is paramount – developers also benefit from legal and financial knowledge.

Seamless collaboration between legal, financial, and software development teams is crucial for cross-border projects. To achieve this, we are actively fostering partnerships and continually enhancing internal knowledge through academic and practical avenues. On-the-job training strengthens our capabilities, and we may expand our team to gain a deeper understanding of the subject matter. Effective collaboration with various institutions and regulatory bodies is essential in the web3 space – we are actively building these connections to solidify our position in the field.

Horvath: The Hungarian regulatory agenda focuses on MiCA implementation and the Distributed Ledger Technology pilot regime regulation. The most significant changes are expected with the MiCA. Regulatory procedures in Hungary can be lengthy, with obtaining a payment services license taking almost a year. However, the Central Bank’s licensing process is predictable. From a technological standpoint, I anticipate a rise in using layer 2 blockchains.

Being a smaller nation, Hungary’s appeal as a business destination isn’t significantly diminished by the possibility of obtaining a MiCA license elsewhere and having it passported to Hungary.

As an international law firm, we leverage our global expertise and embrace cutting-edge technology. We already utilize tools for managing licensing requirements and actively integrate AI into our daily operations, ensuring we stay ahead of the curve. While we won’t necessarily become blockchain technology experts ourselves, we need to be knowledgeable enough to provide our clients with proper support and guidance. Fortunately, we have a network of qualified external experts we can rely on to stay abreast of all aspects of this evolving field.

Dejan: Similar to Hungary, Romania awaits the implementation of the MiCA, the DLT pilot regime, and a national law transposing the MiCA into Romanian law. Additionally, the Fifth Anti-Money Laundering Directive might necessitate registration for crypto asset and wallet providers.

The introduction of the MiCA is a significant step forward. The EU intends to avoid classifying crypto assets as financial instruments, so the MiCA regulations are built upon the existing framework for regulating financial instruments. This will create legal compliance challenges and cost burdens across the EU, particularly in jurisdictions without prior MiCA-related authorization processes. Adapting to and implementing these regulations will be a substantial undertaking, even with the provided grace period.

Maintaining a close relationship and open dialogue with public authorities is crucial. We actively participate in ongoing training sessions, emphasizing the importance of an open and collaborative approach.

By continuously engaging with authorities, we aim to understand the necessary steps to address client needs and gain some lead time before new regulations come into effect. We’ve already submitted several questions to regulators and are awaiting their responses.

Moreover, I concur with my colleagues – a competent lawyer requires a working knowledge of the legal areas in which they practice. For highly technical matters, we have in-house experts who can, for example, audit smart contracts. Additionally, we collaborate with external specialists when necessary to ensure the highest level of preparedness; we are constantly learning and adapting to the ever-changing landscape of blockchain technology.

CEELM: Regarding all of the above: What is the one item on your Wishlist that you’d like to see in the future?

Horvath: The MiCA‘s exclusion of NFTs is a concern, particularly considering the prevalence of misconceptions and the current market volatility. More explicit regulations would be highly beneficial, especially for the increasingly popular utility NFTs.

Dejan: A swift implementation of the MiCA alongside a flourishing Romanian fintech market is my ideal scenario. The future of this technology is undeniable – being involved at this nascent stage, with regulations evolving concurrently, presents a unique and exciting opportunity.

Tansel: Regulations are essential, but fostering regular dialogue among stakeholders across the regulatory landscape is equally critical for success. A narrow focus on one’s practice area limits the ability to build a robust network – an essential ingredient for a thriving blockchain ecosystem. While regulations play a role, fostering collaboration and an entrepreneurial mindset among all participants is key to driving positive change within the industry.

This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.