The Republic of Bulgaria has released a draft Act on the Markets for Crypto Assets (the “Act”) which has been put forward for public discussion and consultation as part of the legislative process. During this phase, stakeholders, individuals, and other interested parties are invited to share their opinions, ideas, and positions. Given the current political situation - Bulgaria is under an interim government with elections scheduled for the end of October 2024 - it is likely that this Draft Act has a long journey ahead before entering into force. Nevertheless, the move signals Bulgaria's intent to regulate the crypto space, aligning with current EU policies.
The notion that the Act is an extension of EU crypto-related policies is reinforced by Article 1, which states that it implements measures in accordance with EU Regulation 2023/1114 on markets in crypto-assets (MiCA).
The Bulgarian Financial Supervision Commission (FSC) will be the public body responsible for overseeing compliance with the Act's crypto-asset regulations. The FSC will be granted extensive powers, including the ability to issue and revoke licenses for the public offering of asset-referenced tokens, as well as the licensing of crypto-asset service providers.
To ensure proper oversight of the crypto-asset market, pursuant to the Act, the FSC is empowered with a broad range of tools to correct and sanction crypto-asset service providers. Similar to law enforcement authorities, the FSC can request hosting services to block access to a crypto-asset service provider’s website or online system, or even instruct domain sellers to such providers' domain names entirely. Due to the highly invasive nature of these measures on the freedom of information, such requests would need prior court approval. From a more traditional sanction perspective, the FSC can suspend crypto-asset service providers from conducting business for up to 30 business days, during which corrective measures must be implemented. Additionally, the FSC can revoke licenses, publicly declare that a service provider is non-compliant with local laws, and even order a service provider whose license has been revoked to transfer all client agreements to another provider.
The fines imposed under the Act are substantial and in line with EU policies, which base penalties on turnover. These fines can reach up to BGN 20,000,000 or 25% of a company's annual turnover, whichever is greater. Such penalties could be devastating for any business and, at first glance, appear incompatible with the principle that penalties should be corrective rather than destructive.
The Act also imposes various requirements on the management bodies of crypto-asset service providers. These limitations include a clean criminal record and the absence of any previous sanctions for material or systematic breaches of laws related to the financial system. There is even a requirement that such individuals must not be related to anyone with a criminal past. Legally, it is expected that this provision will either be clarified or removed entirely, as there is currently no clear definition of what it means to be "related" - whether by marriage, business relationship, shareholding, or otherwise.
Requiring specific qualifications for high-level management in the financial sector is a well-known approach in Bulgarian legislation, with similar personal requirements already in place for the management bodies of banks, financial institutions, and even currency exchange bureaus.
From a stakeholder perspective, in addition to facing a strict licensing process and personal requirements for their high management, in accordance with the Act, crypto-asset service providers also need to pay much closer attention to their whitepapers and transparency policies. Whitepapers will not only become a crucial part of the licensing process but will also be subject to ongoing review by the FSC.
In conclusion, while the Act will likely undergo various changes, the EU's overall direction toward regulating the crypto world remains unchanged.