Bulgaria is taking a major step towards the regulation of the crypto sector with the submission of a draft law for an entirely new Crypto Asset Markets Act ("CAMA"). It directly implements Regulation (EU) 2023/1114 on markets in crypto-assets, which lays down a single legal framework in this fast-growing and until recently sparsely regulated area for the entire European Union.
CAMA aims primarily at ensuring that the interests of the investors are protected - both for holders of crypto-assets and for customers of crypto-asset service providers. The main expected effects include the introduction of clear rules and risk management measures in the sector, improving market transparency and increasing investor confidence, which in turn will stimulate the development of the whole ecosystem. From the perspective of service providers, the new legal framework will provide significantly more certainty, as they will operate within a predictable regulatory environment.
The draft law provides for the Financial Supervision Commission ("FSC") to be the competent authority to supervise compliance with the law. The FSC will have the power to issue, refuse and revoke licenses, as well as to impose administrative measures and penalties for violations. The Commission will cooperate with the Bulgarian National Bank and the State Agency for National Security in cases related to financial stability and market security.
As regards the substance of the new bill, based on the European regulation, it envisages three main types of tokens:
(i) crypto-assets other than asset-referenced tokens or e-money tokens;
(ii) asset-referenced tokens;
(iii) electronic money tokens.
For each type of token, the bill and the regulation provide for specific requirements for public offering and/or admission to trading.
A number of standards for crypto-asset market participants are also being introduced, including an obligation to publish a whitepaper on crypto-assets, requirements for marketing communications and measures to prevent market abuse. The so-called whitepaper should contain information about the asset, the risks involved and investors' rights. Advertisements and other marketing material should be clear, accurate and non-hypocritical, consistent with the information in the white paper.
The draft law also regulates the licensing of crypto-asset service providers, which should be licensed by the FSC. Such market participants may provide statutorily defined types of crypto services, including: (i) custody and administration of crypto-assets on behalf of clients, (ii) operating a crypto-asset trading platform, (iii) exchanging crypto-assets for funds, (iv) exchanging crypto-assets for other crypto-assets, (v) executing crypto-asset-related orders on behalf of clients, (vi) providing crypto-asset advice, (vii) providing crypto-asset-related portfolio management, etc.
Adoption of the bill would also mean a tightening of the regulatory framework for sector-related measures for prevention of money laundering and terrorist financing (under the AML Act). Under the proposals, crypto-asset service providers would have to implement enhanced customer identification and verification measures (so-called KYC - Know Your Customer - procedures).
With the adoption of CAMA, Bulgaria is taking an important step towards creating conditions for sustainable development of the crypto-assets market by applying European regulations and international best practices. This will not only provide better protection for investors, but also encourage innovation and fair competition in the sector.
