Introduction

With the advancement of digital technologies and the growth of cryptocurrencies, the need for effective regulation of crypto-asset markets law is becoming increasingly evident. The European Union has already taken significant steps in this direction through the adoption of the Regulation on Markets in Crypto-Assets (MiCA). This article examines the draft Law on Markets in Crypto-Assets in Bulgaria, published for public consultation, which aims to harmonize the national legal framework with EU requirements. We will briefly look at the proposed administrative sanctions and control measures.

Law on Markets in Crypto-Assets (LMCA): Key Aspects

The draft Law on Markets in Crypto-Assets (LMCA) in Bulgaria aims to provide a legal framework for regulating crypto-assets and related activities while adapting to the European legal framework introduced by MiCA.

The main objectives of the law are as follows:

1. Defining competent authorities:
   The Financial Supervision Commission (FSC) will be the primary authority responsible for supervising and regulating crypto-asset markets in Bulgaria. Additionally, the Bulgarian National Bank (BNB) will have a role in supervising asset-backed tokens and electronic money.
2. Licensing and regulation of crypto-asset service providers:
   Any organization offering services related to crypto-assets, such as trading platforms, custody, exchange, or advisory services, must obtain a license from the FSC. A license will also be required for issuers of asset-backed tokens.
3. Transparency and consumer protection: Crypto-asset issuers will be required to publish a so-called “white paper” that clearly and thoroughly describes the characteristics of the assets, risks, and rights of holders. The aim is to enhance transparency and investor awareness.

Requirements for Activities and Participants

The new Law on Markets in Crypto-Assets sets out detailed requirements for various market participants. These requirements aim to ensure investor protection and market stability:

1. Organizational requirements:
   All crypto-asset service providers must have a clear organizational structure with defined responsibilities and obligations for their management teams. They must maintain adequate systems for internal control and risk management to prevent fraud and other unfair practices.
2. Capital requirements:
   Service providers must maintain minimum capital proportional to the size and nature of their activities. This requirement is aimed at ensuring financial stability and protecting client funds.
3. Security requirements:
   Companies that store or manage crypto-assets on behalf of clients must implement measures to protect these assets, including the use of secure and reliable technologies to safeguard against cyberattacks and unauthorized access.
4. Transparency requirements:
   All market participants are required to provide accurate and timely information to users, including details on fees, risks, and user rights. This includes disclosure requirements regarding the company’s financial condition and governance structures.
5. Requirements for those managing operations:
   Individuals managing crypto-asset service providers must meet specific criteria for competence and professional reputation. They should possess the necessary knowledge and experience to manage the risks associated with the crypto-asset market.

Administrative Measures and Sanctions

An important aspect of the draft law is the introduction of administrative measures and sanctions. The following paragraphs provide a detailed overview of these measures:

1. Mandatory administrative measures: The FSC will have the authority to impose mandatory administrative measures in case of violations of the law. These measures may include the temporary or permanent suspension of a company’s operations. The FSC will also have the right to impose sanctions on companies and individuals violating transparency requirements or engaging in market abuses.
2. Property sanctions: In cases of violations involving issuers of asset-backed tokens or crypto-asset service providers, the FSC will be able to impose property sanctions calculated as the higher of a fixed amount or a percentage of the offender’s annual turnover. This is a significant measure designed to prevent unethical behavior and ensure regulatory compliance. For MiCA violations, fines of up to the greater of:
   – 12.5% of total annual turnover or BGN 10,000,000.
3. Fines and penalties for individuals:
   The draft law also provides for fines for individuals engaging in or permitting market manipulation, insider trading, or market abuse. For MiCA violations, fines of up to BGN 1,400,000 are envisaged.

Judicial Control and Appeals

The draft law provides for the possibility to appeal imposed sanctions and measures. Appeals will be conducted under the Administrative Violations and Penalties Act (AVPA). Specially authorized FSC representatives will be responsible for identifying violations and imposing sanctions.

Conclusion

The introduction of the Law on Markets in Crypto-Assets is a step toward regulating the crypto sector in Bulgaria’s financial market. It is important to note that the text published for public consultation is not the final version of the law. Amendments are likely, and participants in crypto-asset trading should follow developments closely.

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