Alternatives to MiCA - Ilija Rilakovic

Transcript

[Music] Okay. Hello everyone. Um, welcome to uh to my talk where I will explore uh alternatives to Mika. I hope that you uh attended yesterday uh our regulatory panel where we talked about uh positive aspects of Mika and um my esteemed colleague Oliver Zerno I believe it's his name talked about issues with um uh service providing under Mika regulation. So uh building on those two uh those two uh talks and um I will

present some downsides of ma and potential alternatives to it. So this is our uh this is our uh content for today. So brief intro on Mika and two potential alternatives which I deem uh fit. But of course by no means they are definitive or that they are the only solutions for uh your project if you decide to uh move out of Europe or to establish your project uh project elsewhere. Of course nothing of this is legal advice. So, um don't take all of these things for

granted because there are a lot of ifs and depends uh typical lawyer uh intro and uh answers. So, um I'm Lakovich, attorney law from uh Serbia. I'm one of the it Belgrid organizers and should you have any questions around that conference, I'll be here after the talk. So um just ask me whatever you want. Uh I'm also a runner and uh when I don't chase clients, I chase my personal best records on various races and I like cooking but don't ask me to prepare any sweets for you because I don't know how

to do that properly. Uh so uh ONMA um it is comprehensive uh regulatory framework uh it was at the forefront of the uh global regulations and it should harmonize uh European market. So again Mika stands for markets in crypto assets. It's regulation and unlike directives, regulation is directly applicable to uh all EU uh member states. It provides definitions of key terms uh rules and requirements for issuing e-oney tokens such as USDT or u

euro or um e euro some something that um circle uh did recently. asset reference tokens. So tokens that are tied or pegged to some real world asset and uh other tokens which are basically utility tokens. [Music] Um, it also has rules on uh how to obtain uh license for crypto asset service uh providing business um such as OKX and other centralized exchanges, Bit Panda just to name a few of them. uh and then

uh typically uh prevention of market abuse, standard provisions and who are regulators and what are fines for non-compliance. Um besides uh besides that, Mika started uh with application mid uh June last uh mid uh mid 2024 uh concerning uh e-ani tokens and in full application since the end of 2024. Uh so Mika yes it's good and comprehensive but as the meme goes uh there are some uh uncertainties so uncertainties uh about NFTs because

um at the face value NFTs are excluded from Mika but there is that um NFTs still can be uh tackled by Mika if uh they are in large collection and they are not distinctive enough But who really cares today about uh NFTs? Um then uh D5 protocols uh they are not directly regulated uh by Mika and uh that's in preface of Mika but if you are developers uh or front- end providers you still can be liable under MA because you provide access to uh blockchain

assets. So it can constitute a service under under Mika. For example, uh you provide a website for unis swap. Unis swap is defi. It's decentralized but your company is the one that maintains and provide access to unis swap protocol through website. It's at high bar for stable coins. This might be a problem but uh it does not tackle the uh broader audience. uh but still just look what happened to USDT then uh I think this is the really uh really big issue for European startups because uh compliance costs for

uh for startups can be really high especially if uh your startup falls into one of um into one of services that uh are required to have uh license under Mika. We discussed this uh this yesterday uh at at our panel. Maybe this panel will be available after the uh after the conference u to to have a look at it as well. Uh another big issue is overlap uh with uh other regulations and directives uh in Europe especially when it comes to AML when it comes to transfer of fund

regulations uh digital operation resilience act and GDPR last one is a very hot topic last few few weeks uh you'll see in a in a minute uh why probably you have heard about it uh security tokens Another issue. So if you want to uh issue issue tokens as a security then you have overlap with mark uh with MIFID uh MIFID rules which govern financial uh instruments and financial markets. So potentially uh those two pieces of legislation, Mika and Miffid, can create dual regime and will be uh more difficult for you to uh

comply with everything that uh that you have to take care of. Um finally uh non-European projects that uh want to cover European market uh face one limitation which is legitimate but there is a lot of uncertainties on how it will apply and that's reverse solicitation. So uh if you are non-EU project who is uh on this conference maybe you have boot or uh deliver presentation you might be um uh required to comply with reverse solicitation.

um it should be exemption but uh it still can be liability for you because if you are out of the EU project and uh you cannot offer your services to European market so you cannot solicit clients but European clients but you have to wait for them to come to you and ask you for that service. So if you are at this conference having boot or giving uh presentation about your project that uh that is considered as active act active solicitation and uh might be a problem for you uh to sum up uh what I've uh previously

uh explained. So uh make a promise to uh level the uh the playing field and um there are two analysis presented by uh Nicola who is um head of electrocoin from Croatia that according to his analysis uh most of licensed companies under Mika until now are basically non-European companies. Of course they have subsidiaries in Europe but capital is um either American or Chinese or Asian or something else. um and it expands uh analysis that Paty Hansen from Circle uh made and uh he reflects

uh on um Europe's uh ability to compete with other uh other jurisdictions, other markets because of its um regulations who tend to be burdensome. Yeah, this should be unbelievable but it doesn't work. So, okay, this is on GDPR. So uh another uh big issue that is uh happening these days is that uh competent authority of uh European Union issued a guidelines that says that um uh nodes could be considered as data

controllers thus having to comply with GDPR. So uh you as a user under GDPR can ask uh data processor or data controllers to remove your uh to remove your uh data. So like asking uh Facebook or other uh other social platform to delete your data. How do you delete data from a blockchain? Uh this is something that uh the authority didn't uh had in mind probably because ultimately as it goes this may require deleting the whole blockchain how this is competitive and how this is uh

feasible. Can you delete the blockchain? I don't know. Uh if you want to be um uh up always up to date uh follow European Crypto Initiative. they do a really good job on uh covering all uh legal aspects of European uh blockchain web3 regulations. So if not Europe then what um there are according uh in my opinion uh there are two potential uh solutions. Of course it uh there are uh some pros and cons of course but still uh from what I've seen in practice in

working with clients uh Panama seems as a good alternative because of its ease of incorporation of any entity be it foundation or LLC. Um it has good uh privacy protection. uh you can maintain private invisible uh like ultimate beneficial owner and asset protection is solid. Uh the in Panama uh they don't have corporate tax for uh foreign source income. So basically um only income that you derived from Panama is taxable in Panama. Uh and

since um web three projects by design are global probably you will not be taxed in Panama which is a huge plus. Besides um there is small overhead which is annual franchise tax. It's basically a fee that you pay to maintain your uh your company active but it's not substantial. I think it's around uh $300 US. Of course, uh sub subject to change, but certainly not um uh not a big expense for your company. When it comes to to web 3, uh there are no specific regulatory frameworks for uh web 3. So

be it virtual asset service uh providing business or tokens or uh any other crypto cryptoreated activities and um it is not even though it's not regulated uh stance of Panameanian uh authorities is positive towards crypto. So um it's uh welcoming to to many crypto project projects and even though they are not regulated they are uh legal according to current state of affairs and crypto assets are exempted from uh regulatory overview of Panaminian regulators which is uh

confirmed in several uh rulings or ruling opinions of uh their authorities uh which is still uh a good thing and they are not uh cryptocurrencies crypto assets are not classified as legal tender securities or regulated activities. So uh a lot of u banking or AML regulations are not applied to to your project if you if you uh work uh with crypto assets. As I said, uh you will be

probably exempted from uh many requirements that uh present Panaminian framework has for financial investment or uh security uh businesses and uh of course uh AML requirements. It doesn't mean that you do not have to comply with uh with AML because uh even though local such as Panama uh local regulation does not require you to have um AML procedures on a higher level. So think it about think about that as uh

something like this. So um the bottom it's local regulation but if you go higher uh international regulations uh and international bodies might um might require you own or it would be good uh because of them to have some uh some procedures that uh try to fend off uh moneyaundering businesses or money moneyaundering uh activities. is uh after after Panama uh as a Serbian based lawyer um Serbia is I would say um not

uh not well known for its u web three businesses apart from Yokic and Jookovic. So uh few general things about uh Serbian uh Serbian framework. It's not EU uh country. So there are no maker requirements. Uh it will soon actually it is member of uh SEPA network and um it will be operational next year. So it makes easier uh to send uh euro transactions across the border. Uh Serbia has Serbian dinner as a currency. Uh again, it's easy to

incorporate company in Serbia. Within seven business days, you can have operational uh LLC with tax ID number and bank account. Uh costs are not uh not high for set up a business. And it's uh good for uh startups uh because there are a lot of uh a lot of incubators and uh programs tax breaks that support uh startups. As I said, banks are accessible and their ebanking services are uh are fairly good.

uh you don't need local agent uh like uh in other jurisdictions or director or employees. So um for your company as a u non-serbian um u person you can be both shareholder and director. So you don't have to involve any uh any Serbian persons into your um uh company as in management bodies or shareholding no annual franchise tax. Uh corporate income tax is u moderate 15% VAT is 20% but uh doesn't mean that you have to pay VAT on every transaction. Of

course it depends uh on export services there is no VAT uh um very positive thing is strong developer pool especially for uh for a blockchain and um designers product designers um marketer marketeteers uh growing uh growing communities both in Ethereum and Salana. I probably you probably heard about tenderly defy saver uh streamflow or uh soul flare their biggest Serbian projects. Um of course uh flagship conference is uh e Belgrade.

So hope to see you next week in Belgrade. When it comes to when it comes to uh Serbian web 3 or crypto regulations, it is regulated. Um so cryptocurrency and tokens are legal and legitimate class of assets. Uh we have law that governs it. Um token issuance is fairly simple especially for securities like tokens. So um I know that uh all the tokens are utility tokens. No token is security right? Um in Serbia you can uh easily issue security token with uh small overheads small uh relatively small uh small

expenses and get it uh approved by Serbian SEC. uh it's basically check the box uh procedure for your white paper where uh SEC uh checks if your white paper has all the elements it should. So it's they will not dive into details of your tokconomics your business and so on and so forth. They just check if if they if white paper has all the elements it have to it has to have uh and uh it's exempted from capital market regulations. uh up to three million euros. So, it's fairly good especially for uh smaller businesses or or or small uh small

projects. As I said, a white paper approval is not mandatory. It is mandatory if you want to advertise it in Serbia. So still very good threat uh of uh uh of Serbian uh requirements and uh even if you decide to push for approval expand uh expan expense is not that high around 700 uh euro. Um Serbian SEC is very friendly and open to project that want to issue tokens. So if you have any questions or dilemmas, you can uh set up a meeting

with Serbian SEC and discuss uh those questions uh get some some clear answers before you dive into the whole procedure of uh token issuance. Uh so far uh projects uh in Serbia tokenized solar park uh in agriculture, walnut and hazelnut fields which is quite interesting to me. um factoring business and uh a pilot project tokenized uh some premium wines premium wine bottles and uh that's actually a utility

token unlike uh those uh that I mentioned they issued tokens as a as a bond so basically security um there is draft of law which is fortunately on hold that should have enabled tokenization of shares in limited liability company. Uh and I hope that um it will be passed through our parliament parliament because it will uh enable real uh real world asset tokenization because with uh tokens that represent shares into a company you

really have a say. So you can vote into in a shareholder shareholder assembly and have real uh legal effect. Um that's it. Um these are my contacts and uh I think we have few minutes for questions maybe five minutes. So thank [Applause] you. Do we have some questions? Guinea. Thanks, Leah. Jo, which is great. Um, as well as Yish. Uh, do you see the risk that

because Serbia is so closely connected to the uh European Union? It is. Do you see a risk? Okay. that uh because Serbia is so closely connected to the European Union and it might be looking towards joining that once established uh a few years down the line the Serban regulation may just adopt Mika or whatever is going to exist at the point of time uh creating a double effort for the companies.

Um, good question. I think that that's u still very remote risk uh because u I think that Serbia is not uh close to to the European Union as we should. Uh so uh back to your question, I don't think that's that's a risk for 5 to 10 years to to be honest. I don't think that we will be on a uh speed track for EU accession although we um follow um accession process for I think 15 years and we have not made uh made it very far. So I wouldn't say that's a big risk

for now. Any more questions? Uh what about other countries that are a bit more uh I mean famous probably in this sense like UAE and Switzerland. Um so my exposure was uh and experience uh experiences were closest to Serbia and Panama. Uh as for uh Switzerland, I think that compliance costs are quite high. Uh that's the concern I have. Uh other things I don't see um as as a problem.

Um legal uh certainty uh general Swiss system is very stable. Uh for the UIE, I'm not sure. What I've heard is that although you can easily set up a company, it's could be uh challenging to open a bank account. Uh maybe um it's not a big problem if you work only with crypto, but with in somehow you have to uh be connected with traditional businesses. So that's what I've heard. I cannot say that that uh it's entirely accurate. So, and as I said at the beginning, this is not

definitive list. It's just some some ideas. So, there of course um BVI, uh Hong Kong, um and other tech tax havens. Salvador, interesting. We can chat about that later. I don't know much about Salvador. Any other questions? still have three more minutes. So I'm going to ask like how do you see Serbian future like you personally sorry is it positive like the future of Serbia in this kind of topic? Uh well, I would like to end it on a positive note and say that um I

hope that uh Serbian Web 3 will continue thriving and that we will have more companies such as Tenderly or uh Defi Saver. Uh and with with our conference, we're trying to spread the word and and uh make uh Serbia more appealing to to international product uh projects. Okay, one more question Raelia. Uh just a quick question. So you're here now uh explaining let's say moving away from Mika regulated uh uh markets to get some products or companies that are developed. I think the entire push of the Mika is to kind of push crypto more

towards the retail more to expand the base. So anything that's developed in Serbia or Panama or UAE Salvad or whatever has been it will need to be kind of Mika compliant before it was offered and then whatever you do in Serbia to offer it to an EU product base or consumer base you need to be MA reliant. So my question is more would it from a investment purpose be more to be Mika compliant whether in Serbia or Salvador never so that when the product is offered is Mika compliant than to go away with it. So I don't think that Mika is going away even in Serbia or something like that of course. Uh so my idea was to um although I haven't said it uh it's if we talk about startups it's

easier to start somewhere where um compliance is not that expensive and when you grow your business enough you of course uh can easily I mean easily relatively easy set up a business in Europe and expand your uh and scale your your business and be more appealing for next rounds of um invest uh investment rounds. Thank you. So this was Iliaakovich. Thank you.