Bulgaria -- Stablecoin Regulations Regulatory Overview

Bulgaria, as a member state of the European Union, will primarily be governed by the Markets in Crypto-Assets (MiCA) Regulation (EU) 2023/1114 for stablecoins and other crypto-assets. While national legislation already addresses certain aspects (like AML or e-money), MiCA will be the overarching framework.

MiCA's phased implementation:

• Titles III (ARTs) and IV (EMTs): Apply from 30 June 2024.
• Other provisions: Apply from 30 December 2024.

Here's a breakdown of the regulatory framework:

Regulatory Framework for Stablecoins in Bulgaria (under MiCA)

1. Classification of Stablecoins

MiCA introduces specific classifications that stablecoins will fall under:

• E-money Tokens (EMTs):

  • Defined as a type of crypto-asset whose main purpose is to maintain a stable value by referencing the value of a single fiat currency (e.g., EUR-pegged stablecoin).
  • They are functionally equivalent to electronic money.
  • Regulation: Governed by MiCA (Title IV) and also subject to the existing Electronic Money Directive (EMD2) and national implementing legislation (e.g., Bulgaria's Payment Services and Electronic Money Act).
  • Competent Authority (Bulgaria): The Bulgarian National Bank (BNB) will likely be the primary authority for EMTs, as it oversees e-money institutions.

• Asset-Referenced Tokens (ARTs):

  • Defined as a type of crypto-asset that is not an e-money token and whose main purpose is to maintain a stable value by referencing any other value or right, or a combination thereof, including one or several official currencies, one or several commodities, or one or several crypto-assets (e.g., a stablecoin pegged to a basket of currencies or gold).
  • Regulation: Governed by MiCA (Title III).
  • Competent Authority (Bulgaria): The Financial Supervision Commission (FSC) is expected to be the primary authority for ARTs.

• Securities (Financial Instruments):

  • If a stablecoin qualifies as a "financial instrument" under Bulgarian law (transposing MiFID II), it would be regulated under existing securities laws, not MiCA. MiCA explicitly carves out financial instruments from its scope. This is less common for typical stablecoins, but a complex token design could potentially cross this line.

2. Reserve Requirements

A. For E-money Tokens (EMTs):

• Issuers must comply with the EMD2 requirements, meaning that the funds received in exchange for EMTs must be fully backed by fiat currency.
• These funds must be held in a segregated account at a credit institution or invested in secure, liquid, low-risk assets.
• MiCA (Art. 52) reiterates that EMTs are subject to the same requirements as electronic money under EMD2.

B. For Asset-Referenced Tokens (ARTs):

• MiCA (Art. 35) imposes stringent requirements:
  • The issuer must create and maintain a reserve of assets that is separate from its own assets and managed in the best interest of the token holders.
  • The reserve assets must be segregated and held in custody by authorized credit institutions or crypto-asset service providers.
  • The value of the reserve assets must be at all times at least equal to the value of the outstanding ARTs.
  • The issuer must have a clear investment policy ensuring reserve assets are invested in highly liquid financial instruments with minimal market risk.
  • A robust liquidity management policy is required to facilitate redemption.

3. Issuer Licensing

A. For E-money Tokens (EMTs):

• Issuers of EMTs must be authorized as a credit institution (bank) or an e-money institution under existing EU and national law.
• They must obtain authorization from the competent authority, which in Bulgaria is the Bulgarian National Bank (BNB).
• MiCA (Art. 51) clarifies that an authorization as a credit institution or e-money institution automatically qualifies them to issue EMTs across the EU.

B. For Asset-Referenced Tokens (ARTs):

• Issuers of ARTs must be a legal entity established in the EU.
• They must be authorized by the relevant national competent authority – in Bulgaria, this is expected to be the Financial Supervision Commission (FSC).
• The authorization process involves submitting a detailed application, including a white paper, business plan, governance arrangements, and a description of the reserve assets and their custody.
• Existing credit institutions may also issue ARTs without separate authorization but must notify their competent authority.

4. Redemption Rights

A. For E-money Tokens (EMTs):

• Holders of EMTs have the right to redeem them for the underlying fiat currency at par value, at any time, and free of charge, as per existing e-money regulations (EMD2) and MiCA (Art. 58).

B. For Asset-Referenced Tokens (ARTs):

• MiCA (Art. 39) mandates that ART holders have the right to redeem their tokens for the reserve assets (or their monetary value) at par value, without undue delay, and free of charge (unless the issuer specifies a fee in the white paper, which must be justified and proportionate).
• The terms and conditions for redemption must be clearly outlined in the crypto-asset white paper.

5. Algorithmic Stablecoin Rules

• MiCA effectively prohibits the issuance to the public of purely algorithmic stablecoins that do not maintain their stability through a reserve of assets.
• Specifically, MiCA's definitions of ARTs and EMTs are based on maintaining stability by referencing assets. If a crypto-asset claims to maintain stability through algorithmic means without a genuine reserve, it typically falls outside these definitions.
• MiCA (Recital 27) explicitly states that crypto-assets that claim to maintain a stable value without using such mechanisms (i.e., through algorithmic rules only) are not covered by the definitions of ARTs or EMTs and, if they pose a significant risk to financial stability, could be subject to specific measures. The general spirit of MiCA aims to prevent the risks associated with such unbacked algorithmic stablecoins.

6. CBDC Interaction

• MiCA does not regulate Central Bank Digital Currencies (CBDCs), such as a potential digital Euro issued by the European Central Bank (ECB) or national central banks.
• Article 1(3)(e) of MiCA explicitly states that it does not apply to "crypto-assets that are issued by the European Central Bank or by national central banks of Member States when acting in their capacity as monetary authorities."
• If a digital Euro is introduced, it would exist alongside private stablecoins regulated by MiCA. A digital Euro could set a benchmark for stability, security, and accessibility, potentially influencing the competitive landscape for private stablecoin issuers.

Specific Bulgarian Legislation and Regulatory References

While MiCA is paramount, national legislation handles implementation, supervision, and existing related areas:

1. Markets in Crypto-Assets (MiCA) Regulation (EU) 2023/1114:

   • URL: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114
   • This is the primary EU regulation directly applicable in Bulgaria.

2. Bulgarian National Bank (BNB):

   • The BNB supervises e-money institutions and payment service providers. It will be the competent authority for EMTs.
   • Official Website: https://www.bnb.bg/
   • The BNB would be responsible for updating national legislation (like the Payment Services and Electronic Money Act) to align with MiCA where necessary and for issuing guidance.

3. Financial Supervision Commission (FSC):

   • The FSC supervises financial markets, including securities and investment firms. It is expected to be the competent authority for ARTs and other crypto-asset service providers under MiCA.
   • Official Website: https://www.fsc.bg/
   • The FSC will be instrumental in the authorization and supervision of ART issuers and other Crypto-Asset Service Providers (CASPs) under MiCA.

4. Payment Services and Electronic Money Act (Закон за платежните услуги и платежните системи):

   • This national law transposes the EU's Payment Services Directive (PSD2) and Electronic Money Directive (EMD2) into Bulgarian law. It currently governs e-money institutions. EMTs under MiCA will continue to be subject to its principles.
   • URL (unofficial translation available, official in Bulgarian): Search "Закон за платежните услуги и платежните системи" on Bulgarian legal databases like https://www.lex.bg/

5. Measures Against Money Laundering Act (Закон за мерките срещу изпирането на пари):

   • Transposes the EU's Anti-Money Laundering Directives (including 5AMLD and 6AMLD). Crypto-asset service providers, including stablecoin issuers and custodians, are obliged entities under this act and must comply with AML/CFT requirements (customer due diligence, reporting suspicious transactions, etc.).
   • URL (unofficial translation available, official in Bulgarian): Search "Закон за мерките срещу изпирането на пари" on https://www.lex.bg/

Summary for Bulgaria: The regulatory landscape for stablecoins in Bulgaria is rapidly converging with the broader EU framework under MiCA. The key distinctions will be between E-money Tokens (EMTs) and Asset-Referenced Tokens (ARTs), each with specific requirements for classification, reserves, licensing, and redemption rights. Purely algorithmic stablecoins without asset backing are effectively disfavored or prohibited. The Bulgarian National Bank (BNB) will oversee EMTs, while the Financial Supervision Commission (FSC) will oversee ARTs and other crypto-assets under MiCA. National AML/CFT laws already apply.