A general introduction to the regulation of virtual currencies in Romania

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Introduction to the legal and regulatory framework

Cryptoassets have benefited from a context that led to a global phenomenon, as the main core functionalities of a blockchain – immutability and decentralisation – enhanced transactions without regard for borders or institutional approvals. There is as yet no clear legal regime governing cryptocurrencies. In Romania, as in many EU jurisdictions, cryptocurrencies are considered to be neither legal tender nor electronic money, but rather digital assets with a limited role as currency or having a utility role in a determined cooperative system. They are often referred to as alternative payment instruments agreed between parties concluding a pecuniary transaction.

In anticipation of accelerating crypto development in Romania and the EU, this chapter aims to (1) describe the legal framework in Romania; and (2) provide clarity on potential operational and legal risks in the absence of guidance from relevant national authorities. Nevertheless, the long-term absence of a dedicated regulatory framework in Romania has not necessarily been a drawback for the entrepreneurs running companies that deal with cryptocurrencies, including crypto exchanges, crypto automated teller machines (ATMs) and crypto wallets. Initial coin offerings (ICOs) and initial exchange offers (IEOs) led by Romanian teams have been coordinated in various friendly jurisdictions, other than Romania, where there was more clarity on legal liability. In general, Romania boasts a lot of strong attributes in relation to crypto adoption, namely:

1. Romanians ranked highly among consumers surveyed on positive attitudes towards cryptocurrencies (with 44 per cent of respondents positive about the future use of cryptocurrencies – second only to Turkey and followed by Poland and Spain).²
2. Romania was ranked 33rd worldwide in a crypto-readiness index, with two notable mentions: it ranks first globally for the annual increase in Google searches for ‘crypto’, and also ranks in the top 10 countries by number of reported crypto ATMs.³
3. Romania’s major cities are growing as top information technology hubs in Europe, with Romanian coders well respected in the fintech and blockchain and crypto space. As more coders join projects in this area, the crypto community will continue to grow.
4. In this context, various projects are being developed: there are a couple of local crypto exchanges – national leading payment processors that are bridging the gap between traditional electronic payments and cryptocurrency payments; a Layer-1 blockchain – Elrond (with transfer speeds among the fastest available) and the mobile application Maiar; various decentralised applications (known as Dapps), which are creating new ecosystems (such as for freelancing decentralised marketplaces, crypto trading bots), NFT online marketplaces and crypto asset managers; and blockchain applications in the supply-chain sector.
5. The Romanian government has used blockchain as an underlying infrastructure in national elections.⁴

Securities and investment laws

i Financial market regulators

The growing popularity of cryptocurrencies has prompted increased regulatory scrutiny. In the EU, cryptocurrencies are currently mostly unregulated and Romania is no exception when it comes to cryptocurrency-specific regulations. Furthermore, in Romania, there are no specific securities regulations with respect to virtual currencies or their offering. The global financial market is regulated by the Financial Supervisory Authority (ASF)⁵ and the National Bank of Romania (BNR).⁶ ASF and BNR are in charge of supervising and monitoring banks and financial services companies operating in Romania. ASF protects the interests of actors in the financial markets and is responsible for supervising financial products, the information published by companies, and financial service providers, while BNR is responsible for overseeing individual financial institutions (e.g., credit institutions, investment firms, payment institutions, non-banking financial institutions and electronic money institutions) and the proper functioning of the financial system as a whole. ASF relies entirely on the guidelines issued by the European Securities and Markets Authority (ESMA) with respect to the risks inherent in ICOs. ASF does not offer any particular rules pertaining to prospectuses, transparency, market abuse and markets in financial instruments law, but rather, tacitly adopts EU law, including the EU Prospectus Regulation (PR),⁷ the EU Markets in Financial Instruments Directive (MiFID II) and the Alternative Investment Fund Managers Directive (AIFMD). ASF seems to apply the EU principles of transferable security and financial instruments as defined in MiFID II. As a consequence, depending on their qualities, virtual currencies could be classified as transferable securities, necessitating the publication of a prospectus prior to being offered to the public. According to MiFID II, a decentralised cryptocurrency will not be a transferable security, unlike a security token, which is similar to a share or bond. ESMA recognises that the virtual currency regulatory framework is not yet finalised and there is significant disagreement among regulators in the EU and EU Member States (which have all applied substantially the same EU financial law) regarding the qualification of certain token types: for example, depending on the country and regulator, stablecoins may be classified as financial instruments, transferable securities, derivatives, collective investment schemes, units of account, e-money or a combination of the above.⁸

ii PR

The PR requires that adequate information is provided when seeking to raise funds from investors in the EU. Before an ICO, the issuer must publish a prospectus that clearly outlines all information necessary for an investor to evaluate the potential investment. The information must be presented in a clear, concise and intelligent manner. The PR does not specify who has the responsibility to prepare the prospectus but requests that the party responsible for information (i.e., at least the issuer, the offeror, the party requesting admission to trading or the guarantor) is mentioned in the prospectus. Depending on the structure of the ICO, coins or tokens could fall within the definition of a transferable guarantee and could therefore require the publication of a prospectus, which must be submitted for approval by ASF.

iii AIFMD

ASF has implemented the AIFMD, which lays down the rules for the authorisation, operation and permanent transparency of alternative investment managers that manage or market alternative investment funds (AIFs) in the EU. Depending on its structure, an ICO scheme could qualify as an AIF, to the extent that it is used to raise capital from a number of investors to invest in accordance with a defined investment policy. The companies involved in the ICO must therefore comply with the AIFMD rules, in particular the rules relating to capital, operations and organisation and transparency requirements.