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As the digital asset landscape continues to evolve, the upcoming Markets in Crypto-Assets (MiCA) regulation aims to establish a comprehensive and harmonized framework for crypto-assets within the European Union. This groundbreaking legislation promises to redefine how crypto-assets are regulated, fostering innovation while ensuring consumer protection. This article will explore the timeline for MiCA's implementation, highlighting key milestones and offering insights on what to expect as this game-changing regulatory framework emerges. Implementation Timeline The Markets in Crypto-Assets (MiCA) regulation will come into force in a staged manner, beginning on the twentieth day after its publication in the Official Journal of the European Union. Most MiCA's provisions will apply 18 months after it enters into force (for crypto asset service providers). Titles III and IV, which pertain to the requirements for Asset-referenced tokens and E-money tokens respectively, will apply earlier, just 12 months after the entry into force (for stablecoin issuers and crypto-assets issuers). Specific provisions enumerated in the regulation will be applicable right from the date of entry into force. These provisions address various aspects of MiCA detailing, giving European Securities and Markets Authority and European Banking Authority the power to issue guidelines and technical standards. During Implementation Timeline MiCA establishes a clear timeline for its applicability to offers of crypto-assets. Articles 4 to 15, which govern various aspects of public offerings and trading of crypto-assets, including the content and form of the crypto-asset white paper, marketing communications, notification and publication requirements, rights and obligations of offerors and persons seeking admission to trading, modification of published documents, right of withdrawal, and liability for the information in a crypto-asset white paper, will not apply to offers to the public of crypto-assets that have concluded before the official date of MiCA's application. This means those offers that ended before MiCA's enforcement date will not be subject to the specific rules and regulations detailed in Articles 4 to 15. MiCA sets forth specific provisions for crypto-assets other than asset-referenced tokens and e-money tokens that were admitted to trading before the regulation's date of application. In such cases, a limited set of requirements under Title II will apply, as follows: Articles 7 and 9: Article 7 addresses the requirements for marketing communications related to crypto-assets, while Article 9 outlines the rules for publishing the crypto-asset white paper and marketing communications. These articles will apply to marketing communications published after the regulation's date of application. Trading platform operators must ensure that, within 36 months after the date of MiCA's application, a crypto-asset white paper is drafted, notified, and published under the following articles: Article 6: Details the content and form requirements of the crypto-asset white paper, ensuring it contains accurate and comprehensive information for potential investors. Article 8: Specifies the notification process for the crypto-asset white paper and marketing communications to the relevant national competent authority. Article 9: Establishes the rules for publishing the crypto-asset white paper and marketing communications, including the timeframe and manner of publication. If necessary, trading platform operators must update the white paper as per Article 12, which outlines the modification process for published crypto-asset white papers and marketing communications. Transitional Regime MiCA has provisions for crypto-asset service providers already operating under applicable laws before the regulation's date of application. These providers can continue offering their services for a transitional period of 18 months after the date of application or until they are granted or refused authorization under Article 63, whichever occurs first. However, individual Member States can either not apply this transitional regime or reduce its duration if they believe their national regulatory framework in place before the regulation's date of application is less strict than MiCA. In such cases, Member States must notify the European Commission and the European Securities and Markets Authority (ESMA) of their decision to exercise this option and specify the duration of the transitional regime within 12 months after the regulation enters into force. Existing Asset-Referenced Tokens Issuers MiCA also includes provisions for issuers of asset-referenced tokens who are not credit institutions and were already operating under applicable laws before the specific deadline, 12 months after the regulation's date of entry into force. These issuers can continue offering asset-referenced tokens until they are granted or refused authorization under Article 21. However, they must apply for authorization within 13 months after the regulation enters into force. This ensures that existing issuers of asset-referenced tokens have a fair opportunity to adapt to the new regulatory requirements introduced by MiCA while maintaining their ongoing operations. Credit Institutions MiCA also addresses the case of credit institutions that have issued asset-referenced tokens under existing laws before the specific deadline, which is 12 months after the regulation's date of entry into force. These credit institutions can continue offering asset-referenced tokens until their crypto-asset white paper is approved or disapproved under Article 17. To maintain their ongoing operations, credit institutions must notify their competent authority as per Article 17(1) within 13 months from the date of entry into force of MiCA. Simplified Authorization MiCA includes a provision for Member States to implement a simplified authorization procedure for entities already authorized under national law to provide crypto-asset services at the time of MiCA's application. This simplified procedure only applies to applications submitted between the date of MiCA's application and 18 months after that date. The competent authorities must ensure that these entities comply with Chapters 2 and 3 of Title V (obligations for crypto-asset service providers) before granting authorization under the simplified procedure. * * * Navigating the complexities of the MiCA regulatory landscape can be challenging, especially when it comes to understanding the various transitional provisions and their implications. At Prokopiev Law Group, we are here to guide you through this process and ensure that your business complies with all the requirements. Our team of experienced legal professionals has in-depth knowledge of the MiCA framework and can easily help you adapt to the new regulations. Reach out to us today and let us be your trusted partner in successfully navigating the world of crypto-asset regulations. Your success is our priority. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Welcome to the unchartered territory of the Metaverse - a concept that, despite being shrouded in mystery, has found itself at the epicenter of numerous discussions in recent times. The elusive term, tracing its roots back to 1992 in the science fiction novel "Snow Crash," has now emerged as a pervasive buzzword in the realms of law and entertainment. We embark on this journey to demystify the Metaverse, distill its essence, and delve into its multifaceted legal implications. The Concept of Metaverse The Metaverse, contrary to conventional belief, does not denote a single, unified space or place. Instead, it refers to a dynamic network of virtual experiences that could eventually converge into a seamless human experience. However, we are yet to reach this intersection. We must first delve into its distinguishing characteristics to understand the Metaverse more intricately. Key Features of the Metaverse Interactive Virtual Spaces The Metaverse offers an immersive platform for 3D virtual interactions, providing an avenue for participation in a virtually conceived universe. Whether witnessing a concert from the comfort of your home or designing your personal virtual home on a blockchain-based virtual platform - the Metaverse creates a novel paradigm of interactive experiences. Futuristic Concept The Metaverse encapsulates the potential future of the internet - a virtual playground that fosters not just the exchange of information but also shared interactive experiences. It embodies a possible digital revolution, transforming our interaction with the online world. High Level of Engagement The Metaverse is not a mere spectator's paradise; it's an engaged participant's utopia. It fosters a community of highly interactive participants who engage in content-sharing, event participation, and experience-sharing - all within the confines of a shared virtual space. Technological Underpinnings Lastly, the fabric of the Metaverse is woven with cutting-edge technology. The wide-scale adoption of the Metaverse could be synonymous with the mass incorporation of technologies such as Virtual Reality (VR) headsets, Augmented Reality (AR) devices, and sophisticated AI technologies. These technological advancements enhance our experience in these virtual worlds and catalyze content creation within the Metaverse. Existing Legal Framework In its infinite wisdom and plasticity, the law extends its jurisdiction even to the frontiers of the virtual universe - the Metaverse. For instance, the current global legal framework has many applicable copyright provisions. The legal codes that govern our physical reality remain potent within the Metaverse as long as the residents of these virtual spaces remain terrestrial. Application of Intellectual Property Law in the Metaverse With its various sub-disciplines, intellectual property law bears substantial relevance in the Metaverse. Copyright Laws The usage of creative content within the Metaverse necessitates a close examination of copyright laws. Whether it's a simple photograph or a complex piece of music, understanding the nature of content, its rightsholders, and the necessary permissions to use it all fall under the purview of copyright law. Trademark Laws The Metaverse, as a marketplace, is no different from any physical bazaar when it comes to the application of trademark laws. Businesses must identify their trademarks, understand their protective coverage, and be aware of potential infringements within these virtual worlds. Personality/Publicity Rights The Metaverse isn't immune to disputes related to personality or publicity rights. As avatars become increasingly realistic and personalized, the risk of misappropriation and misuse of one's image or personality increases, necessitating legal safeguards. Challenges in Protecting Intellectual Property in the Metaverse Despite the current legal safeguards, the Metaverse presents a unique set of challenges for intellectual property protection. The expansive nature of virtual worlds can make monitoring and enforcing infringements arduous. Moreover, jurisdictional complexities due to these virtual realms' boundless and transnational nature could pose significant hurdles. Lastly, with real-time user-generated content, questions about ownership and rights arise. Content Usage and Rights in the Metaverse Identification of Content and Rights Holders A neon advertisement or a captivating digital sculpture - all such creations are assets with traceable origins. Recognizing and tracing these contents back to the creators or owners is an essential first step in ensuring proper respect for intellectual property rights within virtual realms. Securing Necessary Rights Once the origin of the content has been established and rights holders identified, the subsequent task is to secure the necessary rights for content usage. This process might involve licensing agreements or permissions from rights holders and can significantly differ based on the nature of the content. For example, using a popular song in a virtual concert would necessitate explicit consent from the music rights owner, usually obtained through licensing arrangements. Content Ownership Challenges Ownership within the digital expanse of the Metaverse, however, is not without its unique set of challenges. User-generated content often blurs the line between creators and users, leading to a tangled web of rights and responsibilities. On top of that, the borderless nature of the Metaverse complicates jurisdictional assertions, as the law of one land may not apply in the other. Additionally, technological intricacies like metadata manipulations or cloning of digital assets can make it exceedingly complex to establish clear-cut ownership. Financial Opportunities in the Metaverse As digital landscapes unfold, the Metaverse brings new economic possibilities. Artists, innovators, and entrepreneurs can monetize virtual real estate, digital art, or bespoke avatar designs. Cryptocurrencies and blockchain, interlaced with the Metaverse, offer secure, traceable transactions, enhancing the financial viability of creative endeavors. Opportunities for Brand Promotion and Sales An immaterial world free from physical constraints, the Metaverse opens the door for unique brand-building opportunities. Companies can construct immersive, interactive experiences, moving beyond static advertising to direct consumer engagement. Virtual pop-up shops, interactive billboards, and bespoke branded content can drive sales, increase brand visibility, and enhance customer relationships. Revenue Avenues for Musicians For musicians, the Metaverse offers innovative channels for revenue generation. Performers can host virtual concerts, reaching global audiences beyond the confines of physical venues. Musicians can also monetize digital merchandise or rare content secured by blockchain technology. The virtual landscape also presents opportunities to license music within the Metaverse, from background scores for virtual locales to tracks for user-generated content. Potential for New Licensing Opportunities The Metaverse breathes new life into licensing possibilities. Intellectual property owners can capitalize on the scope of the Metaverse, licensing their works for use in an array of virtual contexts. This includes licensing design rights for virtual fashion, architectural rights for digital structures, or brand rights for virtual economy representation. The Metaverse creates a matrix of potential, offering a fresh perspective on the possibilities of intellectual property licensing. Recommendations for Content Creators in the Metaverse Embrace Inventiveness As pioneers in a burgeoning digital realm, creators must encourage and harness their inventiveness. The Metaverse thrives on novelty and uniqueness; hence, let your imagination run wild. However, understand the boundary between inspiration and infringement, ensuring your creativity does not infringe on others' intellectual property rights. Due Diligence on Creative Content Use It is crucial to conduct due diligence on the use of creative content. Before utilizing any material not your own creation in the Metaverse, verify its copyright status. Always obtain necessary permissions and licenses to avoid potential legal ramifications. Using content illegally can lead to significant consequences, including costly lawsuits and reputational damage. Content Acquisition Considerations When acquiring content for use in the Metaverse, take the time to understand the contractual stipulations thoroughly. Examine the rights granted, terms, territory, and exclusivity clauses, and pay particular attention to hidden costs or conditions. This careful scrutiny will protect you from unknowingly agreeing to unfavorable terms. Protection of Registered Trademarks For creators who own registered trademarks, monitoring the Metaverse for any potential infringements is essential. Being vigilant will allow you to take swift action if your brand is being used without your permission. Regular audits of the Metaverse and employing trademark watch services can be helpful tools. Conclusion Navigating the legalities in the Metaverse can seem daunting. Yet, for creators, it's an ocean of opportunities - from unique brand promotion to novel licensing avenues. While it's crucial to respect existing laws and rights, the potential for innovation is immense. The key? Balancing creativity with due diligence, ensuring a fair and inclusive digital realm for all. As we move forward, let's craft the Metaverse not just as a new world, but a better one. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be AI-generated. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The advent of the digital age has led to the emergence of novel marketing strategies, one of the most impactful being Influencer Marketing. Characterized by leveraging popular and credible individuals on social media - aptly called influencers - this marketing technique thrives on the vast reach and trust these individuals command within their niche audiences. Whether they are celebrities, athletes, or individuals who have garnered significant followings, influencers offer a powerful platform for brands to communicate their message and promote their products or services. Influencer Marketing allows for highly targeted promotion, making it an effective method for audience segmentation and brand credibility enhancement. However, the allure of this seemingly straightforward and cost-effective approach can often overshadow the critical legal aspects that govern it. Thus, businesses seeking to harness the power of influencers need to be aware of the regulatory landscape that underpins this form of marketing. The Regulatory Framework of Influencer Marketing Understanding the rules that govern influencer marketing is crucial to maintaining integrity, preventing legal disputes, and protecting the reputation of all parties involved. Disclosure of Influencer Marketing Transparency is a foundational aspect of influencer marketing. It requires that any sponsored content or advertisements are distinguishable as such by the audience. This ensures that the promotional nature of the content is evident, upholding the principle of fair and honest advertising. The requirements for disclosure may vary by jurisdiction, but typically, they demand that the audience identify promotional content easily. This can be achieved through clear disclaimers, specific hashtags such as #ad or #sponsored, or other explicit indications of a commercial relationship. Applicability of Advertising Codes and Regulations Like any other form of advertising, influencer marketing is subject to various codes and regulations. These may include codes of ethics, privacy regulations, and standards for fair advertising. While the specifics can vary, a common requirement is that the advertiser exercise reasonable control over the promotional content and that the content is clearly intended to promote a product or service. Payment or other forms of consideration exchanged between the brand and the influencer typically trigger the application of these codes and regulations. This might include monetary compensation or other forms of remuneration like free products or services. Understanding and adhering to these regulations is essential to avoid legal pitfalls and maintain the reputation of both the influencer and the brand. The Anatomy of Influencer Agreements Navigating the promising landscape of influencer marketing necessitates understanding the structure and implications of influencer agreements. These legal documents lay the groundwork for the relationship between a brand and an influencer, establishing the duties, expectations, and mechanisms for recourse, should disagreements or breaches occur. What is an Influencer Agreement? An influencer agreement is a legal contract outlining the relationship and transactional details between a brand and an influencer. This agreement, while varying based on the individual circumstances of each partnership, typically covers elements such as the nature of the services to be provided, the compensation structure, timelines, confidentiality and exclusivity clauses, termination provisions, liability limitations, and legal obligations of each party. Such an agreement seeks to eliminate ambiguity, clearly define responsibilities, and ensure the smooth execution of the marketing campaign. Importance of Influencer Agreements Influencer agreements, though not always legally mandatory, are crucial to the efficient operation of influencer marketing campaigns. First and foremost, they help establish both parties' expectations and clarify the relationship's terms. The agreement serves as a point of reference that can be consulted should any questions or disputes arise, thus promoting a harmonious collaboration. Furthermore, such agreements protect the interests of both parties. They ensure influencers are compensated as agreed upon while safeguarding the brand's intellectual property, business secrets, and marketing strategies through clauses on confidentiality and exclusivity. Specifying the necessary disclosure practices and defining the consequences of non-compliance help both parties avoid potential legal pitfalls. Components of an Effective Influencer Agreement Identification of Parties Every effective influencer agreement must explicitly identify the parties involved - the brand and the influencer. This section includes the full legal names of all parties, along with their addresses and, potentially, contact information. An accurate identification helps to eliminate any confusion and establish the contract's legally binding nature on those specified. Defining the Term of Agreement The term of the agreement, specifying the commencement and termination dates of the campaign, is another critical component. Outline of Services and Deliverables The agreement should include a comprehensive description of the services the influencer will provide and the deliverables expected at the campaign's conclusion. Details such as the type and frequency of content, usage of specific hashtags, and other campaign specifications should be addressed. Confidentiality and Exclusivity Clauses Confidentiality clauses ensure that proprietary information shared during the campaign remains confidential. Exclusivity clauses, on the other hand, prevent the influencer from promoting competitors for a specified period, ensuring the uniqueness and effectiveness of the campaign. Liability and Indemnification Provisions In the event of a breach of contract or other issues, liability and indemnification provisions outline who is responsible and to what extent. For instance, if the influencer produces misleading content or violates copyright laws, these clauses can protect the brand from resulting losses. Choice of Law and Jurisdiction Given the global nature of digital marketing, the choice of law and jurisdiction clause is vital. It identifies the legal framework that will govern the contract and the jurisdiction applicable if a dispute arises. Legal Obligations and Compliance This component includes the legal obligations of both parties and the requirement to comply with relevant laws and regulations. For brands, this typically refers to timely payment. For influencers, this often includes properly disclosing promotional material in compliance with regulatory guidelines. The Essentiality of Legally Robust Influencer Agreements As the digital marketing landscape shifts dynamically, influencer marketing is a compelling brand strategy. However, its success hinges critically on robust, legally-sound influencer agreements. These strategic instruments, delineating expectations, responsibilities, and legal obligations, not only guard against risks but also pave the way for transparent, efficient collaborations. Hence, these agreements are indispensable, ensuring that the intriguing world of influencer marketing continues to thrive within the bounds of legal integrity, thereby steering successful marketing campaigns towards their desired goals. Considerations for Influencers: Ensuring Legitimacy of Marketing Projects The Need for Legal Prudence Just as brands must exercise due diligence, influencers have a vested interest in examining the legality of the projects they take up. In digital marketing, reputation is everything, and a single controversy arising from non-compliance with regulatory standards can significantly harm an influencer's credibility. Reviewing the Agreement Influencers should thoroughly review the agreement to ensure it aligns with their brand, scope of work, and principles. They should confirm that the terms of the agreement, including the nature of the content to be created, timelines, payment details, and termination provisions, are fair and achievable. Legal advice is strongly recommended, particularly for influencers needing a comprehensive understanding of contract law. Ensuring Compliance with Regulatory Standards Influencers are directly responsible to their audience and must ensure the products or services they endorse comply with relevant advertising standards and regulations. This includes full transparency about their relationship with the brand they are promoting. Non-compliance could lead to penalties, legal action, and damage to their reputation. Right to Refuse Non-compliant Projects Influencers, empowered by their social media following, also have the right to refuse projects that do not align with their principles or comply with legal standards. In these cases, influencers should engage in open discussions with the brand to modify the campaign's content, or, if needed, they should be ready to walk away. Understanding Liability and Indemnification Clauses Influencers must clearly understand the agreement's liability and indemnification clauses. These clauses often outline what happens in case of a breach of contract, including potential legal and financial ramifications. By fully understanding these provisions, influencers can safeguard themselves from unnecessary risks. Secure Your Influencer Marketing Ventures with Prokopiev Law Group Navigating the legal intricacies of influencer agreements and digital marketing regulations can be complex. Prokopiev Law Group is here to simplify this process for you. Our team has deep industry knowledge and a keen understanding of your unique needs. Whether you're a brand venturing into influencer marketing or an influencer ensuring regulatory compliance, our dedicated legal assistance can help secure your future in this dynamic field. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be AI-generated. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

In the pulsating heart of the global economy, technological innovations unfurl at a relentless speed, profoundly influencing the mechanics of the corporate world. The repercussions of these advancements aren't confined to new opportunities; they also present a unique set of challenges that require robust risk management strategies. The ensuing discourse serves as a roadmap, illuminating key areas where technology and business intersect. We will explore the significance of strategic innovation and the necessity of prudent capital allocation in maintaining corporate longevity. Delving into the realms of cybersecurity and artificial intelligence, we will scrutinize the pressing need for stringent regulatory compliance and a well-grounded ethical framework. While this narrative does not exhaustively cover all aspects of the broad technological landscape, it strives to provide valuable insights into managing its risks. The Imperative of Innovation and Strategic Capital Allocation The Crucial Role of Innovation in Business Longevity Innovation is no longer a luxury; it is a necessity for enterprises seeking sustainable growth. The question is not whether innovation is vital to a company's survival but how much it is woven into the fabric of its products and processes. Assessing Research and Development Investments Investing in research and development (R&D) is an essential part of the innovation equation. Businesses need to evaluate their R&D expenditure in relation to their competitors, ensuring they maintain a competitive edge in the market. Addressing Risks of Obsolescence and Social Acceptability In the rapidly evolving business landscape, companies must constantly evaluate the risk of obsolete products or services. Similarly, they should also consider the changing societal norms and expectations that could affect the acceptability of their offerings. Ensuring Optimal Capital Allocation for Innovation Innovation requires both human and financial capital. Businesses must assess their allocation strategies and invest adequately in innovative efforts. The Distinction between Expenses and Investments For the sake of management, it is essential to draw a line between expenses and investments. While both are crucial for a business, differentiating them can help understand the company's overall financial health and future prospects. Digital Footprint, Technological Competency, and Artificial Intelligence The Importance of Robust Cybersecurity Measures Creating a robust digital presence demands a parallel development of substantial cybersecurity safeguards. These measures serve as the first line of defense, safeguarding the company's valuable assets and the data of employees and customers. The Necessity of Periodic Cybersecurity Audits Maintaining a secure digital front in the dynamic digital arena is not a one-time event but an ongoing process. Companies must commit to regular, rigorous cybersecurity audits, ensuring their security measures evolve to counter new threats and vulnerabilities. Complying with Evolving Privacy and Personal Data Regulations The use and management of data, especially with the deployment of AI, brings regulatory challenges. Businesses must stay abreast of and compliant with the latest privacy laws and regulations, mitigating potential legal repercussions and upholding trust with stakeholders. Evaluating the Impact of Artificial Intelligence on Business Operations AI technologies offer promising prospects and introduce new dynamics that can transform business operations. Organizations must actively assess how AI could impact their business, identifying opportunities that can optimize processes and strategies. Assessing Competitor's Approach towards Disruptive Technologies A keen awareness of competitors' strategies regarding disruptive technologies like AI and blockchain is crucial. Such insights can inspire new ideas and offer a comparative benchmark for the company's technological initiatives. Equipping the Workforce to Manage Technological Opportunities and Risks Lastly, these new technologies emphasize the importance of a tech-savvy workforce. Companies must invest in training and skill development, ensuring their teams are well-equipped to navigate the intricacies of these technologies and mitigate associated risks. Implementing Governance and Ethical Frameworks for AI Strategy The Need for an AI Governance and Ethics Framework Implementing a comprehensive AI governance and ethics framework becomes paramount as artificial intelligence continues to permeate various aspects of business operations. This framework is a roadmap for responsible AI usage, ensuring its application aligns with the company's values, legal mandates, and ethical commitments. Managing AI-related Risks and Regulatory Adherence An integral part of the governance structure is a risk management strategy that anticipates and mitigates AI-related risks. These risks may span data privacy concerns, ethical dilemmas, and financial implications. Furthermore, with regulations around AI in flux, maintaining regulatory adherence is a dynamic process. Organizations must stay updated on legal developments and ensure their AI strategy evolves accordingly, protecting their interests and ensuring a responsible AI journey. Conclusion: Unveiling a New Era of Sustainable Growth with Disruptive Technologies As we stand at the dawn of a transformative technological era, businesses must embrace the imperative of evolving intelligently and ethically. The effective integration of disruptive technologies such as artificial intelligence will undoubtedly be the linchpin for future growth, but it demands more than mere adoption. The future of sustainable growth lies in harmonizing with these technological shifts, not merely surviving them. This means going beyond integrating new technologies and proactively fostering an ecosystem that enables continuous evolution and growth. Fundamentally, success will be defined by the ability to anticipate change, adapt in real time, and align technological deployment with organizational ethos and objectives. This alignment will be the blueprint for creating a sustainable competitive advantage and ensuring long-term success. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Introduction: AI and Organizational Challenges In an era of digital acceleration, generative artificial intelligence technologies, such as ChatGPT and similar platforms, have surged to prominence. These cutting-edge tools offer potential in many applications, yet they also pose questions about their use within corporate structures. Organizations worldwide stand at a crossroads, deliberating whether to incorporate these technologies into their day-to-day operations. The debate is about more than just utilization, but how to manage and regulate its application to minimize associated legal risks - a challenge amplified by the general lack of regulatory oversight in most jurisdictions. Some enterprises have adopted a cautious stance, opting not to allow their workforce to use generative AI, a decision fraught with risks. However, for forward-thinking companies keen on harnessing the benefits of these technologies, the path forward requires establishing comprehensive measures to promote responsible AI usage. Risks Associated with Generative AI Technologies Corporate Governance and Accountability The decision to adopt generative AI technologies carries profound implications for a company's governance structure and accountability. These technologies require a degree of control and monitoring that extends beyond individual employees to the highest levels of leadership. Confidentiality One of the inherent risks with generative AI technologies lies in the potential exposure of sensitive corporate information. Given that most AI technologies are third-party owned, there is a risk of unintentionally disclosing confidential details or trade secrets. Cybersecurity The data security implications must be considered. With confidential information stored on third-party databases, vulnerabilities in cybersecurity measures could lead to breaches and unauthorized access to a company's sensitive data. Data Privacy and Protection Data privacy and protection requires strict protocols about the categories of confidential or sensitive information employees may use when interfacing with AI technologies. Intellectual Property Establishing ownership over data and outputs generated by generative AI technologies is paramount. Companies need to clearly articulate their rights over these outputs as long as they do not infringe on the entitlements of third parties. Regulatory Compliance Ensuring the storage and processing of data or personal information comply with relevant laws and regulations is essential in mitigating legal risks. Liability Generative AI usage can lead to claims from various quarters, including clients, users, third parties, and regulatory bodies. Proactive risk management strategies must be adopted to prevent such outcomes. Contracting with Third-Party Providers When using AI solutions, companies often rely on third-party service providers. Agreements with such providers should be carefully examined to avoid excluding or limiting liability clauses unfavorable to the company. Data Bias and Discrimination Generative AI technologies can inadvertently perpetuate biases in the company's data, which could lead to reinforced stereotypes, discrimination, or exclusionary practices. Outdated, Inaccurate Information and Misinformation Companies should be aware of the potential for generative AI technologies to use outdated or inaccurate information, which could result in incorrect responses. Additionally, they may become targets of misinformation campaigns. Unqualified Advice When employees use generative AI to provide advice to clients without proper review, there is a risk of unauthorized entities issuing advice. Ensuring all advice is vetted and reviewed is vital to maintaining the integrity of the company's operations. The Potential Dangers of Non-Intervention Without a clear stance on adopting AI in the workplace, companies expose themselves to what is known as 'shadow IT'—the unsanctioned use of technology not deployed or approved by the company. In the face of prohibitive company policies or a lack of guidance, this scenario arises when employees clandestinely deploy generative AI technologies. Such unsanctioned usage amplifies the company's risk manifold as it eliminates any ability to monitor or regulate AI technologies. Without company-wide protocols and safeguards, employees' unregulated usage of AI can lead to unpredictable and potentially harmful outcomes. These could range from data privacy breaches and legal non-compliance to misuse of sensitive information and flawed decision-making based on unverified or biased AI outputs. Furthermore, the company may also be exposed to reputational risks, potential liabilities, and regulatory penalties. Hence, companies must be active in their approach towards AI. Establishing a policy regulating AI use within the company's operational framework is highly recommended to mitigate these issues. This preemptive action guides employees, ensuring that generative AI technologies are responsible, ethical, and aligned with the company's objectives. Strategic Interventions: Building a Responsible AI Framework Establishing Governance Structures The first step to responsibly incorporate AI within an organization involves building robust governance structures. Leadership must adopt proactive roles in defining and managing AI's deployment. Forming dedicated committees, task forces, or Centers of Excellence focused on Responsible AI can effectively manage potential risks and ensure adherence to the company's ethical standards and values. Policy Implementation for Responsible AI Establishing comprehensive Responsible AI policies serves as an instrumental roadmap for its ethical adoption. These policies must detail mechanisms to mitigate legal, technical, and financial risks. They should also delineate ethical boundaries aligned with the company's values, thereby ensuring that the deployment of AI is in line with the organization's ethos. Tailored Training Programs To foster a Responsible AI culture, employees must be equipped with the necessary knowledge about AI's nuances. Tailored training programs should be initiated based on employees' roles in AI initiatives. Legal, technical teams, and board members should be educated on AI's ethical, legal, and financial risks to ensure informed decision-making. Ethical Impact Assessments and Reviews Carrying out ethical impact assessments is a prudent measure to ensure AI adoption aligns with company policies and prevailing laws. These assessments scrutinize AI initiatives for potential ethical or legal pitfalls. As part of this process, creating a dedicated AI Ethics Review Board can be instrumental in validating AI projects based on their ethical impact assessments. Pioneering Industry Codes of Conduct Leading organizations can spearhead the establishment of industry-accepted codes of conduct for AI use. These guidelines serve as a reference point for ethical AI deployment. They can also garner trust from regulatory authorities and stakeholders, promoting a standardized approach to AI ethics in the industry. Auditing and Monitoring Compliance initiatives are only complete with proper auditing and monitoring mechanisms. Resources should be dedicated to ensuring compliance with adopted interventions and company policies. A comprehensive auditing and monitoring strategy can also be instrumental in identifying policy violations, thereby strengthening the company's AI governance framework. Conclusion: Embracing Responsible AI at Every Organizational Level The integration of generative AI technologies in the business landscape poses a multitude of opportunities and challenges. Harnessing the power of AI calls for responsible usage guided by robust governance structures and vigilant monitoring mechanisms. Organizations can successfully navigate the complexities of AI deployment by implementing a comprehensive framework for Responsible AI, achieving optimal benefits while mitigating potential risks. Responsible AI is not just about compliance with laws and regulations but also about infusing an ethical mindset at every organizational level. It requires a comprehensive understanding of AI's capabilities, limitations, and potential risks and a commitment to promoting transparency, accountability, and fairness in its usage. Whether starting an AI journey or looking to enhance current AI initiatives, we can provide customized advice to ensure all operations align with regulatory provisions and ethical standards. By helping to interpret and apply these guidelines, we can turn potential challenges into opportunities for growth and innovation. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The wave of digital innovation continues to surge globally, and Bermuda, a pioneering leader in regulating digital assets, has again risen. As of May 19, 2023, the island nation's government has effectively amended the Digital Asset Business Act 2018, known as "DABA" or the "Act." This transformative move augments the legal and regulatory framework underpinning the digital asset business (DAB) landscape in Bermuda. With a sharpened focus on specifying the classes of DAB activity necessitating a license from the Bermuda Monetary Authority (BMA), the amendments are also aimed at fostering a more streamlined administration of the Act. Unveiling a New Licensable Activity in DAB The latest amendment to the Digital Asset Business Act 2018 ushers in a new frontier in Bermuda's digital asset landscape with the inclusion of an additional licensable activity. This expanded jurisdiction includes those service providers who engage in 'digital asset lending or digital asset borrowing or digital asset repurchase transactions.' In the vibrant and dynamic realm of digital assets, this development is significant. It captures a wider range of financial activities under the Act, allowing for increased oversight and regulation of emerging business models in the digital assets space. With respect to the administrative aspect, undertakings granted a license following the enforcement of this new activity will be obligated to pay a proposed new annual fee. The magnitude of this fee is set to reflect the nature and complexity of the DAB activity involved. Meanwhile, for undertakings already licensed and performing this DAB activity, the obligation to pay the annual fee will only arise when such a fee is due next. License Exemptions for Entities Under the Investment Business Act 2003 The alterations to the Digital Asset Business Act (DABA) also bring relief to entities licensed under the Investment Business Act 2003 (IBA). This amendment recognizes the intersection of operations between these entities and those involved in digital asset businesses (DAB). The new stipulation exempts IBA-licensed entities engaged in DABA-related activities on an 'ancillary' basis from obtaining a separate DABA license. However, the exemption is not without checks and balances. It necessitates the DAB's senior representative to report to the Bermuda Monetary Authority if the DAB ceases its provision of IBA services in an 'ancillary' manner. The Notification Requirement The DAB's senior representative must notify the Bermuda Monetary Authority when the DAB stops providing Investment Business Act 2003 (IBA) services in an 'ancillary' fashion. This change is a move to ensure the clear demarcation of activities carried out under the IBA and DABA. Deciphering Administrative Penalties: A Note on Terminology The government has removed the term "civil" from sections 7, 16, 57, and 66 of the Act. This action has been undertaken to distinguish these penalties from civil penalties prescribed under section 39. Through this change, the clarity of the Act’s provisions on administrative penalties has been reinforced. * * * Navigating new regulatory landscapes can be a complex task, and our team at Prokopiev Law Group is here to help you. Our experts and partners can advise on the applicable laws relevant to your organization. We stand ready to assist you in comprehending how to meet any requirements and ensuring that your business operations align with the current regulatory provisions. Reach out to us for comprehensive, precise, and personalized advice. Let us help you turn legal complexities into clear pathways for your business growth. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

With Non-Fungible Tokens (NFTs) at its forefront, the blockchain revolution is transforming the digital landscape, promising artists and creators an avenue for sustainable income. Royalties, a crucial cog in the NFT machinery, ensure continuous earning potential for creators even after the initial sale of their work. This in-depth article examines NFT royalties, their significance, their function within marketplaces, and their future trajectory. What are NFT royalties? In the world of non-fungible tokens (NFTs), royalties serve as an innovative mechanism to provide creators with continuous financial remuneration for their work. Fundamentally, a royalty is a certain percentage of the sale price paid to the creator each time their NFT is bought or sold. As blockchain technology keeps a transparent and tamper-resistant record of all transactions, the mechanism for royalty distribution becomes automated and assured. As such, creators can enjoy a perpetual income stream where a fraction of the revenue from every subsequent sale of their work comes back to them. Historical Context: Intellectual Property and Royalties in Web2 In the traditional Web2 world, artists and creators have always sought various forms of income from their work. Intellectual property rights, such as copyrights, have been the main legal tool to secure these earnings. These rights grant creators exclusive control over the use and distribution of their work, allowing them to charge fees (or royalties) for others to use or sell it. However, the enforcement of intellectual property rights and the collection of royalties have presented challenges. In the Web2 model, tracking subsequent sales of a piece of work (especially digital work) and collecting associated royalties often required extensive legal agreements and intermediaries, creating complications and inefficiencies. Additionally, the protection of creators' interests was often compromised due to contractual power imbalances between creators and large studios or corporations. Passive Income and NFTs: The Role of Royalties Enter NFTs and the Web3 paradigm, where the idea of royalties has been revitalized and reimagined. With NFTs, royalties can be directly coded into the smart contract of the token itself. Every time the NFT changes hands, the smart contract automatically pays a certain percentage of the sale price as a royalty to the original creator's cryptocurrency wallet. This is irrespective of how often the NFT is sold or how much its price changes over time. Royalties thus introduce a passive income model for creators in the NFT ecosystem. These are income sources that require minimal to no effort to maintain after the initial work is done. In this context, after the original creation and sale of the NFT, creators continue to earn from the subsequent purchases of their work without any additional effort. This model creates an enduring income stream for creators and sets a new standard for artist compensation in the digital world. The Imperative of NFT Royalties NFT royalties represent a transformative shift in how creators can derive lasting value from their work. Unlike traditional models, where creators typically earn a one-time fee for their creation, NFT royalties offer a continual return on the original artistic investment. Each time an NFT is sold or exchanged on a blockchain platform, the creator is entitled to a portion of that transaction. This royalty mechanism fosters a sustainable income stream that can dramatically alter the creator's financial landscape. The Shift to Web3: Correcting Economic Imbalances In the Web2 framework, tracking secondary sales of artistic works and ensuring creators receive their due royalties is complex and fraught with legal and logistical hurdles. Blockchain technology, upon which NFTs are built, provides an immutable and transparent ledger of transactions. This allows creators to quickly monitor the chain of ownership of their work and guarantee they receive their rightful royalties from secondary sales. The transition to Web3 and utilizing NFTs signify a marked evolution in protecting creators' interests and substantially reducing the asymmetry within economic relationships. Royalties as a Pillar of Sustainability for Creators By enabling creators to earn a percentage from every subsequent sale of their work, NFT royalties establish a financial sustainability model. This passive income flow can continue indefinitely, providing creators with a reliable and potentially significant source of revenue. Furthermore, as these royalty payments are typically programmable within the blockchain, multiple creators can benefit from a single NFT, thus extending the financial reach of this model. Moreover, NFT royalties facilitate the creation of an economy that prioritizes and rewards creators. This is a radical departure from Web2 business models, which often need to pay more attention to creators' contributions. NFT collections also use royalties as a means to fund their operational costs, highlighting the versatility and practicality of this financial instrument within the digital sphere. NFT Royalties and the Fight Against Wash Trading NFT royalties have an unexpected ally in the fight against deceptive market practices such as wash trading. In wash trading, a market participant manipulates the perceived value of an NFT by creating multiple accounts or wallets to buy and sell the same NFT, artificially inflating its price. With the enforcement of NFT royalties, each transaction incurs a cost paid to the original creator. Thus, wash traders who conduct numerous transactions to inflate prices must pay substantial royalties. This additional cost discourages such practices, creating a more authentic and stable marketplace. Through the strategic implementation of NFT royalties, the digital market can maintain its integrity while promoting the interests of creators. The Interface for Creators: NFT Marketplaces NFT marketplaces act as a vital nexus between creators and potential buyers, facilitating the creation, sale, and secondary trading of NFTs. In addition to providing a platform where creators can mint and sell their NFTs, marketplaces play a significant role in validating projects and adding credibility to them by listing them. They provide a virtual exhibition space where creators can showcase their work to a broad, often global, audience. Assessing the Impact of Marketplace Royalty Policies Marketplaces can enforce their royalty policies, which can profoundly affect the dynamics of the NFT ecosystem. Royalty policies influence NFT trading volumes, a critical indicator of the health and vitality of a collection or a blockchain network. Some marketplaces have experimented with varying royalty models, from removing royalties to introducing optional royalties where the purchaser decides whether to pay royalties to the creators. However, such policies can negatively impact creators, reducing their potential to earn recurring income from their work. A lack of guaranteed royalties can create an unsustainable and uncompetitive environment for creators, especially those new to the NFT space. The Delicate Balance: Sustaining the Creator Economy Ensuring a sustainable creator economy requires a delicate balancing act. Marketplaces must balance supporting creators with fair royalty policies and healthy trading volumes. Overzealous or poorly implemented royalty policies can stifle trading, while too lenient policies can disenfranchise creators. A robust and sustainable creator economy promotes innovation and diversity in the NFT space. Royalties form a critical part of this equation, providing creators with ongoing income and encouraging the development of new and unique NFTs. The right balance can lead to a thriving marketplace where creators, buyers, and sellers all benefit. Marketplaces and the Transformation of NFTs As the NFT space has matured, marketplaces have played an integral role in its transformation. Aggressive growth strategies, including airdrop techniques based on NFT transaction activities, have fueled the competitive fire among marketplaces. However, this intense competition has also led to "royalty wars," with reductions in royalty fees adversely affecting the ecosystem's health. Despite the challenges, some marketplaces are taking measures to protect creators' interests, such as blocking the sale of NFTs in secondary markets that do not offer royalties. Although this move has been criticized, it also underscores the importance of NFT royalties in maintaining a healthy and vibrant ecosystem. The Evolution of NFT Marketplaces: Growth Strategies and Impact Over the past few years, NFT marketplaces have employed various growth strategies, fundamentally transforming the NFT landscape. Based on NFT transaction activities, tactics like airdrops have shifted the marketplace from organic growth to aggressive growth hacking. Such changes, driven by competition and market conditions, have profoundly impacted the dynamics of the NFT space. Despite the challenges and controversy surrounding NFT royalties, they remain a pivotal aspect of the NFT business model. Not only do royalties make the NFT model more sustainable for founders of NFT collections, but they also make the creation of art and digital content a more viable livelihood for creators. Moreover, with the advent of dynamic NFTs and intelligent NFTs, the role of royalties could evolve further. These new forms of NFTs can alter or upgrade their metadata, bringing a new dimension to the creator economy and possibly introducing new ways for creators to earn royalties. The Unfolding Landscape: Dynamic and Intelligent NFTs The landscape of NFTs is evolving at a rapid pace. New concepts, such as dynamic NFTs and intelligent NFTs, are pushing the boundaries of the traditional NFT model. Dynamic NFTs can alter or upgrade their metadata, leading to the potential emergence of new traits and capabilities. Intelligent NFTs, on the other hand, integrate elements of artificial intelligence, allowing NFTs to reflect a closer representation of their holders' authentic selves. These advancements enrich the user experience and may create novel avenues for royalty generation. Embracing NFT Royalties: A Competitive Edge for Future Companies Adopting NFT royalties may give companies a competitive edge as the digital economy advances. The model of ensuring creators continue to earn from the sales of their works aligns with the trend towards decentralization and a fairer distribution of resources. This practice aligns with the principles of the Web3 model, fostering an environment where creators are rewarded for their work's popularity and longevity. It also fosters customer loyalty by incentivizing the buying and selling of NFTs, contributing to a more vibrant and engaged community. As such, companies that embrace and effectively implement NFT royalties are likely to stand out in the increasingly competitive digital marketplace. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The European Union has taken a decisive step forward in its digital journey by introducing the Digital Service Package, a part of the broader strategy "A Europe fit for the Digital Age." The package comprises two distinct but complementary elements - the Digital Service Act (DSA) and the Digital Markets Act (DMA). The dual aim is safeguarding digital services and user rights in a secure digital environment while promoting innovation, growth, and competitiveness in the European Single Market. The Digital Service Act (DSA): A New Era of Digital Services Regulation As we navigate the uncharted waters of digital innovation, the European Union seeks to build a framework that ensures a safer, more responsible digital space. The cornerstone of this initiative is the Digital Services Act (DSA), which ushers in a new era of digital services regulation. The Framework and Scope of DSA The DSA stands on the shoulders of the e-Commerce Directive. Over two decades have passed since the implementation of this directive, and it's no secret that it now struggles to keep pace with the rapidly evolving digital economy. To address this, the DSA seeks to redefine the rules of digital interaction and establish a more updated regulatory landscape for the digital sphere. The DSA's provisions apply to digital service providers within the EU. This includes a broad spectrum of platforms such as online marketplaces, social networks, content-sharing platforms, app stores, and online travel and accommodation platforms. The guiding principle is simple yet powerful: anything illegal offline should also be illegal online. This mantra resonates throughout the DSA, forming the basis for its various obligations and regulations. Key Obligations Under the DSA At the core of the DSA are the responsibilities that all internet service providers must uphold, irrespective of their size. The Act aims to increase accountability and traceability in the digital space, encouraging service providers to prevent illegal content and engage in responsible business practices actively. Among the specific provisions of the DSA are: Rules concerning the removal of illegal content and counterfeit goods. Transparency requirements for online marketing based on usage profiles and algorithms. Regulations that require online advertisers to inform visitors about the rationale behind the ads they see and the identity of the advertiser. Special Provisions for Different Size Providers One of the key strengths of the DSA is its understanding of the diverse digital landscape. Not all service providers are created equal, and the DSA recognizes this by designing its rules asymmetrically. The nature, size, and impact of a provider's services determine the extent to which DSA obligations apply. Large online platforms, which play a crucial role in public discourse and economic transactions, are subject to additional, stricter regulations. Smaller platforms, meanwhile, can be exempted from the more burdensome obligations unless they voluntarily adopt these best practices for a competitive edge. Furthermore, micro and small companies can enjoy an exemption from a set of obligations for up to 12 months, even if they experience significant growth during that period. The Digital Markets Act (DMA): Ensuring Fair Digital Markets With the monumental rise of digital platforms, the balance of power in digital markets has come under the spotlight. Who are the Gatekeepers? 'Gatekeeper' is a term coined to represent the significant players within the digital platform market - those that wield enormous influence due to their size, market power, and role as a conduit between users, businesses, and customers. The DMA specifically targets these gatekeepers to prevent them from imposing unfair conditions on businesses and end users. The prime examples of such platforms include search engines, social media channels, certain websites, and cloud systems. Determining a Gatekeeper: Key Factors A company's status as a gatekeeper is not merely a result of its size or market visibility. The European Commission will evaluate a company on several fronts to ascertain whether it fits the 'gatekeeper' profile. This presumption arises when: The company demonstrates a strong economic position that significantly impacts the internal market and is operational in multiple EU countries. This is presumed when the annual EEA turnover exceeds 7.5 billion EUR in the last three years and the market capitalization surpasses 75 billion EUR. The company exhibits a strong intermediation position, linking a large user base to numerous businesses. This is presumed if the company operates a core platform service with more than 45 million monthly active end users in the EU and more than 10,000 business users. The company has an entrenched and durable market position, indicating long-term stability. This is established if the company has met the above thresholds consistently over the last three financial years. Even if a company does not meet these thresholds, the European Commission can still label it as a gatekeeper after conducting a market investigation. Obligations and Restrictions for Gatekeepers Gatekeepers are identifiable by their size and influence and the rules they must follow under the DMA. They are required to: Permit third-party interoperability with the gatekeeper's services in specific situations. Allow business users to access data generated in their use of the platform. Enable business users to promote their offers and finalize contracts with their customers outside the gatekeeper's platform. The DMA also imposes restrictions on gatekeepers. These prohibitions include: Favoring their own services and products in ranking over similar offerings from third parties on the platform. Hindering consumers from linking to businesses outside their platforms. Restricting users from uninstalling pre-installed software or apps. Tracking end users outside of their core platform service for targeted advertising without obtaining explicit consent. Penalties for Non-Compliance The DMA does not merely lay down rules; it also ensures their enforcement. If a gatekeeper fails to comply with the obligations set forth in the DMA, the European Commission can impose hefty fines, amounting to up to 10 percent of the global group turnover. The DMA is thus a promising step towards leveling the digital playing field, enabling smaller platforms, SMEs, and start-ups to compete more fairly with established digital giants. Impact on SMEs, Startups, and Other Digital Platforms As SMEs, startups, and smaller digital platforms navigate through the stormy seas of the digital market, the DSA and DMA act as beacons of regulatory light. By calibrating rules based on the size and influence of online platforms, these legislations provide smaller entities with a fair chance to compete. Other Forthcoming Digital Legislation Beyond the DSA and DMA, the European Union's tech agenda holds a plethora of legislative proposals. Currently in the pipeline, these legislations aim to regulate digital technologies more comprehensively. They span various sectors, including data economy, cybersecurity, artificial intelligence, and fintech. Businesses should be vigilant of these developments, as these rules will shape the future digital environment, demanding new standards of compliance and ethical conduct. Conclusion The DSA and DMA represent significant strides toward a fair and safe online environment in an increasingly digital world. They offer a more robust framework to protect users' rights and ensure fair competition. However, they also challenge all stakeholders, especially digital service providers, who must align their practices with these new rules. The journey may be challenging, but it promises to lead toward a digital market that is more equitable, transparent, and resilient. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The transformative wave of artificial intelligence (AI) has made its way to the workplace, bringing tools like ChatGPT into common usage. These generative AI tools—built on large language models—possess the power to carry out a vast array of tasks, from drafting emails to generating code. With their adoption within organizations growing formally and informally, it's become necessary to consider a corporate policy to regulate their use. This guide explores why such a policy is necessary, the key considerations when devising a policy, and how to implement it in your organization effectively. Why a Corporate Policy on Generative AI is Necessary The advent of generative AI tools, such as ChatGPT, has opened up a world of opportunities in the workplace. While this technology offers significant benefits, it also ushers in unique challenges and potential pitfalls that call for a definitive corporate policy to regulate its use. There are several key reasons why such a policy is necessary. Firstly, the accuracy of the information generated by AI tools currently is not infallible. Since these tools operate based on vast data inputs, the possibility of outputting information that could be misleading, biased, incomplete, or factually incorrect—"hallucinations," as they are termed in the AI world— is a real concern. A clear-cut policy can make employees cognizant of this, encouraging them to vet and validate all AI-generated content. Secondly, the data privacy implications of using generative AI tools are not underestimated. Tools like ChatGPT could potentially use shared data for various purposes, such as quality control or debugging, or even integrate it into their datasets, raising potential issues of data privacy and confidentiality. It is crucial, then, for a corporate policy to explicitly guide employees on the acceptable use of these tools in line with data protection laws, confidentiality obligations, and ethical standards. The third reason lies in mitigating legal risks associated with the misuse of AI tools. By delineating the boundaries of permitted use, a corporate policy can reduce the likelihood of legal issues cropping up due to inadvertent misuse or misunderstanding of the AI tool's capabilities. This proactive approach echoes the one taken with the use of other company-provided IT and communication tools, as well as the internet and social media by employees. The fourth factor deals with intellectual property ownership because expressive works generated by AI tools may not be eligible for copyright protection. It posits that copyright law protects human expression, not machine-generated works. Therefore, a corporate policy should offer clear guidance on using AI tools for creating potentially copyrightable works, considering the organization's IP goals. Lastly, implementing a corporate policy can drive efficient and responsible use of AI tools. It can streamline workflows, maximize benefits, and curtail distractions or inefficiencies from misuse or misinterpreting the AI tools' capabilities. Developing and Implementing a Corporate Policy Formulating a corporate policy for using generative AI tools involves careful consideration and strategic planning. Here are some steps to help shape a comprehensive policy: Scope of Use A pivotal starting point in developing a corporate policy for generative AI is defining the scope of use. This pertains to identifying the specific functions for which employees can leverage these tools, such as drafting emails, creating reports, conducting research, or writing software code. By stipulating the permitted uses, the policy can prohibit employees from deploying these tools in high-risk scenarios, such as investment or employment-related decisions that could inadvertently breach laws like the GDPR. Additionally, it's crucial to determine the target audience for the policy and whether specific sub-policies are necessary for different teams based on their unique risk factors and needs. Data Privacy and Confidentiality Guidelines The second component of the policy should focus on data privacy and confidentiality. Guidelines must be established for handling sensitive data, including personal and proprietary information. These guidelines might range from acceptable sharing parameters to strict prohibitions on sharing such information via these AI tools. Simultaneously, the policy should also delineate security procedures aligned with other company-wide security protocols, like the storage of AI-generated content and deletion of sensitive data post-use. Employee Training Once the policy is in place, it's crucial to ensure employees understand and can correctly adhere to it. This necessitates a robust training program that comprehensively covers the policy's guidelines and offers practical advice for responsibly using generative AI tools. Training should also stress the importance of vetting AI-generated content, reinforcing the necessity for critical thinking and validation in tandem with AI use. Compliance Monitoring The fourth step is to establish mechanisms for monitoring compliance with the policy. Regular audits of employee interactions with generative AI tools and the content generated can help ensure adherence to the policy. Additionally, employees should be encouraged—or, in certain cases, required—to disclose when their work product is AI-generated, further fostering transparency and promoting due diligence in content validation and verification. Policy Updates Lastly, as the field of generative AI continues to evolve, so should corporate policy. Regular reviews and updates of the policy should be scheduled to address any new developments, potential risks, and changing legal landscapes. Assigning a dedicated team or individual to oversee this review process ensures that your policy remains up-to-date and relevant in an ever-evolving technological landscape. Conclusion Developing and implementing a comprehensive corporate policy governing such tools is a necessary step toward managing these risks. By delineating the scope of AI use, establishing clear data privacy and confidentiality guidelines, investing in employee training, and ensuring ongoing compliance monitoring and policy updates, organizations can create a solid foundation for responsible AI use. While adherence to these policies relies on the integrity and compliance of the employees it addresses, such a strategy can empower organizations to leverage the full potential of generative AI tools. This, in turn, will facilitate compliance with legal and regulatory requirements and contribute to a more effective, innovative, and legally compliant workplace. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Dubai has made significant strides with its regulatory framework for cryptocurrencies. In 2023, the Emirate introduced new rules and established the Virtual Asset Regulatory Authority (VARA), tasked with overseeing virtual assets' use, exchange, and investment within its jurisdiction. The authority's comprehensive approach covers everything from licensing requirements to company and compliance obligations. Its meticulousness reflects Dubai's ambition to become a global digital asset leader while ensuring protection and transparency for all market participants. What is VARA? - A Snapshot of Dubai's Cryptocurrency Regulator Shaping the contours of the cryptocurrency landscape in Dubai is the Virtual Asset Regulatory Authority (VARA). An instrumental body established recently, VARA stands as a beacon of regulation and oversight in virtual assets and related activities within the Emirate. Functioning with a broad mandate, VARA's authority extends to every aspect of virtual asset service provision. They set the game's rules by defining the licensing requirements for virtual asset service providers (VASPs). However, their role doesn't merely end at rule-setting; VARA possesses the discretionary power to decide on the duration of licenses and even suspend them when necessary. VARA's responsibilities continue beyond shaping regulatory guidelines. They also ensure that all entities in Dubai that wish to engage in virtual asset activities are licensed under their oversight. Any institution or individual planning to venture into any virtual asset activity must first obtain VARA's green light. Types of Cryptocurrency Services Under VARA's Regulation Each service category comprises specific, stringently regulated functions, ensuring a well-ordered operation of the virtual asset ecosystem. Here is a snapshot of these cryptocurrency services: Advisory Services Advisory services revolve around providing personalized recommendations to clients about actions or transactions pertaining to virtual assets. The provision of such advice is conditional upon factors like the client's understanding and experience in virtual asset investments, financial standing, and investment objectives. Broker-Dealer Services Broker-dealer services encompass various activities, including facilitating the arrangement of orders, soliciting or accepting orders for virtual assets, matching transactions between buyers and sellers, and conducting transactions as a dealer on behalf of the entity. These services also extend to making a market in virtual assets using client assets and offering placement, distribution, or other issuance-related services to clients launching virtual assets. Entities engaged in these activities must comply with the VA Issuance Rulebook. Custody Services Custody services involve the safekeeping virtual assets for other entities and act upon their verified instructions. Only VASPs that maintain each client's assets in separate virtual asset wallets can qualify for a Custody Services Licence, further underpinning the need for a robust and secure custodial infrastructure. Exchange Services Exchange services entail conducting exchanges, trades, or conversions between virtual assets and fiat currency or between various virtual assets. This category also includes maintaining an order book to facilitate these transactions. Lending and Borrowing Services Under this category, virtual assets are transferred or lent from one or more parties (lenders) to one or more other parties (borrowers), understanding that these assets will be returned either during or at the end of the agreed-upon period. Payments and Remittances Services These services involve receiving virtual assets for transmission or transfer from one entity to another or from one entity to a different virtual asset wallet, address, or location. VA Management and Investment Services VA Management and Investment Services incorporate acting on behalf of an entity as an agent or fiduciary, or taking responsibility for managing, administering, or disposing of that entity's virtual assets. Services may include investment management or staking virtual assets to earn fees or other amounts paid to validators or node operators of a proof-of-stake Distributed Ledger Technology. Cost of Providing Cryptocurrency Services in Dubai The Virtual Asset Regulatory Authority (VARA) mandates a set of license applications and annual supervision fees for each virtual asset service category. Here is a breakdown of the costs associated with providing these services: Advisory Services Licence Application Fee: AED 40,000 Annual Supervision Fee: AED 80,000 Broker-Dealer Services Licence Application Fee: AED 100,000 Annual Supervision Fee: AED 200,000 Custody Services Licence Application Fee: AED 100,000 Annual Supervision Fee: AED 200,000 Exchange Services Licence Application Fee: AED 100,000 Annual Supervision Fee: AED 200,000 Lending and Borrowing Services Licence Application Fee: AED 100,000 Annual Supervision Fee: AED 200,000 Payments and Remittances Services Licence Application Fee: AED 40,000 Annual Supervision Fee: AED 80,000 VA Management and Investment Services Licence Application Fee: AED 100,000 Annual Supervision Fee: AED 200,000 The Licence Application Fee is applicable for all license applications, regardless of the type of regulated VA activity. The License Extension Fee applies for each additional VA activity. Importantly, these fees are due at the time of submission of the Licence application, and the application will only be processed once the payments are received. VASPs must pay an Annual Supervision Fee for each licensed VA activity before conducting any actions. VARA reserves the right, at its sole discretion, to impose additional fees or modify supervision and authorization fees. This discretion may be exercised when VARA deems it necessary to allocate additional resources for regulatory oversight, supervision or in response to complaints made to VARA about a VASP. Fees imposed by VARA are separate and independent from any fees charged by other competent authorities, whether in the UAE or outside. Furthermore, VARA can impose a fee for applications by prospective issuers seeking approval to issue a Virtual Asset. Licensing Requirements Once a license is granted, the Virtual Asset Service Providers (VASPs) must comply with all licensing conditions outlined by VARA. These conditions include, but are not limited to, strict adherence to all Regulations, Rules, and Directives, both at the time of licensing and throughout operation. In cases where a VASP conducts any licensed VA activity outside the Emirate, compliance with the existing Regulations, Rules, and Directives is considered the minimum standard. In other words, VARA's regulations must be adhered to irrespective of the regulatory regime of the other jurisdiction. A professional exemption applies to professionals such as registered practicing lawyers, accountants, and professionally licensed business consultants. These individuals do not need a license to carry out any incidental VA activities in their professional practice. However, they must maintain authorization from a competent professional body and hold appropriate professional indemnity insurance. VARA reserves the right to determine whether an entity has invoked this professional exemption appropriately. There's also a category of entities known as "Exempt Entities" that, subject to certain conditions, aren't required to comply with certain regulatory provisions. These conditions include seeking confirmation of exempt entity status and obtaining no-objection confirmation from VARA before carrying out any VA activities. Entities involved in large-scale proprietary trading, those investing their own portfolio in Virtual Assets exceeding the equivalent value of USD 250,000,000 within a rolling thirty calendar day, must register with VARA. This registration, however, does not imply a license to carry out any VA activities. Voluntary registration is open for entities providing technology services related to Distributed Ledger Technology to other businesses or entities actively investing their own portfolio in Virtual Assets. VARA's Powers VARA possesses discretion in granting licenses. In doing so, it considers all information provided during the licensing process and any other relevant information. The licensed VA activities will be clearly specified in each license, and VARA may also incorporate any limitations or stipulations it sees fit. The authority retains the power to vary, suspend, or revoke licenses. VARA may also impose additional requirements during the licensing process. Finally, VARA charges fees for processing the application for a license or any other authorization and for the supervision of any entity that has been granted a license. The Rulebooks Governing VA Activities VARA's regulatory system for Virtual Asset (VA) activities extends to specific Rulebooks. These Rulebooks serve as a guide and regulatory framework, outlining the expectations and requirements for Virtual Asset Service Providers (VASPs) in their operations. They are integral to VARA's regulatory landscape. General Rulebooks All VASPs must comply with four primary Rulebooks that govern various activities. These Rulebooks, which may be revised over time, are: Company Rulebook: This sets forth the regulations concerning the company's governance, management, and operational aspects. It may include stipulations on organizational structure, roles and responsibilities, and general business practices. Compliance and Risk Management Rulebook: This Rulebook is central to understanding and managing risk. It details procedures for risk identification, assessment, and mitigation. Additionally, it outlines the compliance requirements to ensure adherence to all applicable laws, regulations, and directives. Technology and Information Rulebook: As VASPs operate in a technologically driven space, this Rulebook provides guidelines on technological infrastructure, data security, information management, and related processes. Market Conduct Rulebook: This Rulebook is designed to ensure fair and transparent market practices. It includes regulations on professional conduct, market integrity, customer relations, and transparency in operations. VA Activity-Specific Rulebooks Beyond the four general Rulebooks, there are several VA Activity-specific Rulebooks that VASPs must adhere to. The applicability of these Rulebooks depends on the specific VA activities the VASP is licensed to perform. They include: Advisory Services Rulebook: This Rulebook guides the professional and operational standards required when offering advisory services in the VA space. Broker-Dealer Services Rulebook: For VASPs involved in buying, selling, and dealing in VAs, this Rulebook outlines the specific requirements, responsibilities, and standards to be upheld. Custody Services Rulebook: VASPs providing custody services for VAs must follow the directives in this Rulebook, which may encompass requirements around the security, handling, and storage of VAs. Exchange Services Rulebook: This Rulebook governs the standards and operations for VASPs offering exchange services, detailing the guidelines for exchange processes, security measures, and transaction procedures. Lending and Borrowing Services Rulebook: For those offering VA lending and borrowing services, this Rulebook outlines the specific protocols, risk considerations, and customer relations requirements. Payments and Remittances Services Rulebook: VASPs facilitating VA payments and remittances must comply with this Rulebook, which stipulates procedures for these services, including security, speed, and customer protection measures. VA Management and Investment Services Rulebook: For VASPs involved in managing and investing in VAs, this Rulebook governs the regulations for investment strategies, portfolio management, and investor relations. In conclusion, the series of Rulebooks outlined by VARA signifies the commitment to ensure a thorough, organized, and regulated environment for VA activities. They create a comprehensive structure for VASPs, fostering a level playing field, ethical practices, and the highest degree of professionalism in the industry. Please visit the official VARA website for additional details regarding these Rulebooks' specific requirements and directives. It provides comprehensive and current information to ensure absolute compliance with all VA Activities regulations. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Welcome back to our ongoing series on crypto-assets. In our previous discussion, we explored the legal aspects of e-money tokens under the Markets in Crypto-Assets (MiCA) regulation. Our focus was on the foundational aspects like issuance, redeemability, marketing, and fund investment related to e-money tokens. We recommend perusing that article for a broad understanding of e-money tokens if you missed it. Today, we advance further into this topic, focusing on a specific class of tokens known as 'Significant E-Money Tokens.' These tokens have additional implications and responsibilities, which make their understanding essential for anyone involved in the crypto space. Classification of E-Money Tokens as Significant E-Money Tokens What makes an e-money token "significant"? It all comes down to the criteria stipulated in the MiCA regulations. Under these provisions, the European Banking Authority (EBA) can label e-money tokens as "significant" if they meet at least three of the outlined criteria mentioned below. The classification process occurs under two main instances: During the initial report following the offering or seeking admission of tokens to the public. If the tokens meet the criteria in two consecutive report periods. For cases where multiple issuers release the same e-money token, data from all issuers is considered for the assessment. The competent authorities from the issuer's home Member State must report all relevant information for the assessment to the EBA and the European Central Bank (ECB) twice a year. Interestingly, if the issuer is based in a Member State that doesn't use the Euro as its official currency, or if the e-money token is referenced to a non-euro Member State's official currency, the data must also be transmitted to that Member State's central bank. After evaluating the token against the criteria and confirming that it meets the conditions, the EBA prepares a draft decision to classify the e-money token as significant. The issuer, the competent authority of the issuer's home Member State, the ECB, and, when applicable, the central bank of the concerned Member State are all notified of this draft decision. These parties are then given 20 working days to submit their written observations and comments. The EBA will duly consider these inputs before making a final decision. If the EBA concludes to classify an e-money token as significant, it will notify the issuer and its competent authority. Consequently, the supervisory responsibilities related to the issuer are transferred from the competent authority of the issuer's home Member State to the EBA. This transition happens within 20 working days from the date of notification. However, there's an exception to this rule. For significant e-money tokens denominated in a non-euro official currency, supervisory responsibilities won't transfer to the EBA if at least 80% of the token holders and transaction volume are concentrated in the home Member State. The EBA must also conduct an annual reassessment of the classification of significant e-money tokens. If it determines that a token no longer meets the criteria, it prepares a draft decision to declassify the e-money token from being significant and notifies all concerned parties. Like the classification process, these parties are given 20 working days to submit their observations and comments in writing before the EBA makes a final decision. Suppose the EBA decides that an e-money token is no longer significant. In that case, supervisory responsibilities related to the issuer are transferred back from the EBA to the competent authority of the issuer's home Member State. This transition happens within 20 working days from the date of notification. Specific Criteria The criteria to be met for e-money tokens to be classified as "significant," as indicated in Article 43 of MiCA, are: Number of Holders: There must be more than 10 million holders of the e-money token. Value and Market Capitalization: The value of the e-money token issued, its market capitalization, or the size of the asset reserve of the issuer must exceed 5 billion Euros. Transaction Volume: The average number and aggregate value of transactions per day during the relevant period must be higher than 2.5 million transactions and 500 million Euros, respectively. Gatekeeper Issuer: If the issuer of the e-money token also provides core platform services designated as gatekeeper according to the Regulation (EU) 2022/1925, the token could be classified as significant. International Activities: The issuer's activities on an international scale, particularly the use of the e-money token for payments and remittances, can make the token significant. Interconnectedness: The e-money token or its issuers must have significant interconnectedness with the financial system, showing the token's influence within the broader financial network. Multiple Issuances and Services: If the same issuer issues at least one additional asset-referenced token or e-money token, and provides at least one crypto-asset service, the token could be deemed significant. Voluntary Classification of E-Money Tokens as Significant Opting for Classification: An issuer of an e-money token, who is authorized as a credit institution or an electronic money institution (or is applying for such authorization), can voluntarily opt for their e-money token to be classified as a 'significant' e-money token. In such an instance, the competent authority must notify the European Banking Authority (EBA), the European Central Bank (ECB), and, in certain cases, the central bank of the Member State concerned. For the token to be classified as 'significant' in this manner, the issuer needs to illustrate, via a detailed program of operations, that it is probable to meet at least three of the criteria set out in Article 43(1) of the MiCA Regulation (set out above). Draft Decision by EBA: Post notification, within 20 working days, the EBA is to prepare a draft decision based on the issuer's program of operations, highlighting whether the e-money token fulfills or is likely to fulfill at least three of the criteria mentioned in Article 43(1). This draft decision is then to be shared with the competent authority of the issuer's home Member State, the ECB, and, in certain cases, the central bank of the concerned Member State. After notification of the draft decision, there's a window of 20 working days for the competent authorities, the ECB, and potentially, the central bank of the Member State concerned to provide written observations and comments. The EBA then carefully considers these comments before finalizing the decision. Final Decision: The EBA's final decision on the classification of an e-money token as 'significant' is to be made within 60 working days of the initial notification. The decision is then to be communicated to the issuer of the e-money token and the competent authority without delay. Transfer of Supervisory Responsibilities: Should an e-money token be classified as 'significant' per a decision by the EBA, supervisory responsibilities concerning the issuers of these tokens will transition from the competent authority to the EBA within 20 working days of the decision's notification. The EBA and the competent authorities will work together to ensure a smooth transition of supervisory competencies. Derogation: An exception exists where supervisory responsibilities for issuers of significant e-money tokens denominated in an official currency of a Member State other than the Euro will not be transferred to the EBA. This applies if at least 80% of the holders and transaction volume of these significant e-money tokens are, or are expected to be, concentrated in the home Member State. The competent authority of the issuer's home Member State will then provide annual information to the EBA on applying this derogation. In this context, a transaction is considered to occur in the home Member State if either the payer or the payee are established in that Member State. Additional Requirements for Issuers of E-money Tokens Electronic money institutions that issue significant e-money tokens must comply with: Articles 36, 37, 38, and Article 45(1) to (4) of MiCA, which replace the requirements of Article 7 of Directive 2009/110/EC. These articles outline obligations around reserves of assets, custody, and investment of these assets, and the adoption and implementation of a risk management policy. Article 35(2), (3), (5), and Article 45(5) of MiCA, which take the place of Article 5 of Directive 2009/110/EC. These provisions involve the calculation of own funds requirements, stress testing, and a stipulation that own funds amount to 3% of the average amount of reserve assets for issuers of significant asset-referenced tokens. However, there's a deviation from Article 36(9): issuers of significant e-money tokens must mandate an independent audit every six months from the date the e-money tokens are classified as significant, as per either Article 56 or 57. Regulation for Non-Significant Tokens: Competent authorities of the home Member States have the authority to require e-money institutions that issue e-money tokens (not deemed 'significant') to comply with any requirement specified in paragraph 1. This measure is in place to mitigate risks, such as liquidity and operational risks, and risks stemming from non-compliance with the reserve management requirements. * * * To wrap things up, the digital landscape is continually evolving, and so are the regulatory frameworks to keep it in check. The Markets in Crypto-Assets (MiCA) regulation offers detailed guidelines on how digital assets, including e-money tokens, should be handled, issued, and regulated in the European Union. Notably, under MiCA, issuers of significant e-money tokens are subject to specific requirements around reserves of assets, own funds, and risk management, focusing on enhanced reporting and auditing. The regulations also provide the competent authorities the discretion to apply these requirements to non-significant tokens to mitigate various financial and operational risks. We ensure that our clients are well informed and can navigate the evolving landscape of digital assets confidently. As the world moves towards a digital future, we're here to help you understand and comply with the necessary regulations. Stay informed, stay compliant, and embrace the future with us! DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Welcome back to our deep dive series exploring the diverse landscape of the Markets in Crypto-Assets Regulation (MiCA). Previously, we delved into the complexities of Asset-Referenced Tokens (ARTs), their classifications, and the unique responsibilities issuers bear under MiCA. If you haven't had the chance to read those articles yet, we recommend starting with them to fully understand the context (Part 1, Part 2, Part 3, and Part 4). Today, we focus on another exciting facet of MiCA – E-money Tokens (EMTs). These instruments are transforming the digital financial landscape by leveraging the potential of blockchain technology while maintaining regulatory compliance. This article aims to demystify the regulations around EMTs and provide a comprehensive understanding of what it entails to issue and manage these digital tokens under MiCA. Whether you're an issuer looking to delve into this dynamic world or a curious observer eager to grasp the nuances of digital finance regulations, you're in the right place. Let's dive in. Requirements for the Offer to the Public or Admission to Trading of E-money Tokens (Article 48) The entity making the offer or seeking to trade an EMT in the EU must be the issuer of this EMT. In addition, the issuer: Must be authorized as a credit institution or an electronic money institution. Has to prepare a crypto-asset white paper, notify the competent authority of it, and make it public (below in detail). If the issuer provides written consent, other entities can also offer or seek to trade its EMT. These entities must comply with Articles 50 (Prohibition of granting interest) and 53 (Marketing communications) of MiCA. For regulatory purposes, EMTs are treated as electronic money. If an EMT references an official currency of an EU Member State, it is considered as being offered to the public in the Union. If an issuer intends to offer EMTs to the public or seek their admission to trading, they must notify their competent authority of their intentions 40 working days before the planned date. Even if exempted under the particular circumstances (below in detail), issuers must prepare a crypto-asset white paper and notify the competent authority. Deep Dive: E-Money Directive Exemptions Let's look at the exemption stipulated under Article 9(1) of Directive 2009/110/EC and how it interacts with MiCA's requirements to EMTs. Article 9(1) of the E-Money Directive gives Member States the discretion to relax certain requirements for institutions dealing with electronic money under specific circumstances: The total business activities of the institution must generate an average outstanding electronic money amount that doesn't exceed a limit set by the Member State, but in no case should it surpass EUR 5,000,000. None of the natural persons responsible for managing or operating the business have been convicted of offenses related to money laundering, terrorist financing, or other financial crimes. What does this mean in the context of MiCA? MiCA Article 48(1) sets forth the requirements (mentioned above here) for any person or entity intending to offer E-money tokens (EMTs) to the public or seeking admission to trading in the EU. However, issuers of EMTs who fall under the exemption as per Article 9(1) of the E-Money Directive are not required to comply with those MiCA's requirements in Article 48. In simple terms, if an issuer qualifies for the exemption under the E-Money Directive, such issuers do not need to be authorized as a credit institution or electronic money institution, nor are they required to notify and publish a crypto-asset white paper to offer or trade EMTs. Application of The Electronic Money Directive to EMTs: A Closer Look MiCA's regulations concerning EMTs do not apply to EMTs exempt under Articles 1(4) and (5) of the Electronic Money Directive. Let's examine these exemptions: Article 1(4) of the Electronic Money Directive states that the Directive does not apply to the monetary value stored on exempted instruments that can be used to acquire goods or services either within a limited network of service providers or for a limited range of goods or services. This typically includes store gift cards or loyalty points redeemable only within the issuer's network. Article 1(5) of the Electronic Money Directive specifies that it does not apply to the monetary value used for payment transactions made through telecommunication, digital, or IT devices, where the purchased goods or services are delivered to and used through the same type of device. However, this exemption is valid only when the telecommunication, digital, or IT operator does not act only as an intermediary between the payment service user and the goods or services supplier. So, if EMTs fall under these exemptions, they're not bound by most of MiCA's regulations regarding ETMs. However, there are two exceptions to this: Paragraph 7 of Article 48 and Article 51, which discuss the content and form of the crypto-asset white paper for e-money tokens, still apply to these EMTs. Issuance and Redeemability of E-money Tokens Article 49 of MiCA centers around the issuance and redeemability of e-money tokens (EMTs). It presents certain regulations that deviate from the stipulations in Article 11 of the Electronic Money Directive (Directive 2009/110/EC) exclusively for the issuance and redeemability of EMTs: Claim Rights: EMT holders are granted a claim right against the issuers of those EMTs. Issuance At Par Value: Issuers of EMTs must issue these tokens at par value upon receiving funds. Par value, in this context, means that the face value of the EMT must equal the amount paid to acquire it. Redeemability At Par Value: The issuer must redeem EMTs at any time and at par value upon the holder's request. Redemption refers to exchanging your EMTs for traditional funds, other than electronic money. Redemption Conditions: The conditions for redemption must be prominently mentioned in the crypto-asset white paper. This makes the redemption process transparent to EMT holders, ensuring they are fully informed about the terms of redeeming their EMTs. No Redemption Fee: Lastly, redeeming EMTs must not be subject to any fee. No Interest on E-money Tokens Looking closely at Article 50 of the Markets in Crypto-Assets (MiCA) regulation, we can better understand the rules relating to granting interest on e-money tokens (EMTs). In contrast to Article 12 of the Electronic Money Directive (Directive 2009/110/EC), this article stipulates specific prohibitions for EMT issuers and crypto-asset service providers. No Interest from EMT Issuers: In the first place, issuers of EMTs are expressly forbidden from granting interest related to EMTs. No Interest from Crypto-Asset Service Providers: Similarly, crypto-asset service providers, the entities that offer services related to crypto-assets, including EMTs, are also barred from offering interest when providing these services. Definition of Interest: For clarity, Article 50 goes a step further to define what would be considered as 'interest'. Under this provision, any remuneration or benefit related to the length of time a holder keeps an EMT is classified as interest. This could include net compensation or discounts that have an effect equivalent to that of interest. It could come directly from the issuer or third parties and might be directly associated with the EMT or from the remuneration or pricing of other products. The Crypto-Asset White Paper for E-Money Tokens Article 51 of MiCA regulation highlights the content and structure a crypto-asset white paper for e-money tokens (EMTs) must follow. This document is crucial as it provides potential holders with information about the EMT, the issuer, and the technology behind it. The details required in the white paper include: Information about the issuer: The issuer's details and its background should be clearly mentioned. About the EMT: Information regarding the EMT should be provided, including its functionalities and mechanisms. Public offer details: Clear and comprehensive data about the EMT's public offer and potential trading should be present. Rights and obligations: The white paper should detail the rights and obligations of holding the EMT. Underlying technology: It should also explain the technology supporting the EMT. Risk factors: Details about potential risks associated with the EMT should be given. Environmental impacts: The white paper should identify any significant adverse environmental impacts related to the consensus mechanism to issue the EMT. The paper also must identify any other party offering the EMT to the public or seeking its trading, along with the reason for their involvement. Fairness and clarity are essential in the white paper. All information must be truthful, clear, and not misleading. There should be no material omissions, and the information should be presented concisely. A prominent statement must appear on the first page, stating that any competent authority in the EU hasn't approved the paper and that the issuer is solely responsible for its content. In addition, the document should contain explicit warnings that the EMT isn't covered by investor compensation schemes or deposit guarantee schemes under EU directives. The white paper should also include a statement from the issuer's management body confirming that the document complies with MiCA and that, to their best knowledge, the information presented is complete, fair, and not misleading. A summary written in non-technical language, providing key information about the public offer or trading of the EMT, should be inserted after the management statement. This summary should be understandable, comprehensive, and laid out clearly, with a warning that decisions to purchase should be based on the entire white paper. A table of contents, date of its notification, and details about redemption conditions should also be included in the white paper. The document should be prepared in the official language of the home Member State or a language customary in the sphere of international finance. If the EMT is also offered in another Member State, the white paper must be prepared in that state's official or financial language. The white paper must be available in a machine-readable format, and the European Securities and Markets Authority (ESMA), in cooperation with the European Banking Authority (EBA), is tasked with developing standard forms and formats. Before the public offer or seeking admission to trading, the issuer should publish the white paper on its website and notify its competent authority at least 20 working days before its publication. It's important to remember that any significant new information or changes capable of affecting the assessment of the EMT should be reflected in a modified white paper, which should be notified to the authorities and published on the issuer's website. Liability of Issuers of E-Money Tokens Article 52 of the MiCA regulation addresses the responsibility and potential liability of issuers of e-money tokens (EMTs) concerning the information provided in a crypto-asset white paper. Here's a simplified breakdown: Issuer Liability: If an EMT issuer violates Article 51, by providing incomplete, unfair, unclear, or misleading information in the crypto-asset white paper or a modified version, both the issuer and the members of its administrative, management, or supervisory body are accountable to the EMT holder for any loss arising from this violation. Limitations on Liability: Any contractual conditions that seek to exclude or limit this civil liability won't have any legal effect. It implies that an issuer cannot limit or avoid their liability for the information provided in the white paper through any contractual agreements with the token holders. Evidence: The burden of proof is on the EMT holder. They need to provide evidence indicating that the issuer violated Article 51 by giving incomplete, unfair, unclear, or misleading information and that the holder's decision to buy, sell, or exchange the EMT was influenced by this information. Summary Information Liability: The issuer and its officials are not liable for losses suffered due to reliance on the information provided in a summary, including any translations, unless the summary is misleading, inaccurate, or inconsistent when read along with the other parts of the white paper or does not provide key information to assist prospective holders when deciding whether to buy the EMT. National Law: This article does not affect any other civil liability applicable under national law. Marketing Communications for E-Money Tokens Article 53 of the MiCA regulation presents rules regarding marketing communications related to e-money tokens (EMTs). It ensures clarity, fairness, and consistency in marketing practices. Requirements for Marketing Communications: Any marketing communication related to an offer to the public or the trading of EMTs must adhere to specific requirements: The marketing communication must be identifiable as a promotional activity. The information contained in the marketing communication must be fair, clear, and not misleading to the public. The details in the marketing communication must be consistent with the information presented in the crypto-asset white paper, the document outlining the issuer's plan for the digital asset. The marketing communication must also clearly state that a crypto-asset white paper has been published and provide the issuer's website address, a contact telephone number, and an email address. Right of Redemption Statement: All marketing communications must include an explicit statement that EMT holders have the right to redeem their tokens against the issuer at any time and at the tokens' face value. Publication of Marketing Communications: All marketing communications, including any modifications, should be published on the issuer's official website. Approval by Authorities: Competent authorities are not required to pre-approve marketing communications before publication. Notification to Authorities: However, issuers must be prepared to provide their marketing communications to competent authorities upon request. Timing of Dissemination: Marketing communications cannot be disseminated before the publication of the crypto-asset white paper. This restriction ensures potential investors can access the full white paper information before encountering promotional materials. This rule does not prevent issuers from conducting market soundings - gathering information on the interest of potential investors. Investment of Funds Received in Exchange for E-Money Tokens Article 54 of MiCA provides guidelines on how issuers of e-money tokens (EMTs) should manage and invest the funds they receive in exchange for their tokens. Funds Safeguarding: In line with Article 7(1) of Directive 2009/110/EC (the E-Money Directive), all funds received in exchange for EMTs must be safeguarded. This means that these funds must be protected and kept separate from other funds of the EMT issuer, ensuring they're readily available for redemption. Minimum Deposit Requirement: At least 30% of the received funds must be deposited into separate accounts in credit institutions. This provision ensures a portion of the funds is always readily available and is kept safe in a regulated institution. Investment of Remaining Funds: The remaining funds (i.e., 70% or less) should be invested in secure, low-risk assets. These assets should be: Highly liquid, meaning they can easily be sold or exchanged for cash without causing a significant change in their price. Carry minimal market, credit, and concentration risks, indicating they have a low chance of decreasing in value and do not focus the investments too heavily in one area. Denominated in the same official currency as the one referenced by the EMT. Wrapping Up Part One: Navigating E-Money Tokens We've just concluded the first installment of our guide on understanding e-money tokens under MiCA. The intricacies of this new legislation may be complex, but with each article, we aim to bring clarity and insight into this evolving landscape of digital finance. At Prokopiev Law Group, we pride ourselves on staying ahead of the curve in digital asset regulation. Our team keenly monitors the latest developments and is prepared to guide you through each step of your digital asset journey. Do you have questions or need assistance with a specific issue? Don't hesitate to reach out to us. We are eager to support you. Stay tuned for Part Two of our series on e-money tokens, where we'll continue our journey through the MiCA's provisions. Thank you for joining us in this first stage of the journey. Together, we're decoding the future of digital finance. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.