“Today, what we are doing, is modernizing the financial services industry, tearing down those antiquated laws, and granting banks significant new authority.” President Clinton’s quote is quite relevant nowadays in Albania, where a major overhaul of the financial system’s legal architecture is being implemented. Indeed, in just three weeks, the Albanian Parliament enacted four very important pieces of legislation: the Law on Payment Services, the Law on Capital Markets, the Law on Collective Investment Undertakings, and the Law on Financial Markets Based on Distributed Ledgers Technology.
Three of these laws are a direct – although partial – transposition of EU Directives regulating the industry, including the Second Payment Services Directive, the Markets in Financial Instruments Directive, and the Undertakings for Collective Investment in Transferable Securities Directive. The Payments Account Directive, which is next in line for transposition, is expected to be enacted in the near future.
The Law on Payment Services, which is the first and most important pillar of this revolution, is designed to increase the financial inclusion of the population by implementing the “open banking” principle. In a country where only 45% of the population has a bank account, the entry into the market of non-bank actors will contribute to better consumer protection, increase transparency and competition, and of course provide new products with lower costs.
Implementing the Law on Payment Services, on the other hand, will impose additional challenges and obligations on the banks (such as addressing consumer complaints, updating technological systems, and so on), from a procedural and technology – and thus budgetary – point of view. The efficacity of the Law on Payment Services will be further boosted by the transposition of the Payments Account Directive
The Law on Capital Markets is designed to facilitate the development of the capital markets in Albania, which today are limited to state-issued bonds. The main objective of the Law on Capital Markets, which transposes MIFID II into Albanian law, is to protect investors by tightly tying the development of the capital markets to their transparency. While the law provides special requirements for the banks providing investment services to make the process less bureaucratic, it sets high standards for their corporate governance, as well as new requirements regarding the brokers’ organization, thus increasing the costs for actors operating in the market.
The Law on Capital Markets is complemented by the Law on Collective Investment Undertakings, which lays down uniform rules for investment funds and undertakings for collective investments in transferable securities, and sets out the framework for the authorization, supervision, and oversight of alternative investment funds.
The law designates a pivotal role for the Financial Supervisory Authority, which is responsible for the licensing and supervision process, by, among others things, expanding its ability to to conduct investigations (as opposed to just inspections, under the previous regime). In addition, it divides investors into “professional” and “nonprofessional” categories, and provides specific rules for the cross-border management and marketing of collective investment undertakings.
Last but not least, the Law on Financial Markets Based on the Technology of Distributed Ledgers, which has been described as “Europe’s most comprehensive crypto law yet,” applies to all regulated activities based on distributed ledgers technology and is designed to regulate, among other things, the issuance of digital tokens and virtual coins through Initial Coin Offerings and Security Token Offerings, the licensing of activities related to DLT, and the trading and storage of such digital or virtual tokens.
Even though the enactment of these laws is a giant leap forward for the development of the financial system in Albania, their correct implementation will largely depend on the numerous supplemental acts expected to be issued. In a country where established practices are as important as the letter of the law, it will be crucial for the authorities to use the best experiences from the EU countries as a model, otherwise this revolution will remain on paper.
By Aigest Milo, Executive Partner, Kalo & Associates