CZECH REPUBLIC Law and Practice Contributed by: Stanislav Šimek, Vojtěch Mlynář and Jakub Dostál, BADOKH
9.2 Contractual Terms to Ensure Performance and Accuracy Contractual terms imposed on technology providers are, in some cases, dictated by regulation depend - ing on the nature of the services provided. Notable examples include: GDPR Where a technology provider processes personal data on behalf of another party, the parties must enter into a data processing agreement covering purpose limita - tion, appropriate technical and organisational security measures, breach notification obligations and mecha - nisms for the exercise of data subject rights. DORA Financial institutions must include mandatory provi - sions in contracts with technology providers, cover - ing for example, availability, confidentiality of services, data access and recovery rights, incident manage - ment and business continuity obligations, and a duty to co-operate and provide assistance without addi - tional charges. It is common to negotiate service level agreements specifying uptime guarantees and resolution times. 10. Blockchain 10.1 Use of Blockchain in the Financial Services Industry Czechia is starting to embrace blockchain technology across its financial sector, with initiatives spanning a Czech-crown stablecoin and tokenisation platforms, and banks exploring ways to offer digital asset ser - vices to their clients while investing in blockchain start-ups. The Central Securities Depository Prague, the main Czech depository, received the EU’s first authorisa - tion to operate a DLT-based settlement system. This system enables the registration and transfer of some of the financial instruments on a blockchain. The CNB has created a test portfolio of digital assets with a total acquisition value of USD1 million. The purpose of the portfolio is to gain practical experi -
ence in holding digital assets, testing the technical administration of private keys, crisis scenarios, secu - rity mechanisms and verifying AML compliance. 10.2 Local Regulators’ Approach to Blockchain The CNB has received one of the highest numbers of applications for crypto-asset service providers licenc - es in the EU, issuing six licences to date. The CNB’s approach to blockchain is cautious yet open, as evidenced by its own cryptocurrency acqui - sitions and testing. It occasionally issues guidance on ambiguous issues, such as the regulatory treatment of staking. The primary source of regulatory direction is the EU, mostly through the European Securities and Markets Authority (ESMA). Czechia has also addressed, in an amendment to the Czech AML Act, a new licensing procedure within the purview of the FAU for entities providing services related to virtual assets that fall outside the scope of MiCA. 10.3 Classification of Blockchain Assets MiCA distinguishes electronic money tokens (EMTs) that achieve a stable value by being pegged to a sin - gle official currency, asset-referenced tokens (ARTs) that achieve a stable value by being pegged to a spe - cific asset or basket of assets, and crypto-assets that differ from EMTs and ARTs (a residual category that includes utility tokens). Issuers of EMTs and ARTs must obtain prior authorisa - tion from the CNB, which can be difficult to secure in practice. Issuers of other crypto-assets are not sub - ject to the authorisation requirement but must notify the CNB and publish a white paper prior to issuance. Where a blockchain asset meets the definition of a financial instrument under MiFID II, MiCA explicitly does not apply. Such assets (usually called security tokens) are regulated as traditional financial instru - ments. Non-fungible tokens (NFTs) that are genuinely unique and do not qualify as financial instruments fall outside the scope of both MiCA and MiFID II. However, certain
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