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Kosovo: The Banking and Finance Legal Framework and the Way Ahead

Kosovo: The Banking and Finance Legal Framework and the Way Ahead

Issue 10.4
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The banking and financial sector in Kosovo has undergone significant changes in recent years, including the introduction of new legislation for the industry. Kosovo has managed to build a sound and stable financial system, which has contributed to supporting the overall growth of the economy. In addition, financial institutions have been very active in making significant progress in the implementation of advanced technologies and innovation following the latest CEE developments.

While the industry has seen considerable growth and made significant progress, new legislation has been introduced. The introduction of a new legal framework has played a key role in promoting innovation, growth, and sustainable industry. Currently, Kosovo has adopted a modern and comprehensive regulatory framework for financial services, closely following international practices, especially those of the European Union. The current legislative changes include legislation on e-documents, data privacy and cyber-security, consumer protection, and e-money.

Significant progress has also been made with the adoption of the Law on Electronic Identification and Trust Services in Electronic Transactions. This modern law regulates electronic identification, as the usage of data to represent natural or legal persons, as well as the usage of trust services in electronic transactions and documents. The adoption of the law aims to contribute to Kosovo’s digital agenda and its investment climate by facilitating distant transactions, electronic payment, and electronic trading as a whole. The global COVID-19 pandemic had emphasized the importance of the adoption of such a law. In addition, the law has established the basis for digital transactions and offers new tools and mechanisms to Kosovo companies. By adopting the newly introduced tools, companies will benefit by shifting from traditional ways to a more innovative environment of doing business. In this regard, Kosovo has made significant progress in providing an appropriate and effective legal and regulatory framework for digital transformation and inclusion of the financial sector, by opening numerous opportunities to implement digital financial innovation.

The continuous development of electronic money and the advancement of the legal framework have contributed to improving the payments system efficiency. The registration of non-bank financial institutions for the issuance of electronic money and payment of services has enabled the creation of contractual relations at a distance. 

Despite the major improvements in the financial industry, there is still room for development and diversification in the market, which would have an impact on the industry and economic development. The Law on Banks and Microfinance Institutions and Non-Banking Financial Institutions is in the amendment phase and is expected to be adopted this year. This new law, together with the upcoming legislative changes will have a significant impact on the diversification of the market and financing opportunities. Despite the current legislative changes, Kosovo has not yet adopted the Law on Capital Markets. That would be an important milestone, helping to establish the capital market and make the financial industry more attractive to investors. The foundation of capital markets and their proper functioning is key to strengthening the economy and maintaining Kosovo’s financial stability. A developed capital market would also offer more investment opportunities, new financing alternatives for investors, and would contribute to the further development of corporations in Kosovo.

Another important aspect that needs further improvement is the insolvency and bankruptcy laws and their enforcement. These laws are crucial for the finance and banking sector as they provide a framework for debt recovery and debt restructuring. Therefore, improving them Law on Capital Markets will enhance stability and security for investors in the banking and financial industry.

In conclusion, Kosovo’s banking and financial sector has made significant progress in recent years, thanks to the introduction of new legislation and the adoption of advanced technologies. The new legal framework has played a key role in promoting innovation, growth, and sustainable industry, while also contributing to Kosovo’s digital agenda and investment climate. However, there is still room for further development and diversification of the market, particularly with the adoption of the Law on Capital Markets and the improvement of insolvency and bankruptcy laws and enforcement. By continuing to prioritize modernization, innovation, and comprehensive legislation, Kosovo’s financial industry can offer more investment opportunities, new financing alternatives, and contribute to the country’s further economic growth. 

By Fisnik Salihu, Managing Partner, and Dardan Makolli, Legal Associate, RPHS 

This article was originally published in Issue 10.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here

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