An extract from The Virtual Currency Regulation Review, 3rd Edition
Introduction to the legal and regulatory framework
Although most activity related to cryptocurrency is provided for in some way by Russian legislation, the draft Law on Digital Financial Assets (the Draft Law), which will specifically regulate actions related to cryptocurrency in Russia, has not yet been passed. Currently, it is not known when Russia will begin to adequately regulate the sphere of virtual currency. Consideration of the Draft Law, which was first submitted to the State Duma in December 2018, has been postponed many times owing to diametrically opposed positions of the government, as well as significant criticism from ministries, market participants and businesses who believe that the project is unrealistic.
The project was developed without dialogue with market participants and received a lot of criticism regarding its definition of digital currency, as well as the regulation of circulating digital currency. Representatives of the crypto industry noted that the current version of the Draft Law would be harmful from an economic, social and technological perspective.
The Draft Law provides for responsibility not for the acquisition of a new type of assets but for the organisation of their turnover. Cryptocurrency can be bought in Russia, but only on foreign platforms; however, such sites cannot function in Russian territory and digital assets purchased on foreign exchanges must be declared. The Draft Law actually prohibits the expansion of opportunities for the circulation of cryptocurrencies and makes digital investing difficult.
In April 2020, representatives of large business, together with the Russian Union of Industrialists and Entrepreneurs, sent a letter to the Prime Minister with a request that the Draft Law be adopted as soon as possible, as in the context of a pandemic and a difficult economic situation, the use of digital assets will facilitate capital raising, and will also allow businesses to use digital opportunities for recovery.
The government decided to ban the issuance and use of virtual currency as a means of payment. Moreover, the exchange of virtual currency for fiat money is only possible through specialised operators who will have to identify the owners of the currency.
Cryptocurrency is equated to a monetary surrogate, the release of which is prohibited in Russian territory. Cryptocurrencies are not guaranteed or backed by the Bank of Russia.
Banking and money transmission
Russia's Central Bank is opposed to the introduction of cryptocurrency in the country.2 However, it is contemplating introducing a state cryptocurrency.
Prompt legislative action was prevented by a poor understanding of the very essence of blockchain tools. The policy of the Central Bank is ambiguous and in some places even contradictory. At first, the Central Bank opposed 'money substitutes' and was against introducing digital coins into the monetary system; however, it has since acknowledged the possibility of launching an official cryptocurrency. Business interest in virtual money is explained by the fact that using it helps to reduce transaction costs. The Central Bank intends to study a proposal to create a cryptocurrency linked to the price of gold, which could be used for mutual settlements with other countries.
The Central Bank will regulate all operations related to cryptocurrencies. In March 2019, it sent a draft instruction to the State Duma for discussion in which it proposes to limit the annual amount of cryptocurrency assets available for purchase to unqualified investors.
It is assumed that transactions will be limited to:
- the amount of money transferred as payment;
- the total value of digital assets that are exchanged; and
- the cost of digital operational characters transferred in exchange, including cryptocurrencies (this is only about cryptocurrencies that can be issued in Russia within the framework of a future law).
When exchanging digital assets, the transaction amount will be calculated on the basis of their nominal value.
The specific threshold of the Central Bank will be determined separately, but it will probably correspond to the maximum annual amount determined for unqualified investors by the Crowdfunding Bill (600,000 roubles).
Professional securities market participants will not act as intermediaries, but exchange operators (banks, stock exchanges and depositories) will have to track all transactions with the Central Federal Depositary and keep records of their total value.
Banks have begun to pay close attention to income derived from cryptocurrency activities. In May 2019, Sberbank requested this information from one of its clients. The bank sent a letter in which it asked its client to confirm the sources of income from cryptocurrencies and send the address of the cryptographic wallet, the user name, the documents for mining equipment and payment for electricity, an extract from the history of operations of the user of the crypto exchange and income statements for 2018. It transpired that the recipient of the letter had transferred money received from the exchange of cryptocurrencies to his account at Sberbank and told the bank about it. Representatives of Sberbank confirmed the authenticity of the letter. They clarified that they operate within the framework of the law on combating money laundering and terrorist financing.