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The IBA’s response to the war in Ukraine
Egorov Puginsky Afanasiev & Partners, Moscow
The year 2020 was marked by a rapid development of Russian legislation in the digital realm. The most significant development in the regulation of cryptocurrency and digital financial assets was the adoption of Law No 259-FZ (the Act), which came into force on 1 January 2021. Therefore, all those involved in cryptocurrency should be familiar with its novelties.
The first important matter regulated by the Act is the so-called ‘digital financial assets’ (DFA). The Act uses this term as opposed to the term found in the bill adopted by the State Duma in the first reading, which originally applied the term ‘token’.
If we consider the legal nature of DFA, we may conclude that it closely resembles the legal nature of securities. For example, imagine there is a debt arising as a result of some loan. It may be transferred under an assignment agreement. However, each creditor who decided to transfer the claim further must also transfer a range of documents to a new creditor, particularly confirmations of received payments. If this loan originated through the procedure of a bonds allotment, the process of transferring the claim would be much easier and faster. The claim to the bonds issuer, which is certified by securities accounted for electronically, may be purchased through a few clicks on a phone or a computer.
The main idea of DFA is similar to the idea of securities – creation of infrastructure for a rapid turnover of assets, including monetary claims. As opposed to bonds, such claims may arise not only from loan agreements, but also from any business transactions which involve monetary obligations.
In another example, shares, as securities, certify the rights of the entity members to vote, to receive dividends and the assets of the entity after liquidation. DFA may play the role of shares in non-public joint-stock companies (when shares are not traded at the stock exchange). Such joint-stock companies may organise a small ‘stock exchange’ for non-traded shares.
In both cases, the difference between securities (bonds, shares) and DFA is mainly in the procedures of issuance, peculiarities of their circulation and in regards to the obligation of information disclosure.
The second matter of the Act’s regulation is cryptocurrency or ‘digital currency’. It is defined as a digital code or designation that may be used by owners as a payment facility.
The Act contains a number of restrictive conditions banning almost all possibilities to use cryptocurrency. These restrictions are as follows:
One of the reasons for such restrictive measures might be the government’s intention to make financial transactions more transparent. As we have seen over the last few years, there is a growing legislative trend to regulate the situations where money is to be accounted for (by banks, registrars, depositaries, etc). This trend includes the implementation of the ‘know your client’ (KYC) principle – whereas owners of cryptocurrency may still be anonymous.
Therefore, it was decided to move all digital payments under government control. The Russian Ministry of Finance drafted bills that stipulate administrative and criminal penalties for the violation of the above-mentioned restrictive conditions. However, these bills have not been submitted to the State Duma yet.
Apparently, the circulation of cryptocurrency will be almost completely prohibited in the near future. In exchange for cryptocurrency, the Central Bank of Russia announced the issuance of a so-called ‘digital ruble’, which is not deemed to be cryptocurrency, as per its definition in the Act.
The main difference between cryptocurrency and the digital ruble lies in the fact that the digital ruble will be issued by the Bank of Russia. Therefore, as with the ‘ordinary’ ruble, the Russian Federation will be liable for its circulation as a national currency, while there is no single person or entity that is liable for the credibility of ‘classical’ cryptocurrency.
Another key feature which differentiates the digital ruble from cryptocurrency is the application of KYC rules, which are usually used when clients open ordinary bank accounts for digital ruble holders.
 In this article, the term ‘cryptocurrency’ is used in the general sense of the word, to describe all digital currency being introduced or developed. The author is not referring to any specific cryptocurrency developed in Russia.