On February 18, the Russian Ministry of Finance began public consultations on the rules for issuance and operations with cryptocurrencies. While this is a welcome development, it falls short of what cryptocurrency in the country would expect. Earlier this week, the government announced that a bill would be prepared by February 18 containing a unified position for the Ministry of Finance and the Central Bank on regulating cryptocurrency. Updated estimates suggest that at least another month will pass before the bill is known. The main reason for the delay appears to be the renewed opposition to the central bank, which just a few days ago seemed to have been overcome. Here is an overview of the last turns of this rocky hike.
The first round: the central bank’s proposal to ban
On January 20, the Central Bank of Russia (CBR) released a report summarizing its position on digital assets. Using a number of common anti-crypto arguments, such as comparing digital assets to a Ponzi system, the regulator called for a complete domestic ban on the use of traditional financial infrastructure for cryptocurrency trading, as well as a restriction on crypto mining in the country.
The proposal was not as scary as it seemed: the Central Bank of the Russian Federation would not prohibit personal possession of cryptocurrencies or the use of international trading platforms. But the action was clearly aimed at big players – Russian private banks and institutional investors – who are discouraging them from participating in digital assets.
President of the Central Bank of the Russian Federation Elvira Nabiullina. Source: Bank of Russia.
In addition, the report immediately drew sharp criticism from a wide range of stakeholders, from local industry representatives to political activists and influencers such as Pavel Durov of Telegram. But most importantly, this was immediately followed by the dismissal of many of the most important positions in the Russian government.
On January 25, Ivan Chepskov, head of the Ministry of Finance’s Financial Policy Department, said that the ministry’s position on digital assets is one of regulation, not prohibition, and that it is already working on its own regulatory document.
Round Two: The Ministry of Finance’s proposal for the structure
On February 8, the Russian government approved the “Concept of Regulating Mechanisms for Cryptocurrency Trading,” a document previously published by the Ministry of Finance. It was an unexpected but welcome turn: the document proposes a regulatory regime that treats digital assets largely like regular currencies. It has also been suggested that government approval means CBR’s concerns have been resolved. February 18 was announced as the date for completing the bill, which reflects the unified position of the two bodies.
The framework opens by ignoring the idea of a blanket ban. According to the ministry, the ban will have neither legal force nor practical application in a country with more than 12 million crypto wallets and more than $26 billion in digital assets in it, as well as the third largest cryptocurrency mining power in the world. :
A complete lack of regulation, as well as bans, will lead to the growth of the shadow economy, fraud and general destabilization in this sector. […] the proposed legislative changes aim to create a legal cryptocurrency market with rules for trading by area and the defined constituency of participants along with the requirements to which they are subject.
The proposed rules define cryptocurrencies as a “close analogue” of foreign currency, and not as a digital financial asset regulated by a separate law. According to the proposal, it would be completely legal to own and exchange cryptocurrencies, but only through licensed banks or peer-to-peer exchanges with a Russian license. Clients will be fully identified in accordance with banking standards and anti-money laundering and anti-terrorism requirements. All operational data must be transmitted through the government’s “transparent blockchain” system.
The framework also states that failure to advertise cryptocurrencies above a certain amount is punishable, and the use of cryptocurrencies is an aggravating factor in some criminal acts.
Third round: the Central Bank of the Russian Federation face to face
It may, however, be too early to rejoice in the compromise between two important topics of regulation. On February 15, the head of the Central Bank of the Russian Federation, Elvira Nabiullina, doubled down on the regulator’s disagreement with the proposed legislation for cryptocurrency trading. The announcement came at the same time as a report on the progress made by the Central Bank of the Russian Federation regarding the central bank’s digital currency.
Nabiullina also sent a letter to Finance Minister Anton Siluanov confirming her concern that “crypto is a Ponzi scheme.”