What will happen to cryptocurrency in Russia. Detailed review

Last week, the US Congress received a bill that would allow the US Treasury Department to restrict Russians' access to cryptocurrency exchanges operating in US jurisdictions. The author of the bill, Senator Elizabeth Warren, believes that trading platforms will have to choose who they do business with. According to the politician, in case of insubordination, “secondary sanctions” should be introduced against crypto exchanges.

The European Union is also concerned about the possible use of cryptocurrencies to circumvent sanctions. Earlier, the European Commission prepared a new package of sanctions against Russian oligarchs and officials, which included restrictions on the movement of digital assets.

The US Financial Crimes Enforcement Network (FinCEN), which is part of the Treasury Department, has already begun to monitor suspicious cryptocurrency transactions related to Russians. The regulator has asked cryptocurrency-related financial institutions to report any activity that could be seen as a way to evade sanctions.

We explain what path Russia could take on the issue of cryptocurrency regulation given the current situation.

Position of the Central Bank

In mid-January, the Bank of Russia published a report for public discussion in which it proposed to introduce a ban on the exchange, circulation, and issue of cryptocurrencies. The regulator also considers it necessary to prohibit the organization of these operations using Russian infrastructure. Already in February, the Central Bank confirmed its position by preparing a corresponding draft law. The draft law includes provisions banning the issue, circulation, and exchange of cryptocurrencies, as well as prohibits Russian companies to own private digital currencies.

At the same time, during one of the press conferences, Elizaveta Danilova, director of the Financial Stability Department of the Bank of Russia, said that Russians will be able to own cryptocurrency and buy it with the help of foreign trading platforms. Danilova explained that the position of the Central Bank is to limit the interaction of cryptocurrencies with the domestic financial system to reduce the risks posed by private digital assets.

The concept of the Ministry of Finance

The Ministry of Finance of Russia has a different approach to the regulation of cryptocurrencies. The Ministry believes that the circulation of digital assets in the Russian Federation can be allowed with strict control of the industry by supervisory authorities. The Ministry of Finance proposes that all operations with cryptocurrencies should go through banks and exchanges, which will receive permission to operate in Russia. To do this, they will need to comply with the requirement of the law "On Landing." Several major cryptocurrency exchanges have expressed their willingness to open branches in Russia and follow Russian legislation. In February, the Ministry of Finance prepared two draft laws on its concept of cryptocurrency regulation.

The Ministry of Finance developed its concept of cryptocurrency regulation in cooperation with the Ministry of Economic Development, Prosecutor General's Office, Rosfinmonitoring (the Federal Service on financial monitoring of the Russian Federation), Federal Security Service, Ministry of Internal Affairs, Federal Tax Service and Ministry of Digital Development, Communications and Mass Media. In January, the concept of the Ministry of Finance was approved by the Russian government.

The Central Bank opposed the proposals of the Ministry of Finance and stated that the department's concept threatens to create a parallel financial system in Russia, which will not be regulated by the supervisory bodies.

New challenges

Following the introduction of various economic sanctions against Russia, which also include cryptocurrencies, new statements were made and various initiatives were implemented.

For example, the Bank of Russia instructed financial institutions to strengthen supervision over transactions related to digital assets. The document, which the regulator sent to banks, says that operations with cryptocurrencies should not violate Russia's retaliatory sanctions against countries that have imposed economic restrictions on Russians. The decree also prohibits the use of cryptocurrencies to withdraw assets abroad.

State Duma deputy Alexander Yakubovsky, who is a member of the working group on the regulation of cryptocurrencies, said that Russia has every opportunity to create its own cryptocurrency exchanges. Yakubovsky believes that effective and clear regulation of digital assets will allow Russia to open up access to the global financial market.

Yakubovsky made his statement after some cryptocurrency exchanges completely shut down access to trading for users from Russia. Such restrictions were imposed by KUNA, WhiteBIT, CEX.IO, and Qmall. Binance, Coinbase, Kraken, and Bitfinex declared compliance with the sanctions law, but have not yet blocked all Russian users, as there was no such requirement from regulators.

When will cryptocurrency become legal in Russia?

In February, Anatoly Aksakov, chairman of the State Duma Committee on the Financial Market, reported that a bill to regulate the cryptocurrency industry was ready in draft form. According to Aksakov, during the document preparation, some proposals of the Ministry of Finance had to be abandoned. At the moment, experts are still working on the draft law, and its adoption is planned for the first half of 2022, the deputy added.