On July 30, 2024, laws aimed at regulating cryptoassets were passed by the State Duma and approved by the Federation Council. They promote the use of cryptocurrency, stablecoins and DFAs in cross-border settlements.
1. Regulation of cryptocurrency mining
Bill No. 237585-8 is key, and it establishes the following:
- The definition of digital currency (cryptocurrency) mining has been set forth – this is the activity of carrying out mathematical calculations through the operation of technical and hardware-software means for making records in an information system that uses technology, including distributed ledger technology, with the purpose of issuing digital currency and (or) receiving remuneration in digital currency for the confirmation of records in the information system by a person carrying out such activity.
The law also defines other concepts in the field of mining - a mining pool, a mining infrastructure, an address-identifier, etc.
- The procedure for the activities of miners has been determined. Russian legal entities and individual entrepreneurs may conduct mining (including through a mining pool) after being included in the register of miners to be maintained by the Ministry of Digital Development. Address-identifiers (understood as wallets to which cryptocurrency mined in the course of mining is received) must be reported to Rosfinmonitoring for the purposes of AML/CFT legislation. Individuals may mine without being included in the register if they do not exceed the energy consumption limits set by the Government. For repeated violations of mining and anti-money laundering legislation, a miner may be removed from the register.
- In addition, the Russian Government will establish rules for maintaining registers of miners and operators of mining pools and mining infrastructure and will also determine an authorized body to supervise compliance with the legislation on mining.
- Restrictions on mining in the energy sector have been established. Legal entities and individual entrepreneurs may not combine mining with activities involving the transmission of electric power, operational and dispatch management in the electric power industry, and the production or sale of electric power. The Russian Government has the right to establish a ban on mining (including participation in a mining pool) in certain constituent entities or in certain territories. If the ban is violated, the maximum connected capacity is reduced by a court decision, up to and including complete disconnection of the mining equipment from the grid without refund of the connection fee.
- Limitations on the circulation of cryptocurrency have been adjusted. The prohibition on Russian residents receiving cryptocurrency as a result of the issuance of cryptocurrency and (or) in the form of remuneration for the validation of records in an information system (i.e. for the validation of records in a blockchain and in the form of a mining pool commission) has been explicitly removed. Advertising of cryptocurrency, as well as goods (works, services) for the purpose of organizing the circulation and (or) circulation of cryptocurrency is prohibited.
2. Regulation of cryptocurrency trading
Bill No. 341257-8 has been adopted for this purpose. It establishes the following:
- The Bank of Russia is an authorized and regulatory body for experimental legal regimes (ELR, “regulatory sandbox”) in the field of digital innovations in the financial market (Federal Law No. 258-FZ dated 31.07.2020).
- The ELR may amend or abolish currency legislation in terms of the use of the concepts of "currency values" and "currency transactions"; carrying out transactions with cryptocurrencies, including their use as a means of payment under foreign trade agreements (contracts) between residents and non-residents for the transfer of goods, performance of work, provision of services, transfer of information and IP; determining the rights and obligations of residents and non-residents when carrying out currency transactions with cryptocurrencies, as well as determining the rights and duties of currency control bodies and agents.
- The ELR may change the legislation on organized trading with regard to the procedure for the admission (termination of admission) of cryptocurrencies as a commodity to organized trading, as well as the definition of requirements for trade organizers conducting organized trading in cryptocurrency, including the definition of cases when services for conducting organized trading in cryptocurrency may be provided by a trading system.
- Also, the ELR may amend the legislation on digital financial assets (Article 14 of the DFA Law) with regard to cryptocurrency transactions in foreign trade activities through an authorized organization. An authorized organization means an organization defined by the ELR program that ensures conclusion of cryptocurrency transactions between ELR participants.
The ELR parameters are not yet known and there is no certainty from the regulator in this part. The ban on accepting cryptocurrency as payment for goods, work or services set forth in Part 5, Article 14 of the DFA Law is still in place; payments to foreign suppliers are not prohibited even now. Cryptocurrency transactions on foreign platforms are also not prohibited, and within the framework of the ELR, its participants will be able to create Russian crypto exchanges and crypto exchanges.
3. Digital Rights and Stablecoins
Bill No. 237585-8 contains a set of important amendments regarding digital rights, including foreign ones:
- A definition is given on foreign digital rights which are obligatory and other rights the issue, registration and circulation of which are carried out in an information system organized not in accordance with Russian law, with the exception of foreign securities which, in accordance with the personal law of the person obliged thereunder, are classified as securities.
- A foreign nominee holder of DFAs is defined - it keeps records and transfer rights to DFAs credited to it that belong to other persons in accordance with its personal law.
- The requirement to conduct transactions with DFAs through an exchange operator does not apply to transactions involving the use of DFAs as the consideration on foreign trade contracts.
- The Bank of Russia may establish peculiarities of accounting and (or) circulation of foreign digital rights, in which case generally they could not be acquired by Russian individuals.
Previously, foreign digital rights were mentioned in a single provision in Article 10 of the DFA Law. Further, in the spring of this year, Federal Law No. 45-FZ dated 11.03.2024 introduced a number of amendments to currency legislation, recognizing digital rights nominated in foreign currency as currency values and establishing the possibility of settling foreign trade transactions with digital rights. Now the amendments under consideration in conjunction with the previous amendments will make it possible to define for the purposes of Russian legislation foreign crypto-assets corresponding in their characteristics to digital rights, such as stablecoins (such assets, for example, USDT, are already actively used in international settlements).
The bill also proposes a number of changes to the rules on the circulation of digital rights as an investment instrument:
- It is now possible to issue "targeted" DFAs by mentioning in the decision to issue a DFA specific legal entities or individual entrepreneurs or the criteria to be met by investors.
- The decision to issue a DFA or to grant security under a DFA may be signed not only by an individual entrepreneur or the sole executive body of a legal entity, but also by a person authorized by them.
- Decisions to issue DFAs to a limited number of investors may not be published on the issuing operator's website.
- The decision to issue a DFA by a foreign issuer to a limited number of investors may be drawn up on paper, in which case it is digitized and certified by the electronic signature of the issuing operator.
If enacted, the mining and DFA bill would take full effect on 1 November 2024, and the ELR bill - on 1 September 2024.
Attracting investments through the issuance of digital rights, the mining and circulation of cryptocurrency, and the use of these crypto-assets in cross-border settlements involve a number of currency regulation, accounting and taxation issues.