Russia’s Finance Ministry introduces digital currency bill, brushes off central bank’s objections

Russia’s Ministry of Finance has upped the stakes in its drawn-out showdown against the country’s Central Bank (CBR) by formally introducing a bill that proposes to regulate digital assets rather than banning them.

On Monday, the Ministry introduced a draft of the federal law “On digital currency” to the government. This stage of the legislative process precedes the bill’s introduction to the parliament for consideration.

The agency cited the “formation of a legal marketplace for digital currencies, along with determining rules for their circulation and range of participants” as the rationale for the initiative. Emphasizing that the bill does not seek to endow digital currencies with legal tender status, its authors define cryptocurrencies as an investment vehicle.

The bill proposes a licensing regime for the platforms facilitating the circulation of digital assets and stipulates prudential, risk management, data privacy and reporting requirements that such operators would be subject to. Purchasing and selling crypto legally would only be possible via a bank account, and it is proposed that both crypto platforms and banks introduce Know Your Client procedures.

The legislation also requires digital asset operators to inform retail customers of the risks associated with crypto trading. Individuals would have to pass a test assessing their knowledge of crypto investment practices and risk awareness. Those who had passed the test would be subject to a yearly investment limit of 600,000 rubles (around $7900); those who had not passed the test would only be allowed to invest up to 50,000 rubles ($650) a year. Businesses and qualified investors are to be exempt from yearly limits.

Additionally, the bill introduces a formal definition of crypto mining and specifies a mechanism whereby crypto market participants can report their activities to tax authorities.

The Finance Ministry’s bill comes days after the Bank of Russia sent its own digital asset framework to the Ministry for review. CBR’s position remained unchanged: Issuing digital assets and facilitating their circulation are deemed illegal, while banks and other financial institutions should not be allowed to hold or transact in crypto. A novel clause included in the latest draft also proposes to outlaw crypto ads.

The Ministry of Finance and the Central Bank were expected, but failed to reconcile their positions by Friday, producing two contradictory pieces of legislation instead. The Ministry’s press release wryly mentions that CBR’s propositions “Will be considered on later stages of the bill’s development insofar as they are not at odds with the Finance Ministry’s approach.”