On 25th of January 2018, the Russian Ministry of Finance (Ministry of Finance) posted on its official website[1] the draft of Federal Law on «Digital Financial Assets». As of the date of posting the latter comprised five (5) Articles. The primary goal of the aforementioned Federal Law is to depict cryptocurrencies by legal measures.
Cryptocurrencies are goods and not money.
According to the Ministry of Finance, «the digital assets created using encryption (cryptographic) tools» are digital financial assets». For instance, cryptocurrencies and tokens now pertain to such assets. At the same time, as it follows from the statements of the representatives of the Ministry of Finance, the cryptocurrencies cannot be used as a legal means of payment in the territory of the Russian Federation. At present, the Ministry is finalizing the new federal law providing for definition of the concept of «money surrogates» and establishing responsibility for their use as a payment facility.
Cryptocurrencies trading is allowed only on the official stock exchange.
Exchange of tokens for other cryptocurrencies or rubles can be conducted only through specialized stock exchanges – «digital financial asset swap operators». Only a legal entity registered in Russia and observing Laws № 39-FZ «Concerning the Securities Market» or № 325-FZ on «Exchange Trading» can become such an operator.
The stock exchanges will be able to open electronic wallets only after identification of users in accordance with Law No. 115-FZ on «Counteraction of the Legitimization (Laundering) of the Proceeds of Crime and the Financing of Terrorism». The Central Bank of the Russian Federation (Central Bank) should develop procedures concerning opening and maintaining accounts.
At the same time, the Central Bank has several complaints regarding the proposed procedures in terms of stock exchanges operations. The Ministry of Finance warns that tokens the companies use for fundraising can be bought for Rubles only. The Ministry believes that it is impossible to prohibit the usual purchase of cryptocurrency because otherwise illegal business will «rush» to this market.
Mining is business activity.
Additionally, the document addresses smart contracts and mining; the latter is considered as a business activity related to establishment or validation of cryptocurrency against consideration. At the same time, the draft law does not regulate mining and does not set any requirements conserning implementation of such activity.
To undertake ICO[2] one must disclose all information about the project. In particular, the draft law prescribes to the token issuers to disclose specific information before the publication in the form of a public offer and investment memorandum. Thoses documents must provide the following:
- The information about the issuer and his/her beneficiary (name, principal place of business, the structure of governing board, official web-site and so on.);
- The rights allocated to the owner of token and the procedure to exercise these rights;
- The price for issuing token or the method of its determination;
- The information on the process to open and access electronic wallets used to store information about the acquiring tokens;
- The primaryobjectives of the issuance of tokens and the use of funds derived from the ICO;
- The rules for keeping the register of digital transactions.
The users who do not has a status of qualified investor will be able to buy tokens in the course of each ICO to the sum of no more than 50 thousand rubles[3] (correspondingly, the draft law does not specify any limits for qualified investors). The document does not define limits of the sum, which a legal entity can bring in through ICO. Previously the Ministry of Finance wanted to set a limit of 1 billion Rubles[4].
If the draft document passes three readings in the State Duma (RF Parliament) and receives approval from the Federation Council and then be signed by the President of the Russian Federation, it will come into effect in 90 days after its official publication. The proposed law can be changed in the course of the parliamentary deliberations.
The Ministry of Finance expects that the Law on «Digital Financial Assets» will come into force in September 2018. Though, it is unlikely to happen.
The current version of the draft law demands improvements as many aspects of the economic transactions have not been taken into consideration. For instance, the present version does not specify if the law reaches upon foreign issuers directed to Russian investors; taking into account the number of cryptocurrency it is plausible to include in the future version the open list of financial assets (currently it is only token and unspecified cryptocurrency); the current version of the law establishes requirements for information disclosure by issuers of tokens, but does not establish sanctions for their violation nor control over their observance.
[1] http://old.minfin.ru/en/
[2]ICO is the abbreviation of the Initial Coin Offering. It means that someone offers investors some units of a new cryptocurrency or crypto-token in exchange against cryptocurrencies like Bitcoin or Ethereum. Since 2013 ICOs are often used to fund the development of new cryptocurrencies. The pre-created token can be easily sold and traded on all cryptocurrency exchanges if there is a demand for them.
[3] In accordance with exchange rate on 07 March 2018 this sum equals to 708.43 Euros.
[4] In accordance with exchange on 07 March 2018 this sum equals to 14,148,197.56 Euros.
