Russia Adopts Law on Digital Financial Assets: A Step Forward or Another Move Towards Further Restrictions?

A new Russian law ‘On digital financial assets, digital currency and amendments to certain laws of the Russian Federation’ dated July 31, 2020 (‘the Law’) introduces definitions of digital financial assets (‘DFAs’) and digital currency and regulates the issue, recording and circulation of DFAs and the circulation of digital currency.

Digital rights have been initially incorporated in the Russian legislation via article 141.1 of the Russian Civil Code in 2019. Following utility digital rights, DFAs are the second type of digital rights having been introduced by Russian legislation. DFAs may include rights to monetary claims, the exercise of rights under issuable securities, rights to interest in the capital of non-public joint stock company and rights to require the transfer of issuable securities. Pursuant to the Law, the decisions on the issue of DFAs acquire the status of public offers. The Law allows the issuance of DFAs and other digital rights through the same information system provided the system meets the requirements for the issue of DFAs.

The Central Bank of the Russian Federation plays the crucial role as the regulator with the power to register the DFA’s information system operators, to define the features of the DFAs that may be acquired exceptionally by qualified investors and to approve the DFAs exchange rules of the DFAs exchange operators.

The Law sets forth a relatively broad scope of state bodies and institutions having the power to request the disclosure of the information on the DFAs registration without judicial decision. Pre-trial investigation bodies, insolvency representatives and the tax office are in this list, along with the court and bodies exercising anti-corruption controls which are involved in the restricting the use of proceeds from criminal activity.

The critical and long-awaited provisions introduced with the Law lie in the field of digital currency regulation. Firstly, the Law provides the definition of digital currency stating that it is a set of electronic data (digital code or designation) contained in the information system that are offered and (or) may be accepted as means of payment which is not a currency unit in the Russian Federation or in a foreign state and (or) international currency or payment unit, and (or) as investment, and there is no person under an obligation towards the owner of such electronic data apart from the operator and (or) information system nodes that are responsible for the insurance of the compliance of issuance of such electronic data and for the entry (amending) of records in the information system with its (information system) rules. Secondly, the Law defines the organization of issue and organization of circulation of digital currency in the Russian Federation as the operations made with the use of the domain names and network addresses located in the Russian national domain zone or with the use of information systems or technical means located in the territory of Russia (objects of Russian information infrastructure).  

Finally, the Law aims to prohibit the acceptance of digital currency by Russian legal entities, Russian branches or representative offices of foreign legal entities and Russian individual tax residents of digital currency as consideration for the selling of goods, services or works as well as the promotion of offer and (or) acceptance of digital currency as consideration for the selling of goods, services or works or of any other means allowing payment by digital currency for the goods, services and works.

Whereas the Law did not initially contain any provisions on liability for using digital currency as means of payment, on August 28, 2020 a draft law amending the Russian Criminal Code was submitted by the Russian Ministry of Finance, advancing criminal liability for the organization of illegal circulation of digital currency, eg issue or organization of issue of digital currency or its circulation by means of operations apart from those that are not prohibited under Russian federal laws.

The provision of services facilitating civil law transactions and trading operations resulting in the transfer of digital currency is also expected to be subject of a separate federal law on digital currency.

Mariet Mezokh is an Expert at the Centre of Legal Innovations, PJSC, ‘Mobile TeleSystems’.