Russian government sets out mechanism for Bitcoin transactions via banks

Russian authorities intend to impose strict obligations on all participants in the cryptocurrency market. In addition to licensing exchanges and exchangers, all transactions are to be conducted through the banking system.

ForkLog outlines the main provisions approved by the Russian government concept for the legislative regulation of the turnover of cryptocurrencies. According to it, digital currencies will in effect be recognised as a close analogue of foreign currency, and not digital financial assets or securities.

Investors

All individual customers will be classified as qualified or non-qualified investors. For this they will undergo testing on bank platforms. Subsequently, for non-qualified investors caps will be imposed on exchange operations.

To carry out cryptocurrency transactions, a user must open an account or an electronic wallet with the operator of the digital currency exchange system and undergo identification.

Operator of the digital currency exchange system

According to the concept, these would include universal-licensed banks that have the right to carry out the opening and maintenance of bank accounts for individuals and legal entities, and to provide electronic means of payment. Their list will be fixed in a special registry.

Banks must perform identification of the devices from which a transaction is conducted, and of the users themselves. Personal data of individuals includes:

• Full name, address, date of birth, email address, phone number, login and password;
• bank account data or card number, expiration date and CVC code of the card used to acquire virtual assets;
• numbers and copies of identity documents, for example, passports or driver’s licences;
• the client’s photograph.

Additionally, transaction information is recorded, including date, time, amount, currencies used, and the recipient’s and sender’s details.

Operators of the exchange system will verify cryptocurrency transactions for possible links to illicit activity and report violations to state authorities, or provide the relevant information on request. For monitoring cryptocurrency transactions, a Rosfinmonitoring-developed service “Transparent Blockchain” is proposed.

Information about transfers, including the wallet addresses of the parties to the transaction, must be retained for at least five years.

Operators of digital currency exchanges

The concept’s provisions classify P2P exchangers with “basic operator” rights, and cryptocurrency exchanges with “universal rights.”

To operate within the Russian jurisdiction, cryptocurrency platforms must register a legal entity and obtain a license or permit from the financial regulator. In due course, authorities will determine the minimum authorised capital for such companies and set requirements for the security of their information systems.

The concept provides for mandatory KYC/AML procedures for clients of exchangers and exchanges. At the same time, trading platforms must open their own accounts or wallets in a Russian bank and provide it with data on planned cryptocurrency transactions.

They will also be required to hold liquidity cushions and adequate capital.

The concept separately considers foreign crypto exchanges. They are required to have representation within the Russian Federation and an agreement with a local bank. A foreign exchange is prohibited from transferring client funds to accounts and wallets other than those registered for it in that bank.

Trading platforms registered in offshore zones will not be able to operate in Russia.

Transaction execution mechanism

Before buying or selling digital currency, a user must open a cryptocurrency wallet and undergo identification with a Russian bank.

Exchanges and exchangers executing the transaction report to banks information about the client’s wallet intended to conduct the operation, and about the details of the transaction. The bank checks whether the transaction is linked to illicit activity, after which it issues a confirmation that the operation may proceed. Only after this can the exchanger or exchange transfer the cryptocurrency to the client’s wallet and debit funds from the other party to the deal.

The digital currency exchange information system records the completed transaction, including the amount and the cryptocurrency wallet address.

Withdrawals to wallets registered outside Russian banks are prohibited.

Regulatory authorities

In supervisory roles within their remit may be the Ministry of Finance, Rosfinmonitoring, the Federal Tax Service, the Ministry of Digital Development, the Prosecutor General’s Office, and the Bank of Russia.

Legislative changes

In implementing the concept, four bills are planned to be refined and enacted. Among them:

• draft law on taxation and reporting of cryptocurrency transactions;
• amendments to the Code of Administrative Offences to establish liability for illicit turnover of digital financial assets and breaches of rules governing transactions with them, as well as for organising illicit reception of digital currency;
• amendments to the Criminal Code to establish liability for evading the declaration of information on digital currency transactions, and provisions that crimes involving cryptocurrencies will be an aggravated circumstance;
• amendments to the Law on Countering Money Laundering in terms of the obligation for monitoring subjects to transmit information on cryptocurrency operations to Rosfinmonitoring.

The government also does not rule out amendments to the law “On Digital Financial Assets” or the drafting of a new federal law.

“Setting rules for the circulation of cryptocurrencies and control measures will help minimise threats to the stability of the financial system and reduce the use of cryptocurrencies for illicit purposes, because a complete ban on the segment of operations related to their circulation is not possible,” the document says.

As noted earlier, in contrast to the Central Bank’s total ban on cryptocurrency operations in the country, the Finance Ministry presented its own concept for regulating the market.

The day before, on 8 February, the government supported this document and instructed the Minister of Finance, Anton Siluanov, together with the Bank of Russia, to introduce the corresponding bill by 18 February.

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