About the Report of the Central Bank of the Russian Federation on cryptocurrencies

We hasten to briefly bring more clarity to the sensational Report of the Central Bank of the Russian Federation on cryptocurrencies, taking into account incorrect interpretations and even some panic.

• The report is advisory, that is, it involves public discussions. So far, this is not even a legislative initiative, not a bill. Until March 1, the Central Bank will collect comments. This practice is accepted in many countries and implies that the regulator studies / takes into account the opinion of the market and authorities on the relevant issue.
• The report and the position of the Central Bank in it concerns only cryptocurrencies and stablecoins. Regarding other types of crypto assets, index funds, crypto derivatives, the Central Bank has not yet spoken.
• Cryptocurrencies, according to the Central Bank, "include digital currencies [according to the CFA law], as well as CFA, which can be used in a foreign jurisdiction for payments."
• Of course, there are issues with the qualification of certain crypto assets (it is not always obvious what falls under the definition of digital currencies and what does not), but such issues were initially voluntarily or involuntarily "laid down" in the CFA Law, and the relevant qualifications are made subject to each specific asset, which are now present in the markets in a wide variety. The "classic" and most widely known cryptocurrencies are obviously included in the perimeter of the Report.
• There are some features. In the Report, the Central Bank introduces a new classification and new concepts - "unsecured cryptocurrencies, stable coins and tokenized assets". It is not yet clear why this is done. At the same time, the CFA and utilitarian digital rights of the Central Bank refer to tokenized assets (the Report does not apply to them). As noted above, CFAs with a payment function "in a foreign jurisdiction" are moving, according to the Central Bank, into the category of cryptocurrencies.
• Regarding the ownership of cryptocurrencies, the Central Bank does not express any intention to legally prohibit the ownership of cryptocurrencies at the level of individuals, but we are talking about monitoring (including international cooperation) and the possible introduction of mandatory declaration of ownership of cryptocurrencies. At the same time, a formal international information exchange on transactions with cryptocurrencies will be launched if and when the relevant international agreements are changed.
• Certain measures (for example, to "slow down" operations at the level of banks where cryptocurrencies may be involved) were presented as recommendations by the Central Bank of the Russian Federation in the fall of 2021. So far, these are recommendations.
• The main emphasis on the proposed bans is on the use of Russian infrastructure in cryptocurrency turnover. The Central Bank offers to completely close such an opportunity (organization of issue, sale, exchange, etc.). This applies to national financial organizations, as well as mining. Investments of Russian financial organizations in cryptocurrencies are also proposed to be banned. The purchase, exchange and transactions of individuals at the level of foreign sites are not included in the perimeter of the ban.
• Regarding the retroactive effect of the bans (extending the action back after the ban was introduced), the representative of the Central Bank found it difficult to answer. We still consider this unlikely.
• As for possible liability, it is proposed to provide for it in the form of administrative fines at the level of the law (which is self-evident and has been planned for quite a long time), and this will concern violations of explicitly formulated prohibitions, which should also be provided for in the relevant law. So far, in relation to digital currencies, the law prohibits residents of the Russian Federation from receiving them in payment for goods, works, and services.
• In general, although the Report relies on international experience in terms of treating cryptocurrencies and stable coins as risky assets, it does so only to justify its own prohibitive approach (which, of course, is not a universal practice in the world for this industry).

Link to the Report: https://www.cbr.ru/Content/Document/File/132241/Consultation_Paper_20012022.pdf?fbclid=IwAR0sSbEjFEC...

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