Massive Regulation Overhaul: Russia’s Crypto Exchanges to Face Unprecedented Scrutiny!

• Russia’s Federal Tax Service utilizes blockchain for financial support during COVID-19, proving its effectiveness in secure data handling.
• Pending legislative package aims to regulate and clarify cryptocurrency operations, ensuring all exchanges comply with new legal standards.

Cryptocurrency exchanges in Russia will soon be required to obtain a license and store information about cryptocurrency owners for at least five years, sharing it with law enforcement and other government agencies upon request. 

This initiative, spearheaded by Rosfinmonitoring, aims to bring cryptocurrencies out of the shadows and minimize the number of crimes committed with or facilitated by them. This announcement was made on October 17th during a roundtable on blockchain technologies held at the Federation Council.

During the discussion, Irina Rukavishnikova, the First Deputy Chairman of the Federation Council Committee on Constitutional Legislation and State Building, emphasized the acute relevance of modern technologies, including blockchain , recognized by politicians, experts, and all affected stakeholders.

Blockchain’s Regulatory in Russia

Currently, Russia lacks a comprehensive legislative framework for blockchain, with only fragments existing in various legal documents. Rukavishnikova pointed out the need for a holistic approach to regulating blockchain technologies.

Alexander Belenov, co-founder of the “Blockchain” master’s program at MIPT and the center of competence “Blockchain” at the High Energy Physics Laboratory, simplified blockchain as a global database where information can be added but not deleted or altered. 

This characteristic allows blockchain technology to have a broad range of applications, such as tokenization and smart contracts, which can be used for joint management systems like housing cooperatives or partnerships.

Blockchain’s Use in Russia 

According to Olga Gritskova, Deputy Head of Interactive Services Management, the Federal Tax Service of Russia began implementing blockchain technologies during the COVID-19 pandemic to support affected business sectors, particularly in issuing concessional loans.

However, cryptocurrencies, the most famous application of blockchain , present challenges. Olga Tisen, head of the legal department at Rosfinmonitoring, noted that cryptocurrencies are often involved in various crimes worldwide. Identifying the owner of a cryptocurrency wallet typically requires law enforcement to directly approach cryptocurrency exchanges, which do not have a defined protocol for such inquiries.

Regulatory Proposals for Cryptocurrencies 

Since 2017, a package of bills aimed at “whitening” the cryptocurrency operations sphere has been under development. These require all cryptocurrency exchanges to register or obtain a license and include duties such as establishing information about the crypto address owner and keeping all transaction records for no less than five years.

These proposed regulations also require exchanges to provide state authorities, primarily law enforcement, with the requested information. Tisen highlighted that route rules should also be established to ensure each transaction includes information about both the sender and the recipient.

“In the case of cryptocurrencies, it often becomes problematic even to establish the fact of a crime being committed,” stated Olga Tisen. 

“Typically, this is determined, for example, during the investigation of various criminal activities in a conventional manner: a drug dealer or a corrupt official is caught, and during the search, cryptocurrency wallets, exchange applications, and so on are discovered.”

While the implementation of these rules is technically complex, such rules are currently operational only in EU countries.

‘We hope that a significant portion of the legislative proposals, considering their development timelines, will be adopted by the end of this year,’ emphasized Tisen. 

Tisen expressed hope that most of the bills, considering their development timeline, will be passed by the end of this year. Subsequently, Government decrees will also be prepared to regulate additional and clarifying issues regarding these laws.

‘Following this, government decrees will be prepared for each of the laws to regulate a number of additional and clarifying issues.’