Draft Federal Law “On Digital Financial Assets” submitted to the State Duma
Legal update No 634
Goltsblat BLP (from April 2018, Bryan Cave Leighton Paisner (Russia) LLP) advises that, on 20 March 2018, a draft law “On Digital Financial Assets”1 (the Draft Law) was submitted to the State Duma. Its purpose is to regulate (i) use of digital financial assets in Russia and (ii) rights and obligations under smart contracts.
The Draft Law does not regulate use of digital financial assets in detail, offering rather a relevant regulatory framework.
The Draft Law defines digital financial assets as property created in electronic format using cryptographic devices and establishes two types: cryptocurrency and tokens.
Digital financial assets, including certification of the title to them, are recorded in a dedicated ledger of digital transactions (the Ledger).
Please note that digital financial assets are not recognised as legal tender in the Russian Federation.
The Draft Law gives no detailed definition of “cryptocurrency”, merely describing it as a type of digital financial asset generated and registered in a Ledger by Ledger participants.
The Draft Law uses the term “mining” to define business involving cryptocurrency generation and/or validation for a fee in cryptocurrency. Interestingly, mining is recognised as a business if the person carrying out the activity exceeds the electricity consumption limits set by the government for three months running.
This means that only a Ledger-participant doing business may issue cryptocurrency.
Tokens are issued to raise funds. Like cryptocurrency, tokens must be recorded in a Ledger.
The Draft Law allows only sole traders and legal entities to issue tokens.
There are two stages to a token issue: (1) posting a public offer for the issue and an investment memorandum on the Internet and (2) concluding agreements, including smart contracts, as described in more detail below.
Requirements are also set on the public offering of tokens, including the investment memorandum. Importantly, tokens may not be offered to potential acquirers in any form using advertising until the offer is published.
Trading in digital financial assets
The Draft Law allows transactions for exchanging tokens for roubles or foreign currency only through a digital financial asset exchange operator that organises trading2.
A major role in digital financial asset trading is allocated to the Central Bank of Russia. For instance, the Draft Law prescribes that:
the regulator, by agreement with the government, establishes a list of other transactions for exchanging digital financial assets permitted in the Russian Federation;
transactions for exchanging tokens for roubles or foreign currency involving a trader must observe the rules covering organised trade in digital financial assets, which are to be registered with the Central Bank of Russia;
the Central Bank of Russia will set the maximum value of tokens that may be acquired by persons other than qualified investors; and
the Central Bank of Russia will determine how e-wallets (storing details of the above transactions) are to be used and set requirements on them.
It is interesting that the Draft Law contains a definition of smart contracts as electronic agreements including rights and obligations fulfilled through automatic digital transactions performed in the distributed Ledger in a strict sequence and in the circumstances specified in the contract. The Draft Law offers no other provisions regulating smart contracts.
1 Draft Law No. 419059-7 dated 20 March 2018.
2 Under Federal Law No. 325-FZ “On Organised Trading”, a trading organiser is a person offering organised trading services on goods and (or) financial markets under a licence issued by a stock exchange or trading system.
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