The Bill regulates arrangements associated with issue, accounting and circulation of digital financial assets (DFAs), details the specific role played by operators of information systems in which DFAs are to be issued and by DFA exchange operators and governs digital currency circulation in Russia, leaving non-cash and e-money circulation and issue, accounting and circulation of uncertified securities beyond its scope.
Having triggered changes, including to federal laws No. 208-FZ dated 26 December 1995 “On Joint Stock Companies”, No. 39-FZ dated 22 April 1996 “On the Securities Market”, No. 115-FZ dated 7 August 2001 “On Combating Legalisation of Criminally Derived Proceeds (Money Laundering) and Financing of Terrorism”, No. 38-FZ dated 13 March 2006 “On Advertising”, etc., the Bill is on track to become effective on 1 January 2021.
Digital Currency Circulation:
“Digital Currency” is now defined as a set of electronic data (digital code or designation) within an information system that are offered and/ or capable of being accepted as a means of payment or investment. These e-data do not, however, constitute a monetary unit of the Russian Federation or a foreign state, or an international payment or monetary unit. No-one other than information system operators and/or nodes bears any e-data obligations to each e-data owner, while the operators /nodes are only responsible for ensuring that the e-data issue procedure and relevant actions for entering (changing) records in the information system comply with the system rules.
In fact, there is only one section in the Bill addressing digital currency circulation and defining such terms as “arranging issue of digital currency in the Russian Federation”, “issue of digital currency in the Russian Federation” and “arranging digital currency circulation in the Russian Federation” as implying use of the Russian information infrastructure. More detailed regulation of digital currency circulation will be offered in separate federal laws.
Digital currency transactions will be limited: no Russian legal entities, Russia-based subdivisions of foreign companies or international organisations or individuals spending at least 183 days in Russia within a year may accept digital currency in consideration for goods (works or services). Nor may any information be disseminated about any digital currency being offered or accepted in consideration for transferred goods (services or works) or otherwise allowing assumptions to be made that this currency may be used to pay for them.
Digital currency ownership claims may only be enforced subject to this ownership or transactions with this digital currency having been disclosed (declared) as specified by the Russian legislation on taxes and levies.
Unlike the previous version proposed for the second reading, the current one says nothing about administrative or criminal liability for failure to comply, although we cannot exclude that they might be imposed by a separate bill. Such concepts as “token” and “mining” (the latter being similar in meaning to the term “digital currency issue in the Russian Federation” used in the Bill) have also been taken out.
By implication, the Bill recognises digital currency as property for the purposes of the money laundering, bribery, bankruptcy and enforcement legislation, which means it may be subject to the restrictions imposed by these laws. Moreover, in contrast to DFAs, digital currencies are not attributed to digital rights within the meaning of the civil legislation so, in this respect, the question about their classification is still outstanding.
Issue, Accounting and Circulation of DFAs
The Bill defines DFAs as digital rights (including monetary claims, the ability to exercise rights attached to mass-issued securities, rights to participate in the equity of non-public joint stock companies, the right to claim transfer of mass-issued securities) that may only be issued, accounted for and transferred by making (changing) records in distributed ledger-based and other information systems. “Distributed Ledger” (DL) (also generally known as “blockchain”) means a set of data bases in which identity of information is achieved via installed algorithms (or any single algorithm). According to the DL-based definition in the Bill, “information system node” (also generally known as “blockchain node”) means the system user ensuring identity of information by applying the procedures for validating records entered or changed in the system.
The first owner of DFA-certified rights becomes so entitled once a DFA crediting record is made in its favour in the information system in which the DFAs are issued. The type and the scope of rights certified by issuable DFAs will be detailed in a DFA issue decision that, according to the Bill, must be made electronically, signed with the DFA issuer’s qualified electronic signature, posted on its own web-site and the web-site of the operator responsible for the information system within which the DFAs are to be issued and be publicly accessible until all the obligations of the DFA issuer have been discharged in full. DFA issue decisions may be addressed to the general public (as a public offer) or to specific parties (for DFAs certifying rights to participate in the equity of non-public JSCs).
If and as provided for by Russian Central Bank regulations, DFAs may be credited to nominee holders who must, in this case, book the rights to other parties’ DFAs. Only those licensed to provide depositary services may act as DFA nominee holders. Specifically, no operators of information systems within which DFAs are issued may be their nominee holders.
DFAs must be booked/ recorded in the information system in which they are issued, as established by the system rules. Generally, DFA-certified rights will be transferred to a new transferee once a transfer record is entered in the information system according to the system rules. Similarly, rights to dispose of DFAs will be limited or charged once this is recorded in the information system as per the system rules.
To be recognised as a DFA owner, a party must both be included on the user register for the information system in which DFAs are booked and have access to this system via a unique access code. The unique code allows parties to obtain information about their DFAs and to dispose of them using the information system.
The Bill also describes 1) the issue and circulation specifics for DFAs certifying rights to participate in the equity of joint stock companies (JSC) and 2) the issue and placement specifics for DFAs certifying the possibility of exercising rights attached to mass-issued securities and the right to claim their transfer.
The Bank of Russia will have the right to set the criteria for DFAs that may only be purchased by qualified investors or, within a certain amount, by non-qualified individual ones.
Operators of the Information Systems in which DFAs are Issued: Role Specifics
The Bill sets a number of requirements on 1) such operators’ activities 2) the procedure for including them on the operators’ register for such systems (the “Register”) and 3) the circumstances under which the Bank of Russia may and will strike them off the Register.
If on the Register, any Russian legal entity (including credit institutions and entities licensed to provide depository or trade organiser services) may act as an operator of information systems in which DFAs are issued (“IS operators”).
IS operators must approve the information system rules and set up a compliance and risk management function (or appoint a compliance officer and an official responsible for putting in place a risk management system). The requirements are set on the information system rules and the qualifications, expertise and business reputation of its officers.
It is noted that an IS operator booking rights to non-public JSC shares issued as DFAs must hold a professional securities market player licence for maintaining the Register.
Circumstances in which IS operators must pay damages to users of this system are also specified.
DFA Exchange Operators: Role Specifics
DFA transactions are completed through DFA exchange operators ensuring that they are made by collecting and matching buy and sell bids or by participating themselves in DFA transactions as a transaction party (at their own expense and to the benefit of third parties). DFA transactions include, specifically, sale and purchase of DFAs, exchange of any type of DFA for DFAs of another type or for digital rights, transactions involving DFAs issued in information systems set up under foreign law and transactions with digital rights including both DFAs and other digital rights.
Credit institutions, trade organisers and other legal entities meeting the requirements set in the Bill and included on the DFA exchange operator register by the Bank of Russia may act as DFA exchange operators. DFA exchange operators are to approve the DFA exchange rules subject to consent from the Bank of Russia.
DFA exchange operators may combine this role with that of the operator of the information system in which DFAs are issued.
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