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31 January 2018 Federal Law “On Digital Financial Assets” Drafted by the Russian Ministry of Finance: an Overview

Legal update No 630

Goltsblat BLP advises that, on 25 January 2018, the Russian Ministry of Finance posted on its website a draft law “On Digital Financial Assets” (the Draft Law). Its purpose is to regulate both use of digital financial assets in Russia, and rights and obligations under smart contracts.

General provisions

The Draft Law defines digital financial assets as property created in electronic format using encryption (cryptographic) devices and establishes two types: cryptocurrency and tokens.

Digital financial assets, including certification of the title to them, are recorded in a ledger of digital transactions (the Ledger).

Please note that digital financial assets are not recognised as legal tender.

Cryptocurrency

The Draft Law does not give any detailed definition of the “cryptocurrency” concept, merely specifying that this is a type of digital financial asset generated and registered in a Ledger by Ledger participants. Business involving cryptocurrency generation and/or validation for a fee in cryptocurrency is called mining.

This means that only a Ledger-participant doing business may issue cryptocurrency.

Token

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.

Token acquirers are also specially regulated:

  • qualified investors acquire tokens into e-wallets opened in their name;
  • other persons may acquire tokens only by remitting to a special account opened as stipulated by the Central Bank of Russia in the e-wallet of a special operator. Such persons are also prohibited from acquiring more than RUB 50,000-worth in a single token issue.

It should be noted that a token issue has two stages: (1) posting on the Internet of a public offer for the issue and an investment memorandum and (2) conclusion of 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 in the following digital financial assets only through a digital financial asset exchange operator that organises trading1:

  • exchange of one type of digital financial asset for another,
  • exchange of digital financial assets for roubles, foreign currency and/or other property.

A major role is allocated to the Central Bank of Russia in digital financial asset trading. For instance, such transactions are to be conducted according to the rules for organised trading in digital financial assets registered in the Central Bank of Russia.

Smart contracts

It is interesting that the Draft Law includes provisions on smart contracts, understood as agreements in electronic format under which the rights and obligations are fulfilled through automatic digital transactions performed in the distributed Ledger in the specified strict sequence and circumstances.
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1 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 from a stock exchange or trading system.



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