The draft law on digital financial assets adopted by the State Duma in the second reading

The draft law on digital financial assets adopted by the State Duma in the second reading

The bill on digital financial assets (DFA) was today adopted by the State Duma of the Russian Federation in the second reading. To fit within the spring session, the third reading must take place before the end of the week.

In the second reading, the adopted draft law received a new name: “On digital financial assets, digital currency and on amendments to certain legislative acts of the Russian Federation.” In recent months, representatives of business, including the Russian Union of Industrialists and Entrepreneurs , have asked to accelerate the adoption of the bill . 

If the bill passes the third reading, the Federation Council and is signed by the president, the new law will enter into force on January 1, 2021. 

The law will enable businesses and financial institutions to issue CFAs (in fact, regulated tokens on private blockchains) and will regulate their circulation. The issue, accounting and circulation of equity securities based on the CFA will be regulated by Federal Law No. 39-FZ of April 22, 1996 “On the Securities Market”. The requirements of this law do not apply to the circulation of non-cash and electronic money, as well as to the issue, accounting and circulation of uncertified securities.

The bill defines the CFA and establishes the requirements for the information system within which tokens are issued, the operator of this system and the operators of the CFA exchange, the rules for the CFA exchange and the procedure for their approval.

Digital financial assets are digital rights, the issue, accounting and circulation of which is possible by making entries in an information system based on a distributed ledger. Individuals registered as individual entrepreneurs and legal entities, including non-profit organizations, have the right to make records on the issue of digital financial assets in the information system.

The main regulator of the CFA will be the Bank of Russia; it will also maintain registers of exchange operators and operators of information systems for the issue and circulation of CFA. In particular, the regulator will determine the CFA allowed for purchase by unqualified investors. The law on the categorization of individual investors has passed its third reading in the State Duma today .

Despite earlier information that the CFA law will not regulate digital currencies, it contains the definition of digital currency, and Article 14 describes the circulation of digital currencies. In fact, it prohibits accepting them as a means of payment for goods and services. This article states that legal entities and individuals-residents of the Russian Federation “are not entitled to accept digital currency as a counter-provision for goods transferred by them (them), works (services) rendered by them (them), or any other method that allows them to assume payment in digital currency for goods (works, services) “. Clause 7 of Article 14 prohibits “the dissemination of information about the offer and (or) acceptance of digital currency as a counter-provision for the transferred goods, work (services) provided or any other method that allows for payment in digital currency for goods (work, services)”.

More importantly, in accordance with Articles 17 and 21 of the draft law, digital currencies in Russia will receive legal status as property. Corresponding amendments will be made to the Federal Law of August 7, 2001 No. 115-FZ “On Counteracting the Legalization (Laundering) of Criminally Obtained Incomes and the Financing of Terrorism”, Federal Law No. 229-FZ of October 2, 2007 “On Enforcement Proceedings” , Federal Law of December 25, 2008 No. 273-FZ “On Combating Corruption”, etc.

It is not yet clear whether this law will be applied in practice to the regulation of public blockchains and cryptocurrencies. At least, the adopted bill does not indicate any types of administrative or criminal liability for transactions with digital currencies. 

Clause 4 of Article 14 reads: “Organization of the issue and (or) issue, as well as the organization of circulation of digital currency in the Russian Federation are regulated in accordance with federal laws.” However, specific FZs are not indicated. Therefore, it should be assumed that a separate law on the regulation of digital currencies will still be adopted

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