What is wrong with the bill “On digital financial assets”: Opinion of experts

On digital financial assets

The meeting of the Commission on the Legal Support of the Digital Economy were held in REU named after G.V. Plekhanov at the Moscow branch of the Russian Association of Lawyers. Members of the Commission, representatives of government agencies, business and the scientific community discussed the problems and prospects of legislative regulation of digital financial assets in Russia.

In particular, the experts discussed in the first reading the State Duma bills “On digital financial assets” and “On attracting investment using investment platforms” (“On crowdfunding”).

Also recently, the Civil Code was changed, which introduced digital rights to blockchain tokens. Commission experts consider the changes to the Civil Code to be justified in practice, now the owners of cryptoactive assets have received protection in the courts and the prosecutor’s office has ceased to look at the relevant operations.

So, the amendments even before their adoption were referred to by the court of appeal in the “Case of Tsar’kov”, and recently the prosecutor’s office of the Omsk Region, appealing to the same amendments, withdrew its lawsuit against the Bestchange.ru resource. Thus, changes in the Civil Code of the Russian Federation on “digital rights” (with all their ambiguities) have already brought some benefit to society.

He believes that this can be remedied by adopting special bills, if they are now properly modified, taking into account all the risks that arise, for example, in the current wording, bills do not regulate the sale of cryptoactive assets by individuals without intermediaries (exchanges, exchangers).

Experts note that the bills establish the legal regime of a separate type of token (security tokens), leaving out the issues of cryptocurrency regulation. Yes, it is allowed to use its own “digital transaction marks” inside the information system, but only if the Bank of Russia permits it. IP & IT Practice Counselor at Tomashevskaya & Partners law firm Roman Yankovsky says

Bills also do not answer the question of what to do with foreign cryptoactive assets. Meanwhile, cryptocurrency is legalized in many developed countries, Bitcoin is accepted by global IT giants like Microsoft and Amazon.

Thus, according to the draft law “On Crowd Funding,” investments in digital rights are divided into investments in digital financial assets and investments in digital rights of utilitarian purpose. The concept of “digital financial asset” refers to the relevant draft law, but we will not find there a clear definition or description of the types of digital financial assets.

As a result, there is a risk that certain types of digital rights (utility tokens) may be qualified as digital financial assets and, accordingly, the issuer of such rights will be recognized as violator of the law.

As noted by Petr Lyalin, Deputy General Director of Legal Issues and Technologies at Cinergy Research Group, the crowdfunding bill unnecessarily limits the ability of individuals to use crowdfunding platforms to create creative works, organize cleaning and improvement, developing programs, etc.

Lyalin stressed that the bill should be clarified by a circle of people who are entitled to attract investment on crowd platforms, on the objectives of investment projects and also to determine the position of the legislator regarding non-commercial projects.

Experts also proposed to increase the maximum amount of investment in digital assets. It is 600 thousand rubles a year now. It is proposed to double it, while setting a limit only for “investments in turnover”. Senior Lawyer Clifford Chance CIS Limited Catherine Larens stressed

Speaking about the types and definitions of the blockchain technology used in the draft laws, Elena Gultyaeva, vice president and head of the RACIB legal committee, noted that the introduction of a centralized intermediary (information system operator) would pose a threat to the security of the blockchain system and its efficiency. The reason is that the integrity of information is primarily provided by technological and programmatic methods, and the operator will be able to directly influence the system – including the cessation of its operation.

Now the bills provide for the possibility of creating only private (non-public) distributed information systems. According to experts of the Commission, the absence of signs of decentralized systems in the projects in conjunction with the digital rights norm (Article 141.1 of the Civil Code of the Russian Federation) will create conditions for invalidating transactions with digital products based on decentralized public information systems.

According to the Commission, the regulator should involve in the advisory work representatives of the scientific community, legal practitioners, public organizations, domestic and foreign businessmen for the joint formation and public discussion of future regulations.

The Commission experts also suggest that the Bank of Russia consider consulting on the application of existing laws in relation to specific cases (similar to Switzerland, Singapore, the United Kingdom and other countries). It will be useful to publish reports on the compilation of practice (as is done by FINMA, Switzerland). Maria Agranovskaya, a lawyer and managing partner of GRAD, believes that this will make the activities of market participants more comfortable and allow them to have an accurate idea of the rules of the game.

Speaking about the problems of the draft law on the CFA for tax purposes, Taxology partner Mikhail Uspensky noted that the key issue remains the cross-rate issue, since business transactions should be reflected in tax and accounting records in national currency.

It is a mistake to believe that the blockchain theme and cryptocurrency has lost its relevance. Everything moves its course on the contrary: bitcoin fell, rush passed, many scammers and adventurers washed away from the horizon, the industry went through a process of primary self-cleaning and is ready to move on.

The sector, according to Ouspensky, will come to life on a global scale in the near future in light of the so-called ICO 2.0 – IEO (initial exchange offering), that is, thanks to the release of tokens at cryptobirth sites.

Undoubtedly, a new type of assets and their turnover carries not only new opportunities, but also new risks, primarily related to cybercrime. According to Ledger, the daily losses of crypto-burgers from hacking amounted to about 2.7 million dollars in 2018 – this is equivalent to a loss of 64 billion rubles a year in the global cryptoindustry market.

According to Pavel Lavrenkov, Managing Director of the Legal Department of JSC Renaissance Insurance Group, one of the ways to reduce cyber risks and increase the attractiveness of all types of investments in the turnover of digital assets is insurance. Lavrenkov noted that in this issue Russia should focus on the experience of foreign colleagues. For example, in the United States, fiat assets participating in the cryptoexchangers turnover are insured under the FDIC (Federal Deposit Insurance Corporation) system – an analogue of the deposit insurance system in the Russian Federation.

Experts also insist on identifying specific methods and types of advertising of digital financial assets that are banned (for example, only advertising containing a direct explicit appeal for the purchase of such assets is prohibited). Otherwise, it is likely that any information material on the CFA, including educational activities, as well as other non-commercial activities, legal and other services, etc., may be banned.

The measures proposed by the experts are not exhaustive, but they can significantly reduce the risks and barriers associated with the use of new digital assets in Russia, the Commission believes. Chairman Alexander Zhuravlev stressed

“Following the meeting, an expert opinion was drawn up with the relevant recommendations and sent to the State Duma for consideration, as well as to the Bank of Russia.”