In this article, we briefly look at the policy and regulatory development in the EUEA member states. The differences and commonalities in approach and motivation of the individual states will be very clear and we will explore the vocal minority opposition, which to some extent can be traced from institutional fear of the impending paradigm change. Despite these factors, there appears to be a general consensus amongst the regulators on the disruptive effect of the technology in the financial sector and appreciative of its potential impact on their economy and seem to jostling to position their countries to benefit from the potential investments. In words of the Russian primer, Mr Medvedev the EAEU should “not wait for the world to change, but to change it ourselves”
Russia’s Finance Ministry and the Central Bank have had seemingly divergent views on regulation of cryptocurrencies. While the Central Bank maintained skepticism over the use of cryptocurrencies, the Ministry of Finance submitted a draft legislation that seeks to regulate crypto-assets. In its second-quarter report (2017), Bank of Russia expressed fear of materialization of new risks associated with cryptocurrency market booms. In its view, the objective of national and supranational regulators is to mitigate these risks by developing coordinated approaches towards the regulation of the cryptocurrency market and limiting possibilities for high-risk investments and operations.
On 14th September 2017, in a banking congress in Sochi, Governor Elvira Nabiullina expressed skepticism on whether Russia should legalize cryptocurrencies. She was quoted stating “We are categorically against the introduction of cryptocurrencies in regulation as cash against equating foreign currencies,” In the same event, Chairman of the Board of the Association “Russia” Anatoly Aksakov took a slightly different view. According to him, there was an urgent need for regulation of activities around the technology and ensure the government can earn taxes from the activities. On January 18th at the Gaidar Forum, the Chief Auditor of the Central Bank, Valery Goreglyad admitted “The entire financial market structure is changing before our eyes, and these changes are due to the development of digital technologies,”
On 10th, October 2017, President Vladimir Putin, instructed (Order of the President of the Russian Federation No. Pr-2132), the Ministry of Finance of Russia and the Bank of Russia to work on amendments to Russian laws which would define the status of digital technologies applicable in the financial sphere, proceeding from the mandatory use of the Russian rouble as the only lawful payment instrument in the Russian Federation.
In a meeting on legislative regulation of cryptocurrencies held on December 12, 2017, German Klimenko, the Presidential Adviser, counseled the participating institution’s heads to engage in active, regular discourse on these issues at different venues. Head of the State Duma Committee on the Financial Market, Anatoly Aksakov, informed the participants that in February 2018 the committee would start discussing legislative initiatives on cryptocurrencies, which are now being drafted by experts, the Ministry of Finance and the Central Bank. Of particular interest, was what Mr. Sergei Glazyev, the Presidential Adviser had to say. He termed cryptocurrencies as “an objective requirement”….and that “This instrument suits us very well in the types of activities that are sensitive for the state. They allow us to settle accounts with our contractors all over the world despite sanctions”.
On January 11, 2018, while responding to question by Vladimir Todorov of Lenta.Ru, President Putin concurred with the Central Bank conservative view on cryptocurrencies. The president said “It is a fact that there is nothing behind a cryptocurrency; it cannot be used as a savings instrument, it does not represent any material value plus it is not secured in any way. A cryptocurrency may be used for payment to a certain extent and in certain cases. It is fast and efficient. You can pay for something with it but you cannot use it as a savings instrument. It is not backed by anything”. Despite this, the president cautioned against excessive regulation which will stifle enterprise but in the same breath acknowledged the limitation of regulations which is his words, especially in the super modern sector, become obsolete even before they are adopted. On 19th January 2018, the chairman of the State Duma Financial Market, Anatoly Aksakov suggested a different perspective on regulation in the financial sector. According to him, the emergence of cryptocurrencies was a response to the excessive regulation of the financial process.
The Prime Minister Mr. Medvedev expressed similar views on cryptocurrencies on 16th January at the famous Gaidar’s Forum in Moscow. In his opinion cryptocurrency is simply another “bubble” and assumed that most cryptocurrencies are likely to cease to exist, while blockchain itself will remain. He declared: “We cannot completely exclude the scenario that took place at the beginning of the 90s, when many companies arose on the basis of the developing Internet technology and by the beginning of the 2000s those companies had mostly disappeared from the scene. Nonetheless, the technology itself not only survived but currently plays an important role in our life. In a likely manner cryptocurrencies may disappear in several years, but the technology which stands behind them, I mean blockchain, will become part of our everyday reality. This scenario cannot be refused”. On the other hand, Russian banks expressed their confidence in the blockchain technology. The CEO and Chairman of the Executive Board of the largest Russian bank Sberbank Herman Gref considers both cryptocurrencies and Blockchain to be the “new huge technologies whose power cannot be realized at the moment.” He also declared“ in no circumstances should cryptocurrency be banned”.
At the forum “Digital Agenda in the Age of Globalization” held in Almaty, Kazakhstan on the 2nd of February, the Russian Prime Minister Dmitriy Medvedev pointed out the necessity for Eurasian Economic Union countries (EAEU) to work together in developing required regulations for cryptocurrencies. Given the close economic link between Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia, a unified approach in developing the regulatory framework will be the only sensible strategy. In his words, “we should not be focused only on national policy … Let us pay serious attention to it as our economies are far too closely linked. It will be impossible to implement these principles in one country; we should bring our approaches closer together at the Union level”.
On the 22nd of May, the Russian Parliament approved the first reading of new regulation for the cryptocurrency. The law will regulate the ICOs and cryptocurrencies defining both cryptocurrencies and tokens as property, as well as specifying the rules for interacting with crypto and blockchain-related technologies such as smart contracts and mining. Moreover, the new laws affirm that the Bank of Russia may restrict the number of crypto transactions for anyone who is not a qualified investor.
A month before, the chairman of the National Bank of Kazakhstan had indicated the intention of the bank to put forward a legislation that will prohibit cryptocurrencies in Kazakhstan. Despite his conservative stance, he acknowledged the futility of a unilateral effort in administering cryptocurrencies across a border and thus in his view the only alternative route to limiting its risks was through statutory prohibition. This position was reiterated by the head of the Payment System of the Nation Bank, Alina Imangazina. She took the view that financial organizations are not allowed to conduct operations which are not covered by the legislation and therefore, despite the absence of the direct regulation, it is illegal to use digital currency in financial operations of any type.
In sharp contrast to Kazakhstan, Belarus took a completely different route that positively surprised actors in the DLT space. Back in late December 2017, Alexander Lukashenko, the President of Belarus signed a decree which according to him, will create such conditions in Belarus that entice global IT companies to come to Belarus, open their representative offices, development centres, and create popular products in the world. The decree not only legitimized mining, storing, buying, donating, bequeathing, bestowing, monetizing and also exchanging cryptocurrencies for Belarusian rubles, foreign currency or electronic money, it also provides very enticing tax incentives.
Bitcoin has appeared on the financial market of Armenia relatively recently. In 2015 the Government viewed cryptocurrencies with measured caution partly due to the absence of regulation. In April 2017, in an interview with Public Radio Armenia, the Spokesperson of Central Bank of Armenia, Harutyun Kbeyan expressed fears of the cryptocurrency market trends, particularly as there was no mechanism at the time to regulate the market. He also let it be known that the Financial Monitoring Centre which monitors suspicious transactions under the AML regime was closely following cryptocurrencies.
In December 2017, the Armenian Blockchain Forum (ABF) presented to the Armenia president Mr. Serzh Sargsyan proposal, which was approved, for the creation of a free economic zone (interesting called “Silicon Valley”). The first stage of the implementation will be marked by the opening of a national accelerator that will serve as a platform for launching and developing projects in Distributed Ledger technologies, Artificial Intelligence and Machine Learning. Suren Karayan, the Minister of Economic Development and Investment viewed the initiative as a purposeful policy measure on the part of the government that aims at bolstering the country’s economy through increased direct foreign investments with estimates putting expected FDI at around $120 million in the first year.
Later, in February 2018, Edmon Marukyan, a Member of the Armenian National Assembly, presented a draft law which sought to liberalize mining of cryptocurrencies in Armenia. When interviewed, Mr. Marukyan expressed his concerns of the possibility of monopolies cropping up on the back of special provisions and thus the draft law liberalizing mining and that providing tax incentives ensured a free entry for all those who are interested in the sector.
According to a report prepared by John Tiner & Partners Eurasia, for the International Finance Centre Development, Kyrgyz Republic legislation neither prohibit nor obstruct transactions with blockchain assets (crypto-assets). The report goes further to state that trading crypto-assets, raising finance through crypto-assets and crypto-asset mining are legal but subject to local tax law, anti-money laundering legislation and the national standards for the protection of investors and consumers, in as much as they are applicable to other lawful ordinary commerce. Neither of the regulations is cumbersome for a business operating in good faith.
On 14th April, reports circulating in online blogs and news portals indicated the Kyrgyz Republic plans to create a national cryptocurrency called GoldenRock backed with gold. We have not been able to confirm these reports from formal government sources.
Valeriya Zakharova and Ahmed Ali