The Central Bank of Russia did another “shot” at the rights of cryptocurrency holders on July 19, 2021. The Bank issued an Information Letter No. IN-06-59 / 52 “On certain types of financial instruments” on this day.
Now Russian and foreign issuers, if their securities payments depend on:
- digital currency rates;
- prices for foreign digital rights;
- prices for digital rights that can be accepted as means of payment; or
- prices of contracts related to the transfer of digital rights,
will not be admitted to organized securities trading.
But this is not the only limitation. Professional securities market participants should refrain from offering unqualified investors (individuals) securities related to digital rights. Management companies are also not recommended to include in mutual funds and joint-stock investment funds shares related with digital rights and companies that payments depend on the turnover of digital rights.
Recommendations for brokers can be reasonable in general. Financial instruments related to digital rights and cryptocurrency are high-risk assets. It is necessary to be well versed in the specifics of this area and regularly monitor the dynamics of cryptocurrency rates.
An unqualified investor will be suffering from significant losses if he bought securities related to digital rights on the advice of his broker. But he may suffer losses from other investments. This recommendation from the Central Bank is based on the fact that unqualified investors should not be offered high-risk assets in general.
It is more interesting with a recommendation for management companies. Joint-stock investment funds are professional securities market participants and for them making investments is the only available type of activity. The Central Bank does not impose such high demands on mutual funds as it does on joint-stock investment funds.
However, many mutual funds are targeted at qualified investors who are also professional market participants. It seems that professional market participants and their management companies should independently resolve the issues of investment direction. The recommendations of the Central Bank can be taken into account, but this may deprive qualified investors of the opportunity to invest profitably.
The Federal Law «On digital financial assets» has been in effect in Russia since January 1, 2021. This law was supposed to create a legal field for the owners of digital financial assets and digital currency. Why such restrictions are necessary if a legal framework has already been created for the activities of such owners of cryptocurrencies and digital rights? Why restrict market participants’ access to the exchange if they operate within the law?
Probably, otherwise the Federal Law «On digital financial assets» will not be respected by market participants. The process of legalizing activities according to the law is extremely bureaucratic; increased requirements are imposed on the management bodies. At the same time, cryptocurrency owners now have the right to judicial protection only if they declare their digital currency. However, the legislator did not provide tax benefits considering the specifics of the industry.
Now there are no organizations registered as digital financial asset exchange operators in almost a year of the law’s existence. Probably the Central Bank (responsible for the implementation of this law) decided to influence market participants by issuing the Information Letter No. IN-06-59 / 52.
This decision can hardly be called reasonable at the same time. The Central Bank letter addresses all who meet the above criteria. It makes no difference whether market participants (holders of cryptocurrency and digital rights) conduct their activities legally or not. In such conditions, there will be no motivation for registration since the registered company will not have access to the exchange anyway.