Russian officials took some important steps this month towards the creation of a regulatory framework for security tokens. In the past, Russia has been on the fence of how to exactly handle the new technology. This undecidedness hurt the country’s blockchain community and slowed adoption.
Now it appears that lawmakers recognized the importance of staying relevant in the sector. Consequently, officials continue to usher in new laws pertaining to the use and ownership of digital assets. Now, Moscow wants to give its entrepreneurs the opportunity to compete on the global stage.
Legislation in the Works
Russia currently has three main crypto-related bills going into enforcement in the coming months. These bills are part of the “Open Russian Digital Economy” campaign. This campaign is about helping Russian develop alternative sources of revenue and finance through innovation.
Of the three bills set to activate in the coming weeks. Two of the bills fail to mention cryptocurrencies directly. However, the bills do cover crypto activities. The third bill does explicitly name cryptocurrencies.
Unfortunately, officials delayed the third bill three times already. This bill is known as “On Digital Financial Rights.” Many in the country consider this bill to be the most important piece of crypto legislation at this time and for good reason.
The “On Digital Financial Rights” bill finally breaks digital assets down into three categories – Virtual Assets (crypto), Technical (utility), and Digital Financial Assets (security tokens). This legislation is a critical first step to increased adoption. Primarily, it would help build confidence in the crypto economy.
Notably, the bill has seen multiple amendments since its introduction, mainly because of strong support from the local business sector and the Finance Minister. The Chairman of Russia’s Financial Market Committee, Anatoly Aksakov introduced the first two drafts of the bill on March 20, 2019.
A co-sponsored third draft of the legislation went in front of lawmakers on March 26. The bill was filed by the head of the parliamentary Legislation Committee, Pavel Krasheninnikov and the Speaker of Duma, Vyacheslav Volodin. Interestingly, this version of the bill focuses on the use of self-executing contracts, or smart contracts.
Use of smart contracts
Regnum, Russian lawmaker Pavel Krasheninnikov, head of the parliamentary Legislation Committee stated that smart contracts are very similar to reoccurring payments systems currently in place. He believes that this FinTech is essential in the development of the Russian digital economy.
Russia Central Bank Doesn’t Like Bitcoin
The main reason for the postponement of “On Digital Financial Rights” is the fact that Russia’s Central Bank is still opposed to the entire concept of decentralized cryptocurrencies.
Not surprisingly, the central bank doesn’t support any other form of currency, other than the ones it issues personally. At one point, the bank’s deputy governor, Sergei Shevtsov went as far as to call cryptos a “high-tech pyramid scheme.” The statement highlights some of the blockades the Russian cryptocommunity must overcome in order to succeed.
On Digital Rights
On October 1, the second piece of legislation – “On Digital Rights” entered into force. This is the first piece of legislation to enter service. It’s similar in nature to the “On Digital Financial Rights” legislation but differs in many key ways. Mainly, the legislation doesn’t use the word “cryptocurrencies.”
The bill established basic legal definitions in the sector and the status of each. For example, Digital Rights is now a legally recognized term in the country.
Amend the Civil Code
The new law amends the Russian civil code. The addition now states that the use of information technology is legal for the fulfillment of obligations in certain circumstances. Basically, self-executing contracts are legally binding moving forward.
ICO Laws on the Way
In January, the third crypto-related bill will go into enforcement. This bill deals exclusively with crowdfunding campaigns such as security token offerings (STO). The law is called the “On Attracting Investment Using Investment Platforms” and its ramifications are far-reaching.
Russian President Vladimir Putin signed the bill on August 2019. The new law places investor protections, as well as, restrictions in the ICO and STO sectors.
For example, unqualified investors can only invest up to 600,000 rubles ($9000) per person. This law is meant to protect uneducated investors from taking large losses. Unfortunately, it can also limit normal investors from maximizes their ROI.
The legislation will also restrict what firms can host crowdfunding events. Not surprisingly, only parties registered with the country’s central bank can engage in crowdfunding activities at this time. Basically, any STOs in Russian need the blessing of the central bank to proceed.
Not Easy Being a Russian Crypto Investor
This law showcases Russia’s efforts to allow only the elite to utilize the blockchain sector, while at the same time, making it nearly impossible for the average person to do so.
This pattern of neglect toward the civilian investor isn’t anything new. Back in 2017, Russia hinted towards banning crypto at the same time the central bank announced plans to issue its own native cryptocurrency in the coming 2 years – the cryptoruble.
Russian Association of Blockchain and Cryptocurrency
Despite the country’s history of cloudy crypto legislation, Russia continues to see further blockchain expansion. The country already has numerous firms working together to help add transparency to the sector – the Russian Association of Blockchain and Cryptocurrency.
This group provides investors with a rating system to better gauge the validity of an ICO or STO. The firm seeks to create an international standard to rate crowdfunding campaigns. In this manner, investors can accurately assess the risks associated with these investments more consistently.
Sanctions Result in Change
Russian officials took the monumental steps to further the local blockchain sector after dealing with a host of crushing sanctions imposed by the US. US lawmakers insisted on the sanctions for what they deemed as election meddling in the 2016 presidential elections.
Since the start of the sanctions, Russian President Vladimir Putin has criticized the US’s decision. He stated that the US’s move weaponized the dollar. Consequently, this strategy makes it difficult for competing countries to keep faith in the currency. Essentially, the move forced Russia to consider alternatives.
Russia Goes Crypto
Russia is now ready to turn towards blockchain solutions. The country possesses the network and technical skills to be a dominating force in the crypto sphere. Considering that the country is set to launch its own native cryptocurrency in the coming year, it makes sense that lawmakers start to promote a more blockchain-friendly business environment.
Bank of China Moves to Regulate STO
This month, executives from the bank of China unveiled some major announcements regarding the future of blockchain technology in the country. Apparently, the Bank of China will now create its own centralized cryptocurrency. Additionally, the bank intends to roll out a robust security token protocol in the coming weeks.
In the past, Chinese officials have been very critical of cryptocurrencies. The country famously banned exchanges back in 2017. Also, Chinese officials have been hard on miners in the country despite the fact that the Chinese government operates some of the largest mining facilities in the world.
Pivot Towards Blockchain – Bank of China
Now it appears as if Chinese officials got the memo that blockchain technology is here to stay. At the recent Finance Technology Summit in Beijing, the Chief Scientist of the Bank of China, Weimin Guo described the country’s new strategy moving forward.
National Digital Currency
China now intends to release its own cryptocurrency called China’s Digital Currency Electronic Payment (DCEP). This cryptocurrency will serve as the only national digital currency of the country. Interestingly, the token will be a stablecoin pegged to the Chinese RenMinBi (RMB).
Developers hope that the integration of blockchain and cryptographic technology will streamline the outdated financial practices currently in use. Blockchain tech brings some serious advantages to the table. For one, the tech eliminates the frictions seen in traditional payment systems.
Shade on Bitcoin
After acknowledging the huge benefits gained from blockchain technology, Guo stated that Bitcoin had failed its purpose to provide a safe haven from the traditional market manipulations. He stated that Bitcoin’s launch was poorly timed and its primary goal to disrupt the global economy was “impossible.”
Strict Regulations – Bank of China
While China loosens its blockchain leash, it’s obvious the country wants to keep the technology in check. For example, all STOs are to operate within a strict “regulatory sandbox mechanism” at first. Basically, the country wants to promote innovation with new technology but desires a measured integration to maintain complete control over the sector.
It’s no surprise that China feels the pressure from blockchain adoption. At one time, China controlled a large majority of the crypto market. Since that time, the country continually targeted crypto investors and traders.
Additionally, regulators expressed concern about major tech firms such as Facebook issuing a cryptocurrency. Not surprisingly, regulators only want currency creation to originate from a national bank or government agency.
China’s Big Hope
Chinese regulators now believe that the DCEP has the potential to evolve into a leading global currency. Bank officials seek to integrate the currency into the main economy as soon as possible. This integration will span the scope of the Chinese economic sector from retail all the way to major investment firms.
China Inches Back into the Game
It’s interesting to see how Chinese regulators continue to embrace blockchain technology. China has always been on edge over the emergence of cryptocurrencies, but as it stands today, the country has to embrace the technology or fall to the wayside against the growing competition.
VNX Exchange Hopes to Get in Front of Upcoming AMLD5 Legislation with Sumsub Collaboration
Recently launched platform, VNX Exchange, and compliance expert, Sumsub, have announced a new collaboration. This will see Sumsub provide the necessary technology, which will allow VNX Exchange to ensure compliance with European laws surrounding AML/KYC.
This move is a proactive one, being taken by VNX Exchange. They have indicated that they chose to collaborate with Sumsub, as they possess the ability to remain compliant with the upcoming AMLD5 European legislation.
These compliance measures are what allow for regulatory bodies to keep nefarious activity in check. This is done by, first, knowing who they are dealing with. This part is taken care of through KYC checks, which gather information such as legal names, place of residence, passport info, and etcetera. Next, AML puts roadblocks in place, designed to prevent the origins of money from being clouded.
Unfortunately, blockchain based endeavours (including digital securities), remain synonymous with nefarious activity, to date. Much of this stems from past markets that saw the ICOs boom and bust. The entire point of digital securities, however, is to offer the benefits of tokenization, through a regulatory compliant and legal manner. For this to be achieved, and to dispel pre-existing notions (warranted or not) surrounding blockchain based endeavours, AML and KYC remain of utmost importance.
As indicated above, compliance measures surrounding AML and KYC are of the utmost importance within the digital securities sector. Many companies have recognized this, and are in the midst of developing their own solutions for the issue at hand. The following companies are but a few of those leading the way.
Upon announcing their collaboration, representatives from each, Sumsub and VNX Exchange, took the time to comment. The following is what each had to say on the matter.
Alexander Tkachenko, CEO of VNX Exchange, stated,
“VNX Exchange is very serious about all aspects related to compliance and investor protection. For these purposes, we are leveraging the benefits and advantages of innovative compliance systems provided by Sumsub to create a seamless client experience and open access to the new class of liquid digital assets backed by venture capital investments.”
Jacob Sever, Cofounder of Sumsub, stated,
“AMLD5 is soon to gain full power and influence among all financial entities in Europe with reinforced AML demands. With many clients based in Luxemburg, such as JobToday, Wecan Group, etc., we see the demand for compliance and anti-fraud measures, and know how to ensure them. VNX is a serious and mature project, with founders and management from traditional well-respected foundations, so we are happy to provide them with a high-level solution, optimising compliance under the Luxembourg regulations.”
Founded in 2015, Sumsub is a tech provider operating out of London, U.K. Above all, services offered by Sumsub revolve around compliance. This includes KYC/AML, investor onboarding, and more.
CEO, Andrey Severyukhin, currently oversees company operations.
Founded in 2018, VNX Exchange operates out of Luxembourg. The team at VNX Exchange has recently announced the launch of their digital securities issuance platform, along with their inaugural STO.
CEO, Alexander Tkachenko, currently oversees company operations.
In Other News
Both, VNX Exchange and Sumsub, have found themselves in our headlines in the past. Now their past work has brought them together, as they work with one another moving forward. The following articles touch on past events pertaining to each company.
Gladius Fails to Pay SEC Fines
The blockchain-based cybersecurity firm, Gladius announced that the company dissolved this week. Unfortunately for Gladius token holders, the company chose to ignore the $12.7 million settlement payment the SEC imposed earlier in the year. Now, Gladius token holders are left holding the bag.
In what seems to be a growing trend, another SEC charged ICO dissolved before repaying investors. In this instance, Gladius received $12.7 in fines after self-reporting to the SEC in February. Understandably, the SEC showed some leniency towards the firm for their decision to self-report.
A Lenient Approach
As part of the SEC settlement, regulators didn’t impose any additional penalties on the firm. However, they did make the company executives agree to compensate investors fully. Also, the company was to register the tokens as securities. Gladius agreed to the terms but asked for multiple extensions on the repayment date. Rather than repaying investors, the company chose to dissolve.
News of the Dissolution
Investors first received the bad news via a November 22 telegram post. In the post, the company’s co-founder and chief technology officer, Alex Godwin described the decision. He explained that the firm “ceased operations effective immediately.” He also stated that the firm “no longer has funds to continue operations.”
As you could imagine, investors are furious over the turn of events. Investors feel as if the SEC’s approach lacked enforcement. Investors have even formed a Telegram chat group called the Gladius Rektiers to organize another strategy to reclaim lost funds.
Gladius entered the market in April 2017. The firm planned to utilize a combination of blockchain-based technologies to protect users. Specifically, the firm employed decentralized CDN and DDoS protection on the Ethereum Blockchain. Additionally, Gladius platform users could rent out unused bandwidth and computational power.
Interestingly, Gladius executives did decide to leave their open-source code available on GitHub. The team even welcomed developers to further their protocol on their now deceased website’s homepage.
Dipping on the Bill
While the Gladius dissolution is bad news, it joins a host of other SEC charged ICOs who skipped out on their deadlines. For example, AirFox missed an October deadline this year. Airfox entered the market as a mobile banking solution before the SEC charged the firm with selling unregistered securities.
Additionally, Paragon Coin missed its investor repayment deadline. As part of Paragon Coin’s SEC settlement, the company agreed to offer to repay investors and pay $250,000 in fines. For their cooperation, the SEC withheld fraud charges. Also, the company agreed to register their tokens as securities and adhere to all relevant regulations moving forward.
The Paragon Coin saga received premier coverage as it involved a well-known beauty pageant winner and the rapper – The Game. Currently, the Paragon Coin website tells investors that want a refund to submit before November. Notably, their SEC repayment settlement date already pasted back in July.
The Gladius Saga Continues
The decision to dissolve prior to adhering to the SEC’s demands could prove to be a costly one for Gladius. For now, investors are culminating their outrage to organize their next maneuver. Many expect to see additional charges in some shape or form against the company’s owners as regulators decide how to handle the news and investor outcry.