RBA to Ban Non-Custodial Wallets

Association of Banks of Russia (ABR) wants to set up a third-party custodian instead. This third-party custodian can freeze, block, or seize cryptocurrency for the bank.

Part of the new regulations says that if someone doesn't declare their crypto holdings in a non-custodial wallet, they could face felony charges against them.

ABR told Rosfinmonitoring, the Ministry of Finance, and the Russian Central Bank about its idea.

This idea was brought up by an expert council working group on cryptocurrency regulation in the State Duma, and they agreed. Many people in the market and in the state legislature didn't like the idea of criminal liability.

The ABR thinks that a criminal law approach to crypto-market regulation will make everyone "responsible to pay taxes" and solve the problem between the systems of the Bank of Russia and the Ministry of Finance, which are very different from each other.

Andrei Lugovoy, the deputy head of the working group, said that even though he understands the concerns about the issue, the ABR approach would only slow down the process of making the law. This is what he said.

The banking group backtracked a little in the letter it sent to the central bank. They said it might be better to make people criminal by not giving them their keys instead of just owning a non-custodial wallet.

This would be done under the rules of civil law. When a debtor is linked to an anonymous cryptocurrency wallet, civil law says that a person may have to give a crypto key or be punished for hiding money in digital form. This is called "hiding property in digital form."

Moscow wants to make sure that cryptocurrencies don't go through a "closed loop."

To keep money from going out of the country, bankers will open noncustodial crypto-wallets. There must be strict liability because Russia wants to make sure there is a "closed-loop of circulation of cryptocurrencies."

The civil law approach has its flaws. When someone opens a noncustodial wallet without the owner's permission, it is almost impossible to seize their money. Valery Tumin, Chairman of the Commission for Development of Digital Financial Assets of the Russian Union of Taxpayers, made this point in a speech.

If Russia legalizes crypto, could it be a double-edged sword for the country?

Russians aren't allowed to participate in a lot of the decentralized application space, decentralized finance space, and the decentralized autonomous space if the government takes a "criminal" approach. This makes people question whether they have civil liberties in what the government says is a democratic country.