Russian financial regulator: Crypto exchange firms should be regulated on par with banks to close money-laundering compliance gaps

According to Bits.media on May 19, German Neglyad, deputy head of Russia’s financial oversight agency (Rosfinmonitoring), said in an interview with Russian news agencies that the agency wants cryptocurrency exchange operators (i.e., trading venues for crypto-to-ruble transactions) to be regulated with the same strictness as banks, in order to close the “regulatory arbitrage” loophole between the two.

Neglyad’s confirmation statement

In a confirmed quote from an interview with Rosfinmonitoring deputy head Neglyad: “At present, bank sector supervision is extremely strict, while the cryptocurrency circulation area is completely lacking oversight, which creates regulatory gaps. Criminals can take advantage of this weak link—washing money is easier through this type of infrastructure. This weak link must be eliminated.”

Neglyad said some market participants oppose strict regulation, fearing business will move into “gray zones,” but Rosfinmonitoring believes these concerns are groundless. He said adopting bank-like regulation for cryptocurrency exchange operators is a “normal and civilized approach”: “Companies either comply with the law or operate outside the legal framework.”

FATF rating risk: confirmed external pressure

Confirmed by the report:

Russia’s FATF membership: suspended since February 24, 2023

FATF requirements: requires countries to regulate cryptocurrency circulation; has repeatedly called for placing Russia on the money laundering blacklist, but as of now it has not been implemented

FATF position: said all countries should remain cautious when interacting with Russia, “to protect the international financial system”

Neglyad’s warning: if Russia fails to comply with FATF requirements and establish control measures, FATF may downgrade Russia’s rating

Crypto market regulation bill: confirmed legislative progress

Confirmed by the report:

Bill submitter: the Russian government

Legislative status: passed the first reading in the State Duma and is now preparing for the second reading

Rosfinmonitoring stance: supports the bill and opposes easing clauses (unlike the stances of some bankers and lawmakers)

FAQ

How does Russia currently regulate cryptocurrency exchange operators?

Based on statements by Rosfinmonitoring’s deputy head, the cryptocurrency circulation area is currently “completely lacking regulation,” while the banking sector is subject to strict supervision, creating a significant regulatory gap. Rosfinmonitoring believes this gap constitutes a regulatory arbitrage loophole and needs to be eliminated through legislation.

What is the current status of Russia’s FATF membership?

Russia’s FATF membership has been suspended since February 24, 2023. FATF has repeatedly called for placing Russia on the money laundering blacklist, but as of the time of the report it has not been implemented. FATF said countries should handle interactions with Russia cautiously to protect the international financial system.

What is the next step for Russia’s crypto market regulation bill?

According to the report, the bill has passed the first reading in the State Duma and is currently being prepared for the second reading. Rosfinmonitoring supports the bill and opposes easing clauses, but the report notes that some bankers and lawmakers hold different views, and the outcome of the second reading still needs confirmation.