Russia's Sber is launching crypto trading infrastructure against the backdrop of tightening Western sanctions. Meanwhile, a recently enacted crypto bill is making crypto settlements legal for Russian companies involved in export and import transactions, while making it more difficult for regular citizens to use crypto. These developments seem to be fully in line with Russia's recent policy of finding alternatives to the global banking system, from which it has been largely excluded since the invasion of Ukraine in February 2022.

Russia's largest lender, state-run Sber, is planning to establish infrastructure for cryptocurrency trading by December 1, it announced. The move coincides with a recently enacted law introducing the notion of a crypto custodian - a role Sber is eager to take.

According to the Interfax news agency, Sber's digital depository will register ownership rights to cryptocurrencies and process most transactions offchain. Sberbank will manage active wallets for deposits, withdrawals and transfers at customers’ request.

"One of the key elements of the new infrastructure will be a digital depository that will keep track of customers' rights to cryptocurrency and record transactions off the main blockchain," Alexander Vedyakhin, first deputy chairman of Sber's board, was quoted in the lender's statement. "It will also facilitate transactions in active wallets to execute customers’ fund transfer orders."

The role of crypto custodian will be important as the new regulations envisage a bigger role for the use of crypto by companies. Given the restrictions on private individuals’ use of crypto stipulated in the recently adopted crypto bill, Sber's crypto trading infrastructure is set to primarily benefit companies involved in international trade and a select group of wealthy individuals.

Western sanctions as a backdrop

Russia is apparently taking steps to establish a functioning cryptocurrency infrastructure as the European Union intensifies pressure on the country by imposing a package of sanctions targeting Russia in connection with its war against Ukraine.

Last month, the EU unveiled its 21st sanction package against Russia, targeting, among other entities, over a dozen crypto firms.

Among the highest profile companies on the sanctions list is HTX, formerly known as Huobi, a Seychelles-based crypto currency exchange, which the EU accused of "providing crypto-asset or payment services, established outside the European Union that significantly impede the achievement of the objectives of sanctions against Russia".

Sanctions against HTX were imposed on the same day that EU officials announced their intention to prohibit Belarusian citizens and residents from owning, controlling, or managing cryptocurrency exchanges and digital asset service providers in accordance with the regional regulatory framework Markets in Crypto-Assets (MiCA).

The UK government imposed similar sanctions on HTX in May, saying that there were "reasonable grounds to suspect" that the exchange had helped the Russian government to forego previously imposed sanctions by facilitating crypto payments between Russia and other countries.

In addition to HTX, the new sanctions list includes crypto platforms EXMO, Rapira, BitPapa, Aifory Pro, WhiteBird, NoOnecrypto, Exnode and A7, a $120bn stablecoin network. Restrictions on these platforms are also set to take effect on August 23.

New regulation for crypto

In late July, the State Duma, the lower chamber of Russian parliament, approved a bill, On Digital Currency and Digital Rights, which was subsequently adopted by the upper chamber, the Federation Council, and signed into law by President Vladimir Putin on August 4.

The bill grants Russia's central bank sweeping powers to oversee the crypto currency market, including the right to determine which crypto assets may be offered through licensed intermediaries, as well as to issue subordinate legislation.

Once the bill takes effect on September 1, it will also establish five categories of regulated market participants, including cryptocurrency exchanges, brokers, asset managers, custodians and exchange service providers. These categories are supposed to define who may buy, sell, hold and exchange crypto assets in the country.

Still, for most users, crypto currency will be available only as an investment instrument, with substantial restrictions on the acquisition of crypto assets.

Brokers and management companies will be able to conduct transactions on behalf of clients, including interacting with foreign crypto infrastructure. To do so, they will need the appropriate licenses.

Under the new law, crypto exchange platforms will be allowed to exchange non-cash rubles for crypto currencies and back. They will be required to register and comply with capital requirements.

Only Russian companies with at least RUB15mn ($185,600) in equity capital and listed in the central bank's registry will be able to operate as crypto currency exchanges.

Meanwhile, exporters and importers will be able to benefit from the law, as it allows them to use crypto currencies for cross-border settlements without restrictions. Apparently, this step is intended to create more payment options for Russian entities banned from using regular banking channels by Western sanctions imposed on Russia in the wake of its invasion of Ukraine in February 2022.

Tighter rules for regular users

The new rules are not expected to bring Russia any closer to crypto adoption in day-to-day life. Using crypto to pay for goods and services within the country will continue to be out of the question.

Russian residents will be able to conduct cryptocurrency transactions outside Russia, but only through foreign bank accounts and under the condition that all their foreign crypto transactions reported to the Russian tax authorities. Under a law enacted more than a decade ago, Russians are supposed to report their activity involving foreign banks, in any case.

Interestingly, the law has a provision that cryptocurrencies with high market capitalisation, liquidity and a long history of price formation will be available for purchase by individual Russian investors.

To qualify, a crypto currency has to have a market capitalization of RUB5 trillion over the last two years, and an average daily trading volume over RUB1 trillion. Currently, only Bitcoin, Ethereum and USDT meet these requirements.

Before purchasing cryptocurrencies through regulated intermediaries, individuals will be required to pass a test. For those failing the test – and therefore considered "unqualified investors" – a yearly cap of RUB300,000 through a single intermediary will be introduced.

In contrast, qualified investors will have access to any cryptocurrencies without any limits. The Central Bank of Russia will be in charge of setting conditions for the test.

The law also stipulates regulations for crypto currency mining, prohibits individuals with outstanding criminal convictions from engaging in this business.

More crypto legislation to follow

The new Russian crypto law will take effect on September 1, with the exception of certain provisions. A transition period will be in effect for market participants until July 1, 2027: during this time, intermediaries must obtain licenses and bring their operations into compliance with the new requirements.

Olga Goncharova, head of the Expert Centre for Digital Financial Assets and Digital Currencies at the Association of Russian Banks, was quoted by Cointelegraph as saying that the bill would establish a legal framework, but that extensive secondary legislation would still need to be developed before the market could begin operating.

"The law itself is just the beginning,” Goncharova said. "Whether it will work in practice depends on a number of mechanisms currently being developed by the banking community in collaboration with the Bank of Russia."