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Russian govt introduces Fintech Sandboxes, including Blockchain

The Russian government plans on the creation of regulatory sandboxes for companies working on contemporary technologies like artificial intelligence and distributed ledgers. Prime Minister Mikhail Mishustin introduced the bill on March 17. The plan does not directly talk about blockchain or cryptocurrencies, but an explanatory note describes distributed ledger as one of the technologies that could be explored in the recent “experimental regulatory regimes.”

Such rules are initiated to test the technologies in many different sectors including medicine, transportation, distant learning, financial markets, online commerce. The document states that the bill provides Russia’s regulators with the ability to deal with unconventional technology in a better way. Furthermore, some of the country’s regions would be able to set up their own local sandboxes as well.

The Fintech related sandboxes will be supervised by the Bank of Russia and the Central Bank. Fintech projects functioning within sandboxes would be subject to lighter regulations regarding cash reserves, financial reporting, and foreign currency controls, as reported by the Representatives of the Economic Development Ministry.

The bill should already have been passed as part of the government’s program on developing the digital economy in Russia but there were concerns that such a law would distort the power balance in favor of the executive branch to a large extent, according to Olga Shepeleva, a senior expert at the Center for Strategic Research.

She stated, “The main idea is that the government can choose to make temporary exceptions from laws and regulations for the sandboxes.” The Bank of Russia has already been operating a regulatory sandbox for fintech projects and has even tested a blockchain-based tokenization pilot with the assistance of the mining and smelting company, Nornickel.

However, the central bank’s sandbox only assists in framing the possible uses of the new technologies, but does not permit businesses with the ability to test their use cases on real clients; neither does it provide the means for expert and public control over such experiments. Shepeleva further explained that the new bill will allow the creation of sandboxes in which real businesses will be working with real customers.

Russia’s central bank has persistently sustained a skeptical attitude towards cryptocurrencies and has recently announced that it is involved in drafting an act that will obstruct the crypto markets from functioning in the country, though ownership would likely be tolerated. Mikhail Komin, research director at the Center for Advanced Governance in Moscow stated, “For sure, the [coronavirus] pandemic and the financial crisis makes the government look for unorthodox solutions, but crypto is not a part of that.”

“The Bank of Russia is interested in lowering uncertainty in the financial and foreign currency markets caused by the volatility of the Russian ruble, and it believes cryptocurrencies would add even more uncertainty,” Komin said. “The Bank of Russia’s position remains winning one in this argument.”