Russia’s FATF Rating Lowered Due to ‘Inadequate Cryptocurrency Regulation’

The Financial Action Task Force (FATF) has lowered Russia’s compliance rating due to its “inadequate regulation of virtual assets and cryptocurrencies.”

According to Vedomosti, German Neglyad, the Deputy Head of the domestic anti-money-laundering authority Rosfinmonitoring, stated that the Russia FATF rating was reaffirmed during a plenary session on February 23.

Russia FATF Rating: Crypto Regulation Costs Moscow

Neglyad mentioned that the Eurasian Group on Combating Money Laundering and the Financing of Terrorism (EAG) performed an evaluation that led to the downgrade.

The EAG is affiliated with the FATF, and its evaluations received approval from the international organization, Neglyad noted.

The organizations also produced a report regarding the technical compliance of the nation’s anti-money laundering framework.

German Neglyad, the Deputy Head of Rosfinmonitoring, speaking in 2023. (Source: Goszakaz TV/YouTube)

Moscow Set to Respond with New Regulations?

The recent Russia FATF update will be a setback for Moscow. The country successfully completed a full FATF audit in 2019, where it received the highest compliance rating from the organization.

The FATF has established a compliance standard for “monitoring and countering suspicious transactions involving virtual assets and cryptocurrency.”

The latest report indicates that Russia’s rating was downgraded from “compliant” to “partially compliant.”

Neglyad acknowledged the necessity of addressing the downgrade. He recognized that Russia’s cryptocurrency regulations require improvement. Neglyad stated:

“The extent to which Russia complies with the […] recommendations has been assessed. Russia’s rating was downgraded to [its] partial compliance. That indicates a remaining weakness in this area. First of all, there is a need to regulate the circulation of cryptocurrency.”

The Rosfinmonitoring leader emphasized that Moscow must oversee the “operations of cryptocurrency exchanges.”

He further noted that the government should align with domestic “financial organizations.”

Russian ‘Steps’ Not Enough for FATF?

The FATF report highlighted that Russia “has taken some steps” to enhance crypto regulation, but deemed these actions inadequate.

This likely refers to legislation introduced in mid-2020 titled “On Digital Financial Assets.”

Experts in the Russian crypto sector at that time informed Cryptonews.com that the law was essentially a mere “glossary” of crypto-related terminology.

The legislation prohibited the use of cryptocurrency as a payment method in Russia, yet did not implement any additional regulatory measures. All subsequent efforts to regulate the sector have been unsuccessful.

This is primarily due to a stalemate between the Central Bank and key government ministries.

The US and UK have held high-level conversations over security risks that may be triggered if the two countries hold elections around the same time later this year https://t.co/rUKTs9AIzl

— Bloomberg (@business) February 28, 2024

The ministries aim to “legalize” the revitalized domestic crypto sector and integrate it into the tax framework. Specifically, they seek to impose taxes on Russia’s growing crypto mining industry.

Conversely, the Central Bank prefers an outright ban on cryptocurrency. The bank is inclined to advance its expedited digital ruble initiative.

The situation has been complicated by the fact that numerous Russian companies have started utilizing cryptocurrency as a cross-border payment method to bypass sanctions imposed by the US, UK, and EU.

Data from Rosfinmonitoring indicates that the volume of transactions conducted in Russia using cryptocurrency tripled from the start of last year to November 2023.

The agency’s head, Yuri Chikhanchin, previously urged lawmakers to swiftly determine how they wish to regulate the sector.

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