Russian Authorities Prepare Controversial ICO Regulations

News and Analysis

Russia’s Ministry of Telecom and Mass Communications (MinComSvyaz) has prepared guidelines for Initial Coin Offerings (ICOs). The document, however, has already become target for heavy criticism.

According to local news outlet Kommersant, the document is currently in the public discussion stage. Some of its most notable points include:

  • ICO organizers would be accredited for a period of 5 years;
  • Accreditation is proposed to be voluntary and controlled by Ministry;
  • ICOs must be registered in the Russian Federation;
  • Registered capital must be at least 100 million rubles ($1.7 mln);
  • The project must be licensed to develop, produce, and distribute cryptographic commodities;
  • The project must have Russian bank account for transmitting money raised from ICO;

Issuing of digital tokens must be carried out in rubles only (cashless settlement). Additionally, ICO organizers would be required to support buy-backs from investors at the nominal price using the money raised from the token sale.

Lastly, these regulations must be enforced by the given licensed companies, accredited by Ministry.

According to the proposed guidelines, digital tokens are considered to be entries in “distributed information systems” created using “cryptographic algorithms.” These entries represent digital units of account, which grant rights to receive digital tokens at their initial offering price.

Some experts have warned, however, that such measures could scare away startups from holding ICOs in the country, though no actual ICOs have been formally held in Russia to date.

Moreover, the document does not address some important nuances such as handling of pre-ICOs, according to Head of Investments at TMT Investments, Artyom Inutin. This process often involves so-called “conditional tokens” that early investors buy at a discount, albeit with major risk.

MinComSvyaz, in principle, “must not manage the processes within these financial platforms,” added Inutin. Therefore, the investor believes such regulations would make it hard to actually hold ICOs in Russia.

“This is what I’m afraid of,” he noted. “Documents often leave room for double interpretation and this could hurt the ICO process.”

Additionally, the guidelines do not address vesting schedules or “lock-ups,” where ICO organizers and early investors are prohibited from selling tokens on the market until a specific date in the future.

Arseniy Sheltsin, head of Russia’s Association of Cryptocurrency and Blockchain (RACIB), said:

It’s hard to comment on these regulations in any shape or form, because they are disconnected from reality”.

According to the document, it seems that the money must be collected so that it can then be given back instead of directing these funds towards internal business development and investment, he adds.

“The document uses inaccurate terminology, which can result in conflict,” continued Sheltsin. “Nor does it correspond to existing regulations.”

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