Russia's Bank Launches New Cross-Border Crypto Payment System

Russia’s Bank Launches New Cross-Border Crypto Payment System

Updated: 05 June 2023

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One of Russia’s biggest banks is reportedly launching a new cross-border payments system utilizing crypto assets. Rosbank, one of the Russian Federation’s most important financial institutions, is set to become the first central bank to offer cross-border transactions in cryptocurrency.

In a recent report by the Russian publication Vedomosti, a Rosbank representative has noted that the institution is already conducting test transactions with private and corporate clients. Although no digital assets are disclosed, which will be supported by the bank, the Russian fintech group B-crypto will be responsible for the technical aspects of the new protocol.

The bank maintains that the service which is one of its kind in the sector, complies with current Russian legislation and the Central Bank of Russia (CBR) requirements. The latter remains opposed to the free circulation of cryptocurrencies in the country. It has however allowed their use in cross-border transactions as long as they are conducted outside the Russian financial infrastructure.

Additionally, clients must go through a KYC verification process with banks and B-crypto to use the new cross-border services, as reported by the RBC Group. In the report, Alexey Voylukov, vice president of the Russian Bank Association, noted that small banks generally offer crypto-focused cross-border payments. In contrast, large-scale banks have yet to adopt similar services.

Effect of Sanctions

The first Deputy Chairman of the Bank of Russia, Vladimir Chistyukhin, has on the other hand affirmed that cross-border payments are only expected to become a part-time remedy for international payments. This indicates that banks are cautious about using crypto assets in cross-border payment systems.

In late last year, however, the US Department of the Treasury sanctioned Rosbank and its owner, Vladimir Potanin, who is amongst Russia’s wealthiest individuals. These sanctions are an attempt to limit Moscow’s ability to fund the war against Ukraine.

Nonetheless, in an RBC Group report, Eduard Davydov’s lawyer from Emet Law Firm asserted that the new cross-border payment system could potentially be a way for Rosbank to avoid sanctions imposed on it.

Russia’s Stance On Crypto

Since last July, the Kremlin’s stance on crypto has been dubbed as ”not supportive.” Further, its use as a medium of exchange for goods and services are banned in the country. Notably, the Bank of Russia prohibits crypto use in the national economy. However, it permits its use outside Russian infrastructure and in cross-border operations.

The Russian legislation currently needs a foundation for digital currency transactions. The country’s digital financial assets (DFA) law prohibits even private Russian residents from accepting digital currency as payment for goods and services.

Vedomosti reported that the remaining top 50 Russian banks did not confirm providing similar services when questioned. Further, Andrey Tugarin, managing partner of GMT Legal, states that B-crypto’s cryptocurrency activities are entirely within the legal parameters. He emphasizes that the DFA law only pertains to transactions conducted via Russian information infrastructure.

Additionally, as the DFA law currently stands under review in the State Duma, potential amendments could allow digital currency transactions within an experimental legal regime.

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