The Financial Action Task Force (FATF) has lowered Russia’s rating owing to insufficient oversight of cryptocurrencies, as indicated by regional coverage. According to RBC, this downgrade highlights escalating worries about the country’s capacity to oversee and mitigate dubious transactions within the rapidly expanding realm of digital finance.
Russia’s Financial Strategy Challenged by FATF Downgrade
The recent assessment by the FATF places Russia at a “partially compliant” level regarding its methods for monitoring and combating dubious transactions involving virtual assets. RBC reported that the downgrade is primarily attributed to the country’s 2020 “On Digital Financial Assets” rule.
The law identifies digital financial asset (DFA) providers but fails to specify the entities that can operate as DFA and cryptocurrency providers, thus leaving a regulatory gap in the oversight of digital currencies and assets. Additionally, RBC and Vedomosti report that Russia’s existing regulations on digital financial services merely ban the use of digital currencies for payment purposes by its citizens.
The rules do not offer comprehensive guidelines or systems for the regulation and oversight of cryptocurrency transactions. This approach has reportedly led to a significant increase in illicit transactions using crypto assets, doubling in number in 2023 alone, according to Rosfinmonitoring, Russia’s financial monitoring service.
The FATF, an intergovernmental body aimed at setting global standards for combating money laundering and terrorist financing, had previously awarded Russia the highest compliance score in 2019. The FATF’s decision to limit Russia’s powers in 2022, amid geopolitical tensions, further complicated the country’s standing in the international financial community.
Rosfinmonitoring reports an increase in illegal transactions using crypto assets, with transactions tripling from the beginning of last year to November. The head of Rosfinmonitoring has called for swift action to address the regulatory vacuum and bolster the country’s defenses against reported financial crimes facilitated by borderless currencies.
The news arrives following reports that Russia is suggesting the creation and deployment of a payment system across BRICS nations, employing central bank digital currencies (CBDCs) for handling trade settlements.
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