Impact of Ukraine Crisis on Financial Regulation in Russia


The recent crisis in Ukraine has brought new challenges to Russian society, which are having a knock-on effect in Russia’s economic and political spheres. Three major ways in which the crisis has had an impact in Russia:

  1. Economic isolation and severing of links with Western economies

  2. Military threat from NATO on Russia’s western border

  3. Economic stagnation, fall in living standards and potential growth of political opposition as a result of (1).


These challenges are triggering changes in Russian domestic and foreign policy and leading to legislative initiatives. The trends described below have recently come to the force regarding financial regulation in Russia.


Tightening of ID Requirements for Sending and Receiving Payments

The Russian authorities have pointed to the increasing terrorist threat to justify the tightening of ID requirements. Following several bombings in the run-up to the Sochi Olympic Games, Russian legislators launched major changes to payment regulations targeted at reducing the number of anonymous payments. Currently, individual anonymous payments are limited to 15,000 rubles (USD 450), with a monthly maximum of 40,000 rubles (USD 1,200). Recently introduced legislative initiatives have suggested restricting individual payments to 1,000 rubles (USD 30). The majority of anonymous payments are conducted in cash via street cash terminals that are extremely popular in Russia. Anonymous payments can also be carried out as e-wallet transfers.


While the threat of terrorism in a multi-ethnic society such as the Russian Federation cannot be overestimated, the increased ID requirements are also designed to tighten control over sources of financial support for Russia’s internal opposition movements. As a result of the recent crisis in Ukraine, the Russian authorities are striving to strengthen the power vertical (a concept introduced by Putin to signify the re-centralisation of power in a top-down approach to government) and to suppress opposition in order to cope with the economic and political isolation and the military threat that Russia is currently facing.


After three readings in Russia’s State Duma (parliament), it has been agreed to make the following changes to the Law on the National Payment System (2011):

  • Anonymous P2P payments will be limited to 1,000 rubles.
    This poses a major challenge to e-wallets (the largest are Yandex.Money, WebMoney and Qiwi) which will need to adjust their KYC procedures to conform to the new law and to identify the majority of their customers accordingly. E-wallet account holders will be permitted to top up their balances with cash, but will not be able to transfer funds to each other (P2P) without being identified.

  • Anonymous payments from Russian nationals to foreign corporations will be limited to 1,000 rubles (USD 30).
    For example, Russian nationals interested in topping up their Skype accounts via Yandex.Money will need to provide full KYC to Yandex.


Introduction of Domestic Payment Card Infrastructure


In response to the events in Crimea, the US government has imposed economic sanctions on certain Russian individuals (politicians and businessmen suspected of being involved in these events) and the banks controlled by them. Following these sanctions, Visa International has blocked Visa cards issued by Rossiya Bank, which prevents Visa cardholders from making card payments or ATM withdrawals inside and outside of Russia. Such blatant interference in Russia’s domestic payment processing practices imposed by these foreign sanctions has provoked a fierce reaction in the country. The Duma is discussing new additions to the Law on the National Payment System (2011), which will set out how foreign card issuers can operate in Russia and, more importantly, the national Russian payment card brand initiative. There are several domestic card brands competing to be chosen by the Central Bank as the basis for the national payment card. While it is unclear which of these brands will win, the following is evident:

  • Issuers of the national Russian card will need to be controlled by individuals who hold Russian citizenship

  • All processing and clearing of the national Russian card will be performed within the Russian Federation\

  • The card will be denominated in rubles

  • Large and medium retailers will be required to accept the national Russian card

  • Foreign card schemes (Visa/Mastercard) will need to place a deposit guaranteeing continuity of their services should they decide to issue cards in Russia


In the meantime, processing of Rossiya Bank cards has been switched to a local card scheme operator.


Deoffshorisation and Tightening of Currency Controls


Since the end of the 1990s, a significant number of businesses operating in Russia have been incorporated in offshore residences or owned by offshore companies. One major reason for this is the inefficiency of Russia’s tax legislation and bureaucracy. The anticipated economic stagnation has prompted the Russian government to launch its 'deoffshorisation' initiative (a term coined by Putin in 2012) a few months ago. This initiative stipulates a series of changes intended to simplify doing business in Russia, to fight tax evasion schemes and enforce tax collection.


At the moment it is unclear whether these measures will succeed in bringing these businesses back to Russia or, on the contrary, will induce them to withdraw even further.


Similarly, the Central Bank of the Russian Federation, which serves as one of the regulators in the financial industry, has initiated a continuing series of audits of local banks, resulting in several banking licences being discontinued. The initiative impacted large and small banks, including the notorious Masterbank, which was the first to be shut down. Among the main offences reported by the Central Bank were infringement of currency control regulations and schemes supporting leakage of currency from Russia abroad.

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