Russia’s feared FSB to gain access to private keys of crypto wallets

The Federal Security Service of the Russian Federation (FSB) will have full access to the private keys of crypto wallets hosted by licensed custodians.

The news comes despite opposition from Russian banks, which will be among the key participants in the country’s recently regulated market for digital assets.

FSB to have round-the-clock reach to the keys of Russians’ crypto wallets

FSB, the successor of the Soviet Union’s notorious KGB, will be given immediate access to the private keys of custodial wallets held by Russian citizens and firms.

The Central Bank of Russia (CBR), which oversees the newly legalized industry, made the announcement following discussions with representatives of the banking sector.

The Association of Banks of Russia (ABR) had proposed denying the three-letter agency the option to reach both keys and signing tools, Bits.media noted in a report on Thursday.

However, the monetary authority in Moscow did not support their initiative, the crypto news outlet revealed. The CBR also rejected a request to push back implementation until 2028.

Major players from the traditional financial market, including Russia’s big majority state-owned lenders and private commercial banks – Sber, VTB, T-Bank, and Alfa-Bank – took part in the talks.

Granting security services access to the crypto keys stems from the deployment of SORM, the government-implemented “system of technical means for ensuring operational-search activities.”

The latter, a framework comprising physical equipment and regulatory protocols, is installed on the networks of internet service providers across the country and enables instant data access for state agencies.

Using it, the FSB will be able to obtain information from cryptocurrency exchanges, brokers and “digital depositories,” or crypto custodial platforms as defined by the new “digital currency” law.

Starting March 1, 2027, all these entities will be required to provide the FSB with remote 24/7 access to the data they are storing, including text and voice messages, images, videos, and other client records.

Meanwhile, it also became clear that the Russian central bank intends to oblige crypto exchanges and custodians to reject any transfers of funds that lack details identifying their senders and recipients.

Moscow creates domestic crypto market under state control

Pressed by western fiat sanctions over its invasion of Ukraine, Russia has been increasingly relying on cryptocurrencies as a means to circumvent financial restrictions in foreign trade.

This year, the Putin administration took steps to legalize the growing market and place it under its strict control. A law “On digital currencies and digital rights” was adopted and signed this past summer.

The comprehensive legislation, which entered into force on September 1, allows both retail investors and companies to acquire and trade assets like Bitcoin (BTC), Ethereum (ETH) and Tether (USDT).

However, this can be done only through authorized intermediaries. The Bank of Russia has licensed two dozen coin trading and custodial platforms. Among them, Russia’s largest banks and stock exchanges.

This week, the CBR designated the National Association of Securities Market Participants, a body with close ties to the government, as a “self-regulatory” organization for Russian cryptocurrency firms.

Already registered crypto exchanges and digital depositories are required to become its members by January 27, 2027, and newcomers will have to secure membership within 90 days of their licensing.

To be legally owned and used domestically, Russian crypto holdings must be kept in digital wallets hosted by these state-approved service providers.

The use of self-hosted wallets is effectively prohibited, although owners are allowed to transfer their balances to custodial wallets or spend them in cross-border payments.

On Thursday, CBR Deputy Governor Vladimir Chistyukhin confirmed that the restrictions on personal wallets within the domestic market will not apply to international settlements, as reported by RBC.

During the negotiations with the monetary policy regulator, Russian bankers attempted to secure more relaxed rules for crypto exposure and the use of coins as collateral, but their proposals were rejected by the central bank.