The Financial Services Agency (FSA) of Japan has decided to take new actions in their regulatory measures for cryptocurrency. Though they’ve established other limits and requirements, the most recent discussion is in regard to the limits that crypto margin traders should have with their borrowing power. Based on news reports in the area, the goal of the FSA is to reduce speculation and risk.
The proposed limit would prevent crypto margin traders from borrowing between two and four times their original deposit. This would be a major change in regulations in the industry, considering that there are no present laws that govern margin trading right now. Most exchanges provide up to 25 times the leverage, giving traders up to 25 times the amount of their deposit. Ultimately, it would just take a 4% drop in the assets to completely obliterate the trader’s original deposit.
Local news source Nikkei noted that almost half of the licensed exchanges by the FSA (7 out of 16) presently provide margin trading opportunities. However, there will be an upcoming panel that will discuss the best way to establish regulations in the area, and the panel is set to include multiple FSA officials and industry experts.
The decision to impose these kinds of laws comes after new statistics came from the FSA, showing the increased crypto margin trading in Japan. Derivatives trading accounted for over 80% of the total crypto trading volume in the country in 2017, adding up to $543 billion. The majority of that trading was from margin traders.
The Japanese Virtual Currency Exchange Association (JVCEA) is an entity in the country that was created by the 16 licensed trading platforms. Earlier in the year, before the decision to form a panel was established, the group suggested that the cap should be as low as four times what the trader deposited. One of the chairs, Taizen Okuyama, said, at the time, “This is just a provisional measure – I don't think a ratio of 4 is adequate.”
The JVCEA was only approved yesterday to qualify as ac “certified fund settlement business association.” With the new classification, they have a legal opportunity to police domestic exchanges in the Japanese crypto market.