Japan’s Financial Services Agency (FSA) Looks to Step Up Crypto Oversight: Report
Japan has always been seen as a shining light in the Asian market for crypto adoption, with favorable regulations and a pang of hunger for digital assets.
However, recent events have caused many in the industry to rethink this stance, especially with the regulator now looking towards imposing stricter rules against companies in the space.
Keeping Close Tabs of Crypto and DeFi
Earlier this week, Jiji Press – a local news source – confirmed that the country’s Financial Services Agency (FSA) had started looking into imposing stricter regulations on cryptocurrencies. The report explained that the regulator is looking to optimize investor protection, even if it means putting exchanges in a tougher operating position.
The news source explained that the FSA established a dedicated panel of financial experts to help the government gain better oversight of the crypto and decentralized finance (DeFi) spaces. Besides oversight, the agency will also monitor developments in cryptocurrencies and the Japanese government’s efforts to build a central bank digital currency (CBDC).
The FSA is looking to overhaul its current crypto regulations and implement new rules by the middle of 2022. With the new rules in place, the agency hopes to bring more stability to the crypto space in Japan while encouraging innovation and development.
The current crypto laws in Japan were instituted in 2019 following the hack of Bitpoint – one of the country’s top exchanges at the time. The rules implemented strict Anti-Money Laundering (AML) policies on local Bitcoin exchanges at the time, marking the first time the FSA will step in to regulate crypto.
Interestingly, the current move appears to have been inspired by another security breach. Last week, Liquid Global, another exchange based in the country, was a victim of a cyber attack that saw it lose $80 million in assets – almost three times the losses racked up in the Bitpoint hack. While the exchange is looking to remediate things, Jiji Press claims the FSA is using the incident to further its agenda.
The agency particularly believes that the Liquid hack means exchanges have still not implemented safe AML policies. So, it is time for things to change.
A Long Road to Get Here
Japan’s regulatory environment has been quite challenging for exchanges. Earlier this year, the FSA announced the planned adoption of the Travel Rule from the Financial Action Task Force. The Travel Rule primarily requires that crypto service providers and asset custodians share transaction data for recipients and senders. Despite being decried by the crypto industry bigwigs, the rule has slowly gained adoption across the world. As the FSA’s announcement explained, the agency is now looking to adopt the rule by April 2022.
The agency also asked the Japanese Virtual Currency Exchange Association (JVCEA) – a self-regulatory crypto organization – to prepare for the Travel Rule’s implementation soon. The JVCEA had largely been free to regulate the Japanese crypto space, but things are about to heat up significantly.
Last month, Reuters also reported that the Japanese Ministry of Finance is strengthening its efforts to regulate crypto on a global scale. The report explained that the ministry and several other regulatory bodies are now upscaling to impose stricter rules on crypto.
Besides the staff increase, Reuters also reported that Tokyo is open to engaging with global financial regulators to develop private crypto rules. With agencies like the G20 and G7 groups already calling for regulations for private fiat-pegged stablecoins, Japan is looking to take the lead.
With new regulations coming and the Travel Rule breathing down their necks, crypto companies in Japan are about to have a rough ride.