Japan’s Formidable Crypto Regulatory Reforms Makes It A Hotspot For Crypto Businesses
Japan has been at the forefront of crypto adoption and making a flexible regulatory framework for businesses operating in the country. This is the reason Japan is known as the crypto capital of the world. In the beginning, when most of the other nations had quite a pessimistic approach towards crypto and various businesses operating in that domain, Japan came out with business compliant regulatory framework to provide shelter to those who had shut operations in their respective countries.
However, times have changed fast and many world superpowers like the United States realized the potential of cryptocurrencies and the underlying technology of blockchain. But, despite that these nations are having a hard time in formulating a well balanced regulatory framework which ensures security for the investors and the general public. Japan has come out to help these nations in formulating a balanced form of regulation for digital assets.
During the recently concluded G20 summit, the main focus was on finding a common ground for authorities and businesses operating in crypto. Japan has prepared a handbook or guide and it was given to all the participating nations to help them understand how Japan has been able to strike that necessary balance.
110 Crypto Exchanges Show Their Interest In Launching Their Platform In Japan
In order to get an operating license in Japan, any crypto business needs to get the approval of the top financial regulator in the country known as the Financial Services Agency (FSA). Currently, there are 19 crypto exchanges operating in Japan, out which 16 got approval in 2017 while the remaining three have started to operate from this year itself. However, as per the regulators around 110 exchanges have contacted them for launching their service in Japan.
These exchanges are in different stages of registration like “preliminary consultation” and “inquiries regarding registration.” The FSA said,
“The number of crypto asset exchange service providers which have expressed their interest is about 110 as of June.”
Among the applicants, the most notable names include the likes of LINE Cooperation, the owner of Japan's most popular messaging app Line. The company also operates an exchange called Bitbox, in several countries around the globe, except for the United States and Japan. However, that is going to change soon as several confirmed reports suggest that the firm is on the verge of getting approval for operating in Japan very soon. But, there is no official word from the regulators on the same.
What Makes Japan The Leader in Crypto Related Regulations
The FSA maintains the list of all 19 crypto exchanges operating in the country after Japan legalized cryptocurrency as a medium of payment in 2017. The first 11 crypto exchanges operators were registered on September 29,2017. The 11 exchanges were Money Partners Group, Quoine, Bitflyer, Bitbank, SBI Virtual Currency, GMO Coin, Huobi Japan (formerly Bittrade), Btcbox, Bitpoint Japan, Fisco Cryptocurrency Exchange, and Tech Bureau.
Later, 5 more exchanges were registered with the FSA in the month of December. However, no exchanges registered in 2018 predominantly due to crashing markets and the hack of Coincheck exchange. Coincheck was one of the largest operating crypto exchanges in the country, and as a result of its hack, FSA tightened its regulatory criteria even more including conducting surprise on-site inspections on registered exchanges from time to time.
In 2019, three new exchanges have got approval from the FSA to operate in the country. Coincheck successfully registered itself on Jan 11 after Monex Group acquired it. Rakuten wallet and Decurrent registered with the FSA on March 26.
Bitflyer one of the biggest crypto exchanges by trading volume finally resumed its services on July 3 by inviting new account applicants. The exchange's services were frozen for a year after instructions from FSA for business development. The company also cleared the air about its inactiveness for over a year and stated,
“We voluntarily suspended new account creation in order to reconfirm the identity of our existing customers and strengthen our internal management structure,” adding that “We would like to announce that new account creation has resumed.”
Fisco became the second crypto exchanges to receive a business improvement order from the FSA almost a year after Belfry on June 21. The business improvement order came after Fisco acquired another registered exchange Said, right after it was hacked in September last year. The FSA also provided the reason behind the business improvement order for Fisco.
The agency explained that they conducted an on-site inspection of Fisco exchange on Feb 13th and found that
“management did not recognize the importance of legal compliance … this has led to a number of legal violations. There have been problems with the company’s business management system … [and] also problems in the risk management system for money laundering and terrorist financing, and the external management system such as outsourcing management system.”
The FSA asked the exchange to set up a number of additional systems for legal compliance, risk management, outsourcing, auditing, handling new cryptocurrencies & tokens, and protecting user information after the completion of on-site inspection. The exchange needs to submit its improvement plans by July 22.
FSA Warns Unauthorized Crypto Exchanges Operating In Japan
The FSA has issued several warming to unauthorized crypto exchanges serving Japanese customers without obtaining the necessary compliance order from the regulatory authority.
Among the crypto exchanges which are operating without the due permission of the FSA include Cielo EX Ltd, which was warned on June 25. The other three exchanges who are under the regulatory authorities radar includes SB101, Binance, and Blockchain Laboratory Ltd.
G20 Nations Commit To Adhere By FATF Regulatory Standards
Japan was the host of the latest G20 summit which saw participation from all the G20 Nations. The G20 summit also saw the Finance ministers and Central Banks Governor Meetings. At the conclusion of the G20 summit on June 21, all the countries joined declared to adhere by the crypto standards set by the Financial Action Task Force (FATF). All the finance ministers and Central bank governors jointly declared,
“Technological innovations, including those underlying crypto-assets, can deliver significant benefits to the financial system and the broader economy. While crypto-assets do not pose a threat to global financial stability at this point, we remain vigilant to risks, including those related to consumer and investor protection, anti-money laundering (AML) and countering the financing of terrorism (CFT). We reaffirm our commitment to applying the recently amended FATF Standards to virtual assets and related providers for AML and CFT.”
Japan Passes New Crypto Bill
A new cryptocurrency bill was passed in the lower house of Japan's parliament on May 21 and in the upper house of councilors on May 31. The new bill was prepared by the FSA and introduced two key laws about the Act of Fund Settlement and the Financial Instruments and Exchange Act. The bill entitled,
“A draft bill to amend some of the fund settlement laws, etc., in response to the diversification of financial transactions accompanying the advancement of information and communication technology”
The revised bill was also accompanied by a resolution containing 15 requests
“which require the government to clarify regulatory targets, deploy appropriate personnel, implement appropriate regulations in line with the international standards, consider appropriate taxation methods, etc.,”
The FSA also explained what those 15 requests in the resolutions are for and stated,
“items which we should take into consideration before introducing the bill, and we should take appropriate responses to it at the time when the bill comes into effect.”
Along with the revision of the bill and the 15 requests resolution, the committees also issued a partial revision to its operating guidelines for the crypto operators. The documents state supervision of Initial Coin Offering being operated in Japan.