Japan now allows cryptocurrency firms to self-regulate
The Financial Services Agency of Japan has formally approved the Japan Virtual Currency Exchange Association (JVCEA), which gives the latter the mandate to set and enforce its own rules and allow for self-regulation of cryptocurrency businesses and firms.
This is according to an announcement posted on the FSA website on Wednesday where the FSA said it has now allowed the association to function as a "certified fund settlement business association." This categorization means it can now set operational rules, standards, and procedures for digital currency exchanges operating in the country. It can also take action against any exchange that violates these policies.
And since FSA is interested in protecting customers and ensuring digital currencies and platforms are not used for money laundering, fraud, funding terrorism, and other crimes, members of the association may also self-regulate with regard to these issues.
The association was set up by the Japan Blockchain Association and the Japan Cryptocurrency Business Association in April this year following the hack at Coincheck that robbed investors of US$530million. The association now has 16 members. It said that it will now start setting self-regulatory rules for its members.
Members want regulation in areas such as capping the amount a margin trader can borrow based on their deposits with cryptocurrency exchanges. They also plan to have a regulation that limits the amount members can manage online, which followed hack on US$62mil Zaif exchange.
Again, the association may, reportedly, come up with a regulation that requires exchanges to maintain separate accounts for handling bank deposits and government-issued bonds. This would mean that the exchanges would be able to have adequate funds to compensate customers in case of a hack. Currently, FSA has authorized 16 digital asset exchanges to provide trading services in Japan. But there is much more workload with 160 new digital currency exchanges having submitted their applications and FSA saying it would speed up the process of looking at them.
The country is also among one of those with a working regulation about crypto businesses -- a crypto business-friendly regulation so to speak, but being a host to majority of crypto and blockchain businesses before this regulation -- the FSA had to take several steps in order to establish order and come up with a viable regulation. For instance, crypto and blockchain businesses have had to go through censorship and closures and denial of licenses in the recent past following this reorganization. The FSA has also been monitoring operations of crypto firms more closely with regular visits and clamp downs especially after Coincheck hack in January.
The JVCEA had proposed regular audits of cryptocurrency exchanges by regulators and it may be that FSA is acting on these recommendations. Otherwise, FSA has a set of rules and regulations crypto exchanges must comply to get the operating licenses. For instance, they must explain the amount of funds they have in reserve, the trading pairs they wish to offer, and the maximum leverage ratio they will be providing for margin trading. The companies are also required to explain the security features they have implemented on their platform.