Japan Publishes Draft Report of New Cryptocurrency Regulations
Japan’s Financial Services Agency has published its draft report outlining new cryptocurrency regulations. The report contains measures in areas that are not currently addressed in existing laws such as hacking incidents, self-regulation, deemed dealers, privacy coins, and margin trading.
Also read: Indian Supreme Court Moves Crypto Hearing, Community Calls for Positive Regulations
New Crypto Regulatory Framework
Japan’s top financial regulator, the Financial Services Agency (FSA), published a draft report outlining the country’s new regulatory framework for cryptocurrencies and initial coin offerings (ICOs) on Friday. The report, which was discussed at the agency’s 11th study group meeting, contains recommendations from the previous 10 study group meetings. According to local media, there was no major objection to the proposed measures in the report so the FSA is expected to draft regulations based on its content.
One major area in the report concerns preventing and dealing with hacking incidents such as the hacks of two major Japanese crypto exchanges — Coincheck in January and Zaif in September. The FSA will require crypto exchanges to strengthen the “management and maintenance of customer property,” such as the management of private keys. For consumer protection, the FSA states that it is necessary for exchanges to have net assets “equal to or more than the amount equivalent to the currency and repayment funds” in the event of a hack. The document also outlines countermeasures against crypto exchanges going bankrupt.
Self-Regulation
The FSA explains that it recognizes the rapidly changing technological innovation and sees the importance of collaborating with accredited self-regulatory organizations. “For this reason, we urge members to join the certified [self-regulatory] association” and develop systems according to their rules, the FSA wrote. In October, the Japan Virtual Currency Exchange Association (Jvcea) obtained accreditation from the FSA to be able to legally enforce self-regulatory rules.
The document also explains that the FSA deems it appropriate to refuse or cancel the registration of operators that neither join “the accredited association and conform to the self-regulation” nor establish their own internal systems to comply with the self-regulatory rules.
Deemed Dealers
The report also addresses “deemed dealers,” which are companies that have been allowed to operate crypto exchanges while their applications are being reviewed. Currently, there are three of them: Coincheck, Lastroots, and Everybody’s Bitcoin. The report points out that some of them have been aggressively advertising and rapidly growing their businesses, but many of their customers are not aware that they are not registered.
The FSA has proposed a number of measures for them. Firstly, they cannot expand their businesses or list additional coins until they are registered. Moreover, they can neither acquire new customers nor advertise or solicit for the purpose of acquiring new customers. They must also post a notice on their websites about the status of their registration.
Some Other Measures
Among other measures outlined in the report are restrictions on privacy coin listings, transactions in derivatives, and margin trading.
In addition, the report discusses ICO regulation. ICOs “can be subject to the securities regulation,” the FSA noted, adding that “We are implementing administrative measures.” Depending on their structure, tokens may be subject to regulation by the Financial Instruments and Exchange Act or the Fund Settlement Act. The document also reveals that the FSA finds it appropriate for third-party organizations to establish a framework and examine token issuers’ businesses and financial situations.
Additionally, the report addresses crypto custody businesses which do not fall under existing laws. The FSA has proposed measures such as introducing a registration system, maintaining an internal control system, separating the management of exchanges’ and customers’ cryptocurrencies, publishing response policies in case of hacking incidents, and retaining funds for repayment.
What do you think of Japan’s proposed new regulatory framework for cryptocurrencies? Let us know in the comments section below.
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by Kevin Helms via Bitcoin News