On Wednesday (October 24), the Japan Financial Services Agency (FSA) announced that it will grant the cryptocurrency industry a self-regulatory status, allowing the Apan Virtual Currency Exchange Association to enforce and sanction any violations.
The Japanese cryptocurrency industry has suffered two large-scale hacking theft, so the government has been rethinking whether their previous means of regulating the encryption industry is reasonable. Now, the Japan Financial Services Agency has decided to empower the cryptocurrency industry associations to develop appropriate regulatory rules based on their industry experience to protect customer assets, prevent illegal activities such as money laundering, and provide operability guidelines to exchanges. The Japan Financial Services Agency particularly emphasized that the Japan Virtual Currency Exchange Association must comply with police regulations.
A senior official of the Japan Financial Services Agency who declined to be named said:
“Cryptographic currency is a fast-growing industry. Experts are more familiar with changes in the industry than government regulators, so it is better to let them formulate and modify rules in a timely manner.”
In fact, this is not the first time that Japanese financial regulators have empowered industry self-regulatory organizations. They have also given industry regulatory power to officially recognized securities associations.
After obtaining the approval of the Japan Financial Services Agency, the Japan Cryptographic Industry Association said in a statement:
“We will work harder to build an industry that customers trust.”
In order to encourage technological innovation, Japan became the first country in the world to regulate and approve cryptocurrency transactions last year. However, in order to effectively protect consumers, exchanges operating cryptocurrency business in Japan must be registered in the Japan Financial Services Agency.
However, in recent years, the hacking of Japanese cryptocurrency exchanges has caused frequent incidents of hacking, and the regulators and the cryptocurrency industry have been criticized by the public. In September, the cryptocurrency company Tech Bureau Corp was stolen from a cryptocurrency worth $60 million. Before the company was hacked, the Japanese Finance Agency had sent a letter twice asking for a system security rectification. Another major cryptocurrency hacking incident occurred in January this year when CoinCheck Inc., a Tokyo-based cryptocurrency exchange, lost a new currency worth about $530 million.
Some officials of the Japan Financial Services Agency said that the cryptocurrency industry is in urgent need of strict supervision, but at the same time does not want to stifle innovation. Yuri Suzuki, a senior partner at Atsumi & Sakai, a Japanese law firm, believes that the regulatory rules specified by industry self-regulatory organizations may be more stringent than current regulations because they want the cryptocurrency industry to regain public trust. Suzuki Yuri said:
“The workload of cryptocurrency self-regulatory organizations can be very large, because the number of professionals familiar with cryptocurrency, finance, and law industries is currently small, so it may be a good shortcut to pay close attention to the overseas cryptocurrency industry regulation.”
On Wednesday (October 24th), the Japan Financial Services Agency also released a new set of guidelines aimed at clarifying how to open and operate cryptocurrency exchanges. According to the Japan Financial Services Agency, about 160 business entities have expressed a strong interest in applying for cryptocurrency exchanges.
To date, a total of 16 cryptocurrency exchanges have been officially approved by the Japan Financial Services Agency. But since December last year, the regulator has not approved any new applications. According to a Japanese Finance Agency official, they are studying more details. In this sense, the approval process will become more stringent than ever.