Japan’s Financial Services Agency is reportedly taking steps to update the country’s cryptocurrency regulations in a bid to combat the rise of speculative crypto investments in Japan.
The Need for Improved Cryptocurrency Regulations
The Japanese Financial Services Agency (FSA) is looking to improve its regulations on cryptocurrencies in the wake of speculative investments. The country’s regulatory body revised the Payment Services Act in April 2017 in an effort to protect crypto users. The act introduced a registration system for dealers who exchanged digital coins with yen and other fiat currency.
What the Japanese regulatory body didn’t foresee, however, was the increase in speculative investment in cryptocurrencies. This astronomical increase is due to the sharp rises in the value of digital currencies. In addition to this, digital currencies were weaving their way into corporate fundraising. With this new development, the regulatory body has decided to create new regulations that will adequately respond to the situation.
According to an exchange official:
“The rapid growth of investments in cryptocurrencies can be attributed to an expansion of margin trading, in which investors with little capital could earn huge profits, or sustain massive losses, by borrowing money. While foreign exchange margin trading has a 25 times leverage limit, the absence of such a cap on cryptocurrency margin trading makes it possible for investors to experience wild financial swings.”
In April 2018, a panel of experts was set up by the Japanese watchdog agency to address the speculative investment situation. This panel is intended to discuss ways to close the gaps between regulations and actual practice for cryptocurrencies.
The panel’s recommended regulatory actions have not yet been made public.
FSA and the Japanese Cryptocurrency Market
In January 2018, Japanese cryptocurrency exchange platform, Coincheck, lost $543 million worth of cryptocurrency to hackers. In the aftermath of the Coincheck hack, the FSA has enacted strict know your customer (KYC), anti-money laundering (AML), and several other security protocols. The FSA has also instructed these exchanges to cease offering anonymous trading accounts.
The FSA put in force the original Payment Services Act in 2010, by focusing its regulatory regime on electronic settlements. The Payment Services Act deals with integrated circuit cards provided by transport service operators. The legal revision in 2017 was aimed at preparing for the steep increase in online payments through virtual currencies. This was in response to the concerns that regulations governing financial sectors like banks and brokerage houses, may be irrelevant.
Commenting on the matter, a senior FSA official said:
“The agency devised the minimum necessary legal framework in order to prevent a situation in which there is no law governing (cryptocurrencies) when they come into wide use.”