Japan’s Financial Services Agency (FSA), the country’s top-most financial regulator, has given an official permission for the self-regulation of Japan’s cryptocurrency industry. Japan is one of the most crypto-friendly nations on the globe. The Asian country has also introduced some regulatory rules which are friendly towards investors and businesses.
According to the official FSA approval, Japan Virtual Currency Exchange Association (JVCEA) - a coalition of 16 licensed crypto exchanges - will set rules encircling issues of consumer protection, operational requirements, employee ethics, insider trading, and prevention of money laundering. JVCEA will also ensure the enforcement of the compliance from exchanges.
The Birth and Requirement of JVCEA in Japan’s Crypto Industry
In the aftermath of $530 million hack of the Coincheck exchange early this year in January, Japan’s crypto industry was reeling under the pressure of introducing strict regulatory measures. All the licensed crypto exchanges in the country came together to form a self-regulatory body, and so JVCEA was formed.
Later in August, JVCEA submitted a proposal to the FSA to get official recognition. Having received this request, the FSA conducted a rigorous two-month review to carefully examine the functioning of the association. The regulatory body also investigated the coordination and group management among the member exchanges.
Having finally secured the FSA approval, JVCEA said: “With the acquisition of accreditation, we will continue to make further efforts to create an industry that you trust from everyone who uses virtual currency with members.”
In a word with Reuters, an anonymous FSA official told “It’s a very fast moving industry. It’s better for experts to make rules in a timely manner than bureaucrats.”
Self-Regulation Can Help to Establish Better Industry Rules
The self-regulatory draft by JVCEA comprises of rules that propose a complete ban on insider trading as well ban on privacy coins like Dash and Monero from all licensed exchanges. To restrict the amount of funds one can borrow on their original deposits, the association has also introduced a 4x limit on margin trading of digital currencies.
Furthermore, studying the nature of crypto exchange hacks, JVCEA decides to put a ceiling on the amount of cryptocurrencies one can hold in hot wallets. The ceiling is capped at 20 percent if the original deposits. Hot wallets are basically online exchange wallets connected to the internet 24 x 7. Being connected online, hot wallets have higher vulnerability to external threats and attacks.
Yuri Suzuki, a senior partner at law firm Atsumi & Sakai, told Reuters that JVCEA’s self regulatory rules are much tougher compared to the existing laws. Moreover, Yuri added that “the self-regulatory body’s workload is likely to be heavy and there is an issue of whether it can secure enough staff with expertise in crypto exchange business.”