Japan’s Virtual Currency Exchange Association has applied for certification from the country’s preeminent financial regulator, the Financial Services Agency. It now reportedly plans to work with the government on drafting and overseeing legislation that will allow the Japanese crypto exchange industry to become self-regulating.
The JVCEA, which now claims to represent all 16 Japanese government-approved crypto exchanges, announced on Friday that certification will enable it to become a “certified fund settlement business association.”
With this, it says it will be able to act as the self-regulatory body for Japan’s crypto-currency exchange industry by providing “guidance and recommendations to members in order for them to comply with regulations, laws and self-regulation rules.”
Japan is considered to have some of the freest virtual currency regulations and, in 2016, was the first country in the world to recognize Bitcoin as legal tender.
However, it has trod a regulatory tightrope since the $450 million Mt Gox hack in 2014 and has attempted to tighten governmental oversight on the industry while still allowing crypto trade to continue and grow.
Using the existing Payment Services Act, the Financial Services Agency first introduced registration requirements on virtual currency exchanges in 2014 and put in place regulations for user protection and customer identification. These were reactions to the Mt Gox hack but also measures to counter the widespread use of virtual currencies for money laundering and terrorist financing purposes. After the $520 million hack of another Tokyo-based exchange, Coincheck, at the start of 2018, the FSA required all exchanges to go through a formal registration process and placed an outright ban on all forms of insider trading.
The JVCEA, formed after the Coincheck heist with the aim of re-establishing public trust in Japan’s crypto industry, says certification with the Financial Services Agency will allow it to be able to contribute “to the sound development of the virtual currency exchange industry and the protection of the interests of users.”
The FSA certification process, according to the To-O Nippo Press, will have to go through a two-month review by the regulator which will “carefully examine the affairs of the Association and investigate whether proper group management can be expected.”
The Association has, according to the Nikkei Asian Review, submitted a detailed 100-page document of its proposed self-regulatory measures to the FSA, and the potential costs for exchanges of becoming fully compliant is becoming a cause of concern, with an Association member telling Nikkei that “we’re being subjected to rules almost as tough as the Financial Instruments and Exchange Act.”
The wide-ranging 2006 act governs Japan’s core securities regulations, and was established after a series of corporate scandals rocked the country in the late 1990s and early 2000s.