Japan's FSA considering over 100 new exchange applications
Japan, which has the second-largest number of crypto traders in the world, is poised to expand its position as a crypto trading hub this year. Japan's financial regulator, the Financial Services Agency (FSA) is working to approve up to 110 new trading platforms. The FSA will strengthen Japan's existing crypto legislation to protect cryptocurrency investors and further integrate the crypto sector with traditional finance.
A new day for exchanges
In Japan, the Financial Services Agency (FSA) requires all financial companies to register prior to initiating any activity in the country. The registration process is comprehensive, requiring the platform to comply with KYC/AML regulations, submit to FSA-led onsite visits, and more. The law came into effect on April 1, 2017.
The FSA approved a small number of crypto exchanges in Japan in 2017. Exchanges that were already operating in Japan at the time the law came into effect were allowed to maintain operations while the FSA reviewed their status. These exchanges were referred to as ‘deemed dealers’.
Eleven exchange operators were successfully registered on Sept. 29, 2017. These included Money Partners Group, Quoine, Bitflyer, Bitbank, SBI VC Trade Co. Ltd, GMO Coin, Huobi Japan (previously known as Bittrade), and Fisco Cryptocurrency Exchange, amongst others. The FSA announced the approval of five exchanges in December 2017. This included Bitgate and Xtheta bringing the total number of approvals in 2017 to 16.
In January 2018, Coincheck, an exchange operating under the deemed dealer designation, fell victim to a major hack. The exchange lost around 58 billion yen in XEM belonging to over 250,000 customers. At the time, the loss was equal to $550 million. Following this theft, the FSA instituted even more stringent requirements for crypto trading firms wishing to operate in the country. As a result, no new exchanges were approved by the regulator in 2018.
Additionally, the FSA sent out a number of warnings in 2018 to exchanges that were deemed to be operating in a manner that was inconsistent with the new regulations. Exchanges that received a warning in 2018 include Binance and Blockchain Laboratory Ltd. Cielo EX and Gibraltar based SB101 received warnings this year.
Warnings sent out to exchanges that were already approved for operation in Japan were called Business Improvement Orders. One of the country’s most popular exchanges by trading volume, Bitflyer, received one of these orders. As a result, it ceased the onboarding of any new customers. The platform was charged with not confirming the identity of its existing users and ordered to improve its management architecture. After complying, BitFlyer resumed new user registrations on July 3, 2019, one year later.
The Zaif exchange received two Business Improvement Orders from the FSA in 2018 and 2019. The most recent of these was received on June 21. The trading platform was found to be in contravention of KYC/AML legislation and had extensive managerial flaws. Zaif was ordered to create a response action plan and subsequently put in place improved controls and systems.
Despite these events, the FSA seems to be loosening its reins in 2019 with three new exchanges having been approved to date. These are Coincheck, which applied for registration in 2017, Rakuten Wallet and Decurret. Additionally, the FSA is reportedly reviewing a further 110 applications that are in different stages of the registration process.
While there is no definite date or confirmation that all of these exchanges will successfully register with the FSA, the fact that the regulator is finally reopening the registration process points to a thawing attitude.
The G20 influence
Last month Japan hosted the G20 summit. As is traditional, the leaders collectively published a declaration at the conclusion of the summit. The declaration communicates joint commitments of G20 signatories, of which Japan is one, with regard to various global issues.
The Final G20 Osaka Leaders Declaration included an announcement that referred to the global crypto asset markets. The leaders expressed a collective belief that digital assets have a positive role to play in the global financial industry. The declaration stated, “Technological innovations can deliver significant benefits to the financial system and the broader economy. While crypto assets do not pose a threat to global financial stability at this point, we are closely monitoring developments and remain vigilant to existing and emerging risks.”
The leaders expressed support for implementing global standards with regards to regulating the digital asset sector stating, “We welcome on-going work by the Financial Stability Board (FSB) and other standard-setting bodies and ask them to advise on additional multilateral responses as needed. We reaffirm our commitment to applying the recently amended FATF Standards to virtual assets and related providers for anti-money laundering and countering the financing of terrorism. We welcome the adoption of the Financial Action Task Force (FATF) Interpretive Note and Guidance. We also welcome the FSB’s work on the possible implications of decentralized financial technologies and how regulators can engage other stakeholders. We also continue to step up efforts to enhance cyber resilience.”
Further developments
Japan recently passed an amendment to its existing crypto asset regulations. A draft bill to ‘amend some of the fund settlement laws, in response to the diversification of financial transactions accompanying the advancement of information and communication technology’, was published on June 7.
The two affected laws are the Act on Fund Settlement and the Financial Instruments and Exchange Act. The bill was drafted by the FSA and it affects the standing of ICOs, giving them the legal right to take place within Japan's borders.
Additionally, the bill requires the use of cold wallets for the storage of digital assets by exchange platforms. In the case of platforms that must use hot wallets, like exchanges, they must hold an equal amount in a cold wallet. The bill also touches on taxation for profits garnered from activities related to cryptocurrencies.
Finally, plans to reopen the Japanese exchange Mt.Gox seem to have ground to a halt. In March 2019, Brock Turner announced plans to reopen the exchange. However, the entry of a new claimant, CoinLab, is likely to further protract the timeline for the reimbursement of creditors because the court-appointed trustee must verify all claims before it can distribute any funds. The entry of CoinLab into the field has disappointed many of the other Mt.Gox creditors, leading to the resignation of Andy Pag, the founder and former leader of Mt.Gox Legal, the exchange’s largest organized creditor group.
OhNoCrypto
via https://www.ohnocrypto.com
Alex Lielacher, Khareem Sudlow