In a recent report, local Japanese media outlet Sankei has indicated that the Japanese Financial Services Agency (FSA) is to change the legal foundations on which cryptocurrency regulations are based in the country.
The report made on 3 July states that the Japanese financial watchdog is considering to regulate cryptocurrency exchanges under the Financial Instruments and Exchange Act (FIEA), which is a switch from the Payment Services Act.
Under the new classification, exchanges would be required to manage private and institutional assets separately.
According to the report made by Sankei, the law (FIEA) “obliges securities companies and others to manage customer funds and securities (stocks, etc.) separately from corporate assets”. It also establishes “a strict investor protection system, such as forbidding insider trading of stocks”.
The cause for the move came after a scandal involving NEM coin in January 2018; at this time an equivalent to roughly JPY 58 billion (USD 530 million) was hacked from one of the largest cryptocurrency exchanges in Japan, Coincheck.
This led to the Japanese government and the FSA recognizing that customer asset protections were of utmost importance and, furthermore, the previous legislation that was enacted in April 2017 was insufficient.
The April 2017 legislation was huge news from Japan; it saw Bitcoin and other virtual currencies being officially accepted as legitimate means of payment. It also meant that cryptocurrency exchange operators with a domestic presence were mandated to register with the FSA and gain a license should they wish to resume business.
Now, just over a year later and after a difficult lesson, the inefficiencies of the previous legislation have been acknowledged and now a more robust set of investor protections are required.
Currently, cryptocurrencies are legally considered the same as electronic money; however, should the FSA move the regulatory basis to FEIA, cryptocurrencies will be treated as a financial product. This creates the possibility of trading cryptocurrency derivatives like futures and exchange-traded funds.
Bitcoin News has reported on multiple occasions that Japan is somewhat a speculative hotspot for the future of cryptocurrencies. This year has seen the pro-crypto nation wrestle with crypto-scepticism several times.
In June, Japan’s self-regulatory Virtual Currency Exchange Association (JVCEA), was to announce fresh laws regarding insider trading by banning private coins. However, cryptocurrency exchanges weren’t particularly pleased even going as far as to say that the rules were “as tough as the Financial Instruments and Exchange Act”.
Though in hindsight, this quote appears to overlook the NEM scandal. Furthermore, JVCEA has been offering suggestions to the FSA regarding mandatory storage protocols for crypto exchanges.
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