On September 13, 2017, it was reported that Japan’s Financial Services Agency (FSA) will organize a team of 30 officials to assist with the regulation of virtual currency exchanges. The agency will also empower a chief of cryptocurrency monitoring. Kyoto University professor, Naoyuki Iwashita, former head of the Bank of Japan’s FinTech Center, will provide expert consultation.
In April 2017, the FSA began recognizing virtual currency as a legal form of payment. Simultaneously, the Nikkei Asian Review notes, the agency demanded that functioning virtual currency exchanges formally register with the FSA by the end of September 2017.
“We must be careful, since we are dealing with a new technology,” said an FSA official. “This is different from a regular business registration process.”
It is unclear whether the FSA has approved any virtual currency exchanges to date. However, the agency has implemented a myriad of standards for those that exist and serve Japanese customers. These requirements include KYC protocols, a minimum capital holding of 10 million yen (approximately $90,000), and a positive net asset balance. Furthermore, Japanese virtual currency exchanges must submit annual reports about their businesses, as outlined in Article 63-14 of the Payment Services Act (Act No. 59 of 2009).
For Japan, investigation and monitoring have been the name of the game. For example, last week, the Bank of Japan and the European Central Bank released analysis for Project Stella, a joint study of distributed ledger technology for Real-Time Gross Settlement systems.
Compared to other nations, Japan has broadly embraced the cryptocurrency boom. Japanese authorities have taken an unusually patient approach, choosing to wait and watch, rather than jump the gun with restrictive regulation. Financial regulators around the world would be wise to take a page out of Japan’s playbook.