Japan Urge Regulators To Treat Crypto Exchanges Like Traditional Banks

Japan Urge Regulators To Treat Crypto Exchanges Like Traditional Banks

The Financial Services Agency (FSA) of Japan is asking global regulators to subject cryptocurrency exchanges to regulations that are similar to banks and other financial institutions. The proposal comes following the collapse of Sam Bankman Fried’s FTX crypto exchange. 

Mamoru Yanase, the deputy director-general of Strategy Development and Management Bureau at Japan’s Financial Services Agency (FSA), urged global authorities to subject cryptocurrency exchanges to regulations similar to that of traditional financial institutions like banks. 

The financial watchdog has called for stronger regulation for the crypto sector following the collapse of FTX exchange in November. The event was a severe blow to the crypto market with Bitcoin (BTC), the world’s most valuable cryptocurrency, falling to a two-year low at $16,000. Sam Bankman-Fried, the co-founder and former CEO of FTX was arrested under fraud charges and is currently facing trial in the United States. 

Unlike his US and European counterparts, Yanase acknowledged that the problem wasnt the technology, but “loose governance, lax internal controls and the absence of regulation and supervision.” The FSA is working together with the Financial Stability Board, an international body that monitors the global financial system, to push policy recommendations that will oversee cryptocurrency exchanges on the same level as traditional banks and brokerages. 

Japan’s Financial Services Agency (FSA)

The FSA official emphasised that countries need to demand crypto exchanges to be entitled to consumer protection, curb money laundering, and implement robust governance, internal controls, auditing, and disclosures. Yanase also added that regulators must have the authority to engage in enforcement actions, like onsite inspections, to ensure that the companies are managing customer funds appropriately. FSA has proposed the need for authorities to establish a consistent international mechanism that will coordinate and act together when crypto companies fail. 

Earlier this month, lawyers representing FTX stated at the U.S court presiding over the case that the company has listed its subsidiaries FTX Japan and FTX Europe for sale. At the time it was reported that FTX Japan would resume customer withdrawals in February, and has 41 parties interested in buying the company. 

In December, FSA unveiled a set of updated guidelines for regulating fiat-backed crypto assets, otherwise called stablecoins. According to the contents of a consultation paper released by the agency, stablecoins like USDT and USDC, which are issued outside the country will be listed on local crypto exchanges under the condition the platforms are able to maintain sufficient collateral of the assets in their reserves. Crypto assets are considered payment instruments in the country. 

After the collapse of algorithmic stablecoin TerraUSD (UST) in May 2022, the Japanese parliament passed a resolution that required stablecoins to be backed by yen, the national currency of Japan. The bill which is set to become law in 2023 along with the Payment Services Act will only allow stablecoins issued by licensed banks, registered money transfer agents or trust companies to be listed in the country. The regulation also requires crypto brokers to get crypto assets verified by the Japan Virtual and Crypto Assets Exchange Association (JVCEA). 

Also Check: World Economic Forum Releases DAO Toolkit 

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