Japanese media outlet Sankei reports that Japan’s top financial regulator is mulling plans to change how they regulate cryptocurrency exchanges.
The Financial Services Agency (FSA) is reportedly considering regulating crypto exchanges using the Financial Instruments and Exchange Act (FIEA), instead of its current legal footing, the Payment Services Act. According to the Senkai report, this means exchanges will have stronger customer protection. Using the FIEA as their legal foundation would oblige cryptocurrencies to manage customer funds separately, similar to securities companies.
Current laws in the country have legally considered cryptocurrencies as a means of payment similar to electronic money. If the FSA starts regulating exchanges under the FIEA, crypto will then be considered a financial product. This could pave the way for the introduction of crypto-backed exchange-traded funds (ETF).
Sankei’s report says one of the reasons the FSA is planning to consider a different legal foundation is the infamous Coincheck hack early this year. Following the incident, the FSA launched probes into 15 unregistered exchanges and found many shortcomings, both security and regulatory, in the crypto exchanges operations.
This July, the Japan Virtual Currency Exchange Association (JVCEA) revealed a set of voluntary rules for member exchanges. The association aims to align their members with existing anti-money laundering (AML) regulations. The JVCEA also banned the trading of privacy-centric cryptocurrencies such as Monero (XMR) and Zcash.