By The Financial Services Agency (FSA) is Japan’s finance regulator. The FSA has now formalized the approval of a cryptocurrency exchange association as a self-regulatory industry body.
On Wednesday, the FSA announced in a notice that they had granted the Japanese Virtual Currency Exchange Association (JVCEA) accreditation. Therefore, JVCEA is a “certified fund settlement business association.” This status will ensure that the body can set the rules for the nation’s exchanges as well as to take-on any action over violations that may occur.
In the wake of a $530 million hack on the Coincheck exchange, the association was created. Japan wanted to protect consumers and improve transparency within the virtual currency industry.
16 licensed cryptocurrency trading platforms in Japan formed the JVCEA. In August, the JVCEA filled their application for approval with the FSA.
The FSA was reluctant to impose strict rules and regulations on the industry for fears of stifling its growth.
The JVCEA has yet to announce any rules and regulations. However, it was recently reported by Reuters that member exchanges might be required to hold separate bank deposits and government bonds, based on a draft obtained by the news agency.
The rationale for the move is devised to ensure that the exchanges will have sufficient funds to compensate users in the event of a hack.
Zaif is one of the 16 licensed platforms. The crypto exchange was recently hacked for $60 million. Regrettably, Zaif had to sign itself over to another firm last month. This was because the exchange did not have enough reserves to refund users for their losses.
In January, over $500 million of coins, most of which were NEM were stolen from Coincheck. This has demonstrated how essential regulations are within the industry for consumer protection and clarity.
The association has suggested some additional proposals. The content of the JVCEA propositions was to ensure that regular audits on crypto exchanges take place, as well as the prevention of insider trading.
The association also wants to prevent exchanges from accepting any currencies which cannot be traced to previous sellers. Furthermore, they suggested a limitation to the amount of borrowing that was available to margin traders.
The FSA has also reported that it has seen an increasing number of companies who want to apply for a cryptocurrency exchange license. As such, it has updated and released the documents it requires for firms seeking to be licensed.
It is now expected that exchanges will complete an 83-page question and answer form. The form includes details such as a platforms’ crypto reserves, offered trading pairs and their maximum leverage ratio in margin trading.
The review process will also be focused on upholding the security measures taken by exchanges. Once the FSA has reviewed the written submission, they will then conduct on-site inspections at exchanges.
In September, the agency reported that they are preparing to increase their staffing levels in 2019 for its cryptocurrency exchange license scheme. At the time, over 160 firms were looking to submit applications.
What are your thoughts on the Zaif and Coincheck hack? Which regulations would you add to the JVCEA proposal? Don’t hesitate to let us know your thoughts in the comments below!
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