By Users of cryptocurrency wallets in Japan may soon have to reveal their identities as the island nation’s top financial regulators are currently preparing a new law surrounding regulation.
The Financial Services Agency (FSA) announced on Monday that they plan to regulate cryptocurrency wallet providers. This decision came in light of a discussion held by a study group wherein money laundering & terrorist financing were the topics of discussion.
The agency also discussed other pressing concerns related to crypto wallet protection and the fact that wallet users remain open to infrastructure failures and cyber attacks.
However, the FSA did not finalize the details of how & when the regulation might take hold. The agency did, however, reveal that the regulation would be in line with the FATF-led international standards for the prevention of money laundering the financing of terrorism. The near-future scenario would see cryptocurrency exchanges, wallet providers & ICO companies all having to register with the FSA in order to continue operating in Japan.
How Would Japan Categorize Wallets?
Once the FSA went ahead with the proposal to regulate crypto wallets they also discussed how they might begin to categorize wallet services according to standards which will be pre-defined by them. The laws currently in place draw a definitive line between companies which engage in the purchasing and selling of assets and those which manage & transfer assets on behalf of customers.
At present, the wallet companies that are a cause for concern are mostly crypto exchanges which hold customer assets on their behalf to ensure liquidity as they are traded. On the other end of the spectrum, wallet software or hardware wallets do not necessarily hold the user’s funds but instead allow users to retain full ownership of their digital assets by giving them the ability to create private keys. They do however manage payment transfers so this could very well put them on the FSA’s radar.
While a service such as Bitcoin.info does not oversee trades, to the Japanese regulator they are still part of the process of managing and transferring digital currencies.
This FSA meeting’s main focus was only on service providers – specifically exchanges & cryptocurrency custodian services and kept hardware wallet and software wallet manufacturers off the table, for now at least.
Could This Be A Privacy Breach in Japan?
The proper enforcement of such a FSA law which could possibly include even essential wallet services could require companies of this nature to request identification documents from their customers every time they would want to make a transaction. As such, the act would specifically target wallet companies what operate within the borders of Japan and thus users would end up practicing regulatory arbitrage by downloading wallet services from other sources, such as VPNs.
However, a crypto wallet still remains to be a self-opened and self-regulated bank account and crypto users do not require any third party custodianship in order to protect his or her digital assets but instead, he/she holds a private wallet key to prove legitimate ownership. If a user opts to choose an open source wallet, for example, CoPay, this would be both illogical and doubtful for them to seek individual approvals from the FSA.
Ultimately it would be up to the crypto users whether they want to be regulated or not and this is the magic found within the world of cryptocurrency anyway.
Do you think the proposal to regulate crypto wallets is a flagrant breach of privacy for crypto users? Let us know your thoughts.
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