Japan Targets Speculative Cryptocurrency Investments in Regulatory Revamp

Japan’s primary financial regulator is reportedly looking at updating its regulatory framework for the cryptocurrency sector to curb speculative investments.


In April 2017, the Financial Services Agency (FSA) – Japan’s financial regulator – enforced new legislationthat revised the Payment Services Act to recognize cryptocurrency as legal tender. The regulatory move was pioneering at the time wherein a major economy mandated domestic crypto exchange operators to register and earn a license from the authority to operate a crypto exchange in Japan.


The regulator mandated the framework to proactively prepare for a surge in cryptocurrency adoption, specifically in their usage in payments and remittances. The FSA moved to “prevent a situation in which there is no law governing (cryptocurrencies) when they come into wide use,” a senior official from the regulatory authority told the Japan Times.


However, the regulator did not foresee adopters turning to cryptocurrencies like bitcoin for as investment rather than payment instruments and, as a result, is now looking at tweaking those regulations to check speculative investments, the report on Wednesday revealed.


The FSA set up a panel of experts in April to ‘close the gaps between regulations and actual practice for cryptocurrencies’, the report added, further hinting at that regulatory shakeup of the current framework.


As reported by CCN in July, the FSA is specifically looking to bring the cryptocurrency exchange sector under the purview of the Financial Instruments and Exchange Act (FIEA), effecting laws applicable to traditional stock brokerages and financial securities firms. Under the FIEA mandate, regulated firms are required to manage customer funds separately from corporate assets which would, in effect, see far more robust investor protection norms.


Meanwhile, domestic cryptocurrency exchanges are proposing self-regulatory norms of their own. The Japan Virtual Currency Exchange Association (JVCEA), a body representing Japan’s sixteen licensed crypto exchanges, is proposing a 4-to-1 limit on margin trading to restrict investors to borrow only up to four times their original deposit. The measure, seen as a means to limit the risk of losses for investors, is proposed in a market that presently sees no restrictions on borrowed margin trading. A handful of domestic exchanges offer a leverage limit of 25-to-1, the upper default margin limit for foreign exchange trading.


Such trading is currently “unchecked”, an FSA official told the Japan Times. If the proposed revision does occur, cryptocurrencies would also be classified as ‘financial products’, paving their entry into mainstream financial markets.