Japan suggests a less burdensome law for crypto intermediaries, expanding beyond cryptocurrency exchanges
The Financial Services Agency (FSA) of Japan has proposed new lightweight legislation aimed at cryptocurrency intermediaries that are not crypto exchanges. This move is an attempt to address the issue of regulatory ambiguity in the cryptocurrency market and strengthen Japan's regulatory framework.
The FSA's proposal is designed to ensure that these intermediaries comply with anti-money laundering and know-your-customer regulations, similar to those applied to crypto exchanges. The agency gave an example of a games app or self-hosted wallet providing access to a third-party app for crypto trading services and then switching back to the original app.
In 2017, Japan introduced legislation for cryptocurrency asset exchange service providers (CAESPs), covering the sale and purchase of crypto, acting as a broker, managing money related to these services, or providing custody. However, many organizations that act as introducers for crypto trading services without operating exchanges do not consider themselves as CAESPs under the current Japanese legislation.
The FSA recognizes that it is quite onerous if an organization is purely acting as an introducer and never touches any money. In many cases, the FSA might consider the app operator as acting as an intermediary and hence needing to register as a crypto exchange.
The FSA's proposal is part of a broader effort to strengthen Japan's regulatory framework for the cryptocurrency market. It is an indication of Japan's continued commitment to regulating the cryptocurrency market in a way that balances innovation with risk management.
The FSA's proposal is expected to be discussed further in the Financial System Council Working Group on Payment Services. In Japan, the new lighter regulatory laws for cryptocurrency intermediaries that are not crypto exchange platforms are drafted by the FSA, which is responsible for overseeing and regulating cryptocurrency-related activities in the country.
Japan's move to regulate cryptocurrency intermediaries comes after the country was home to the Mt Gox cryptocurrency exchange, which was hacked in 2011 and 2014. The hack resulted in the loss of hundreds of millions of dollars worth of bitcoins. The FSA's proposal aims to clarify the regulatory status of these introducers and ensure that they operate within the law, helping to prevent similar incidents in the future.
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