Japan’s financial watchdog and chief regulator the Financial Services Agency, is preparing to change the legal guidelines on how cryptocurrency exchanges are regulated, according to local media reports.
After the Japan-based crypto exchange Coincheck was hacked for over $500M in NEM tokens at the start of 2018, the Financial Services Agency has been working tirelessly to improve the environment on exchanges for crypto investors in the region, but it has not been easy. The FSA has had to issue business improvement warnings to many exchanges, forcing them to beef up cyber security efforts in order to better protect their customer’s funds. Many exchanges chose to close their doors rather than comply.
Now, the FSA is taking things a step further, by potentially altering the legal basis for how it regulates exchanges. According to reports by Sankei, the FSA may soon regulate exchanges under the Financial Instruments and Exchange Act, instead of the Payment Services Act that exchanges currently fall under. The change to FIEA will force exchanges to increase customer protections, and ensure corporate assets are stored separately from customer funds.
The change puts cryptocurrencies under the same roof as other financial instruments such as stocks. Doing so also opens up the possibility of crypto derivatives like ETFs. Currently, cryptocurrencies are legally considered to be electronic money – and are treated the same as cash.
Crypto exchanges in Japan must register to be licensed with the FSA in order to conduct business. Many exchanges in the region are still awaiting approvals on the application process. The process has not deterred other exchanges from setting up shop. SBI Holdings recently launched the country’s first bank-owned crypto exchange, and Coinbase is seeking to move into the region in the coming months.