Prohibition of Anonymous Currencies. ICO to Conduct Preliminary Review — Self-proposed Rules on Cryptocurrencies Put Together
Prohibition of anonymous cryptocurrencies, screening of ICO to judge feasibility, a leverage of up to 4 times — .
The cryptocurrency exchange industry group, the Japan Virtual Currency Exchange Association, announced an outline of self-imposed rules on September 12, 2018. At a study meeting on cryptocurrency exchange industry held this Friday at the Financial Services Agency, Chairman Yasumi Okuyama (President of Money Partners) explained the matter.
The self-imposed rules organized by the association are summarized with reference to examples of the financial product trading business, and detailed rules on transactions are defined. Clarifying the rules will bring a certain level of calmness to the industry where in the past, the stance was “anything goes.”
Regarding the development of independent rules, there is also an expectation that it will lead to revitalization of the cryptocurrency market which is sluggish, but because staff and funds are required for strict implementation of the rules, it is possible that more exchanges will be eliminated.
Industry Group Aims to Regain Trust
The Japan Virtual Currency Exchange Association was launched in March by 16 registered exchange companies. In August, it applied for accreditation as a formal self-regulating organization to the FSA. Currently, it is coordinating with the FSA on matters regarding self-regulation.
After February 2018, as the FSA inspected exchange companies and presumptive operators, many problems regarding internal control systems and customer protection surfaced. As an association, the organization aims to organize these problems and clarify the rules, thereby restoring confidence in the industry and revitalizing transactions.
Cryptocurrencies with High Anonymity Prohibited
Regarding the handling of the new cryptocurrencies, the association will review the situations, transactions, administrators, and owners. When the exchanger starts handling a new cryptocurrency, the Financial Services Agency will also examine it, but if the association objects to it in the screening beforehand, the exchange will not be able to handle the currency.
Handling of cryptocurrency that is untraceable or difficult to track is forbidden. Coincheck dealt with many cryptocurrencies before the occurrence of the cryptocurrency leak incident, but in May 2018, after the incident, the handling of Monero, Zcash, Dash, and Auger, which were pointed out as being highly anonymous, ceased.
Cryptocurrencies that are accepted will also include a summary description.
Strengthen Countermeasures for Market Manipulation and Information Management
Cryptocurrencies have been traded in Japan for about five years, but initially, there were no rules. For this reason, it is said that some officials at certain exchanges bought cryptocurrencies in advance and then began handling them at the exchange to attempt to raise the value.
Even after the Funds Settlement Law came into effect in April 2017, there were cases that pointed out on the internet suspecting the exchanges of conducting such actions.
For this reason, rules were also established regarding handling of important information inside the exchange, as well as information that can affect the judgment of trading. If inappropriate transactions are suspected, reporting the matter to the association is also obligatory.
Leverage Transaction Up to 4 Times
Leverage transaction is a mechanism that allows a customer to trade a large amount of money with small funds by depositing a margin at the exchange.
When there are funds of 100,000 yen on hand, in the case of 10 times leverage, one can trade 1 million yen. If one buys a cryptocurrency for one million yen in leveraged transactions, one can earn a lot of profit if the price rises.
On the contrary, when losses are made, the loss also increases, but “loss cut” has been introduced to automatically settle the payment after a certain loss so that users do not have to be in debt.
Since leverage transactions are also pointed out as a factor that contributes to the volatile fluctuation of the cryptocurrency price, a 4x leverage has been set as the “Designated Association Level.”
The Association Examines ICO
ICO (Initial Coin Offering) which collects funds in cryptocurrencies, has been implemented all over the world since 2017, and some ICOs collected funds of hundreds of billions of yen. Meanwhile, it is pointed out that there are projects in which the feasibility of the project is uncertain. Some projects have gone out with the funds it collected.
For this reason, the association examines the feasibility of the ICO project in advance. It also verifies technical safety. However, because the legal position of domestic ICO’s has not been determined, it is practically impossible to implement ICO. Even if the Association were to conduct an examination, it will be after the Financial Services Agency decides on a policy
As each operator has different business circumstances, rules requiring system renovations and personnel securing, will have transitional measures that will be implemented step by step.
According to the Financial Services Agency, over 160 companies are currently showing intent to enter the cryptocurrency exchange industry. Formulation of voluntary rules is also intended to revitalize the market by advancing the improvement of the stagnant cryptocurrency market environment.
