Tokyo FinTech
Published in

Tokyo FinTech

Japan FSA & JVCEA Dialogue

Throughout the month of June, the Japan financial services regulator, the Financial Services Agency (FSA) held dialogues with different industry groups, including the Japan Virtual Currency Exchange Association (JVCEA). The main points of these discussions have been published on the FSA website in Japanese. The following is an extract for the JVCEA discussion.

Future Actions

Response to Legal Revisions

  • Recently, the Fund Settlement Act has been revised. Analyze the gaps with current self-regulatory rules and to improve the management systems as needed.
  • It is expected that most rules, such as setting limits, are already included in the current self-regulatory rules. However, government ordinances and administrative guidelines may need to be revised in the future. With regards to each member’s system, compliance with current self-regulation is first priority.
  • In addition, new laws such as for crypto asset custody service providers will be introduced. This might require businesses to file new registrations.
  • Also, under the revised law, new cryptographic asset can be added for trading with prior registration. Thorough examination of such new listings and a prudent business approach is required. The association will also seeks evaluations from third parties as necessary. The following framework for the pre-examination of new crypto assets should be considered:
    - Under what circumstances do you seek external third-party evaluation?
    - Items requiring criteria and evaluation for selecting external third-party organizations
    - How to handle the submitted evaluation document in the pre-examination.
  • The main points discussed in the current Diet session when the law was revised are outlined in the following; these need to be considered when enforcing the law in the future.
    - With regards to crypto exchange hacks, there was the opinion that excessive advertising and hot wallet management led to increased damage.
    - Examinations of the members should not overlap between the JVCEA and the authorities, and should be conducted in a timely manner.
    - Third party system checks should be performed for cyber security measures
    - For financial innovation including blockchain, Japan should engage internationally on crypto assets, such as discussions at the G20

Revision of Administrative Guidelines

  • Through the inspections of the crypto exchanges and continuous monitoring to date, the actual situation and problems are much better understood. The “interim report” defined the system improvements required for each company based on this, and in order to clarify these points as a supervisory focus, the administrative guidelines will be revised.

Challenges as a Self-Regulatory Organization

Governance

  • External directors strengthen governance by reflecting the opinions of external experts. This should not just be a formal appointment, but add substance to ensure effective governance at the board level. The highest priority for each director should be the protection of users. To fulfill those responsibilities, lively discussions are expected by the regulator.

Securing of Cryptographic Assets

  • Utilizing the knowledge of external experts in the technical committee,
    each member should create a checklist for self-assessment, execute on it, and take the required measures to close security gaps as required.

Collaboration in Japan and Overseas

  • Strengthen cooperation with domestic and foreign industry groups and other related organizations, and engage in discussions about crypto assets cyber security measures and business trends. The association should collect such information, analyze it, and share it with each member.
  • The JVCEA is the world’s first legal self-regulatory organization. It should play an active and leading role in global collaboration in the regulatory field.

Member Issues

Response to Business Improvement Orders

  • Last year, as a result of on-site inspections at each company covering the business management system, the risk management system, etc., many issues were recognized, and business improvement orders were issued to multiple crypto exchanges. Since then, one year has passed, and the improvement response based on the business improvement plan is excellent.

Recent Market Conditions

  • As for the market situation of crypto assets, bitcoin has recently exceeded 1 million yen. As the price of Bitcoin has risen, the transaction volume has also increased. Member firms need to be prepared to avoid a system failure due to the opening of a large number of new accounts and the rapid increase in trading orders.
  • In addition, when each member advertises or solicits business,
    this needs to be done within self-regulation rules so as not to encourage speculation.
  • It is the association’s responsibility to monitor its members carefully for inappropriate behavior in advertisements and solicitations.

AML/CFT

Response to the FATF Fourth Mutual Review of Japan

  • It is less than four months until the onsite screening of the Financial Action Task Force (FATF) in Japan. Depending on the risk assessment and risk of all customers,iIt is necessary to accelerate efforts to implement continuous customer management.
  • The agency is also monitoring depending on the risk.
  • At the FATF annual meeting, guidance has been revised for the registration / license system of exchange operators and the threshold for confirmation of customer transactions.
  • For guidance points, consider the separate information sent from this agency. However, each company is also expected to advance its own risk management.
  • The FSA will continue to collaborate with the JVCEA on actions that may be newly introduced in Japan.

Accepting Foreign Customers

  • Ongoing customer management is required based on knowing the period of stay. Anti-terrorism financing measures need to be implemented and followed.

If you found value in this article, please “clap” (up to 50 times).

This article is part of our Tokyo FinTech Publication, please follow us to read more from our writers, like hundreds of readers do every day.

Should you live in Tokyo, or just pass through, please also join our Tokyo FinTech Meetup. In any case, our LinkedIn page, Facebook page and our Instagram account are there for you as well.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Norbert Gehrke

Norbert Gehrke

2.3K Followers

Passionate about strategy & innovation across Asia. At home in Japan. Connector of people & ideas.