Summary of Crypto Exchange Study Group
In order to comply with international standards for Anti-Money Laundering (AML) and anti-terrorist financing measures, the virtual currency exchange law was introduced in Japan in April 2017, which — among other requirements — also formally introduced the need to confirm the identity of market participants through Know-Your-Customer (KYC) processes.
Thereafter, in January 2018, the virtual currency exchange Coincheck was hacked and customer funds stolen. Based on subsequent on-site inspections of the administrative authorities, deficiencies in the internal control framework of many virtual currency exchanges were established.
It has also become clear that the virtual currency price is fluctuating strongly and virtual currencies are subject to speculation. In addition, new transaction types such as virtual currency trading on margin and fundraising through virtual currency have started to appear.
In response to these circumstances, the Japan Financial Services Agency (FSA) established a study group in March 2018 to consider institutional measures for various problems surrounding the virtual currency exchange industry. During 2018, 11 sessions were held, during which the viewpoints from various stakeholders, including overseas representatives, were heard.
In a report published on December 21, 2018, a summary of the results of this study group was published. While the study group was convened, inn September 2018, another hack occurred at the virtual currency exchange Zaif. An outline of this case was also reported to the study group and was taking into consideration for the final report.
In October 2018, the Japan Virtual Currency Exchange Association (JVCEA) was approved as a Self-Regulatory Organization (SRO). To ensure investor protection, a framework was developed for the flexible creation and review of voluntary regulation rules and the monitoring of members’ virtual currency exchanges. The SRO will closely cooperate with administrative authorities to fully demonstrate the self-regulatory function, including enforcement actions as required.
Furthermore, in order to ensure that everyone can accurately grasp the actual state of various business related to the virtual currency, it is desirable that the accreditation association enhance the necessary statistical survey and information provision.
The full version of the report is only available in Japanese.
However, the summary slide outlining the key findings & recommendations is available in English:
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