Financial Services Agency (Japan)
|Financial Services Agency|
|Key People||Toshihide Endo, Commissioner|
The agency is an organ of the Japanese Government and answers to the State Minister and the Minister of State for Financial Services, who are elected Members of the Diet, the Japanese parliament. The agency oversees the Securities and Exchange Surveillance Commission and the Certified Public Accountants and Auditing Oversight Board and, separately, the Commissioner supervises additional financial services such as banks and insurance companies.
Two of the largest publicly-reported thefts of cryptocurrency took place in Japan: $490 million of coins and cash from Mt. Gox in August 2014 and about $534 million of NEM coins from Coincheck in January 2018.
Acting upon new legislation in 2016 which amended the 2009 Japanese Act on Settlement of Funds, the FSA published regulations for businesses that are considered "Virtual Currency Exchangers" and began accepting applications in April 2017. The rules require applicants to disclose organizational and corporate information and to adhere to AML and KYC standards. Along with ten other exchanges, Coincheck received its Virtual Currency Exchanger license in September 2017.
About ten months after granting its first licenses and in light of the subsequent huge theft at a licensed exchange - Coincheck - the FSA was reported in July 2018 to be considering changing the legal basis for regulating cryptocurrency from the Payment Services Act to the Financial Instruments and Exchange Act. Because the Financial Instruments and Exchange Act requires entities to handle customer funds separately from house accounts, the FSA would be helping to protect against a repeat of the Coincheck theft in which customer and house funds were commingled.
In August 2018, FSA commissioner Toshihide Endo told Reuters that the agency had "no intention to curb (the crypto industry) excessively," and that the FSA "would like to see it grow under appropriate regulation."
In January 2019, Bloomberg reported that individuals working with the FSA said it had abandoned plans to allow cryptocurrency derivatives trading in Japan, though it was still considering allowing cryptocurrency ETFs. The story said that the FSA was gauging interest within the financial services industry in Japan for such a product.
Ahead of the June 2019 G20 meeting in Osaka, the Japanese press reported that the FSA was inspecting cryptocurrency exchanges' anti-money laundering practices.
Hosting an international regulatory roundtable
In October 2018, the FSA hosted a roundtable on cryptocurrency. The meeting included regulators and cryptocurrency industry representatives from more than 15 countries, as well as Japan, including the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory organization for cryptocurrency-related businesses. They named the event, “Roundtable on supervisory oversight of crypto-assets — recent developments and challenges going forward.” The topics discussed during the talk included regulation, potential cooperation and collaboration between international agencies, and derivatives and digital assets trading. Representatives from the JFSA also released a statement saying that, in the future, the JFSA wants to "hold this roundtable on a regular basis."
A day after this story broke, the Japanese FSA announced that it had formally approved the JVCEA as a self-regulatory body within the cryptocurrency industry. Specifically, the report listed the JVCEA as a "certified fund settlement business association." In Japanese law, this gives it the power to set rules for exchanges across the entire nation of Japan, as well as enforce those rules. The FSA also announced that it will begin conducting on-site inspections of exchanges in Japan, which will include reviewing their safety protocols and auditing their business records.
International network for crypto
In July 2018, a report from Reuters said that, according to sources familiar with the matter, Japan's Ministry of Finance and the FSA proposed the creation of an international cryptocurrency payment network, similar to the SWIFT network, to the Financial Action Task Force (FATF). The proposal was greenlit by the FATF.
- FSA Organisation Chart (Outline). Financial Services Authority.
- New Law & Regulations on Virtual Currencies in Japan. GreenbergTraurig.
- Japan Issues 11 Licenses to Cryptocurrency Exchanges. Cryptovest.
- Japan’s FSA Approves Coincheck’s Bitcoin Exchange Registration. Bitcoin.com.
- FSA Considers Changing Japanese Cryptocurrency Regulations. News BTC.
- Japan regulatory head scolds weak regional banks: 'Don't blame BOJ'. Reuters.
- Japan Explores Crypto ETFs After Snubbing Futures. Bloomberg.
- Japan Scrutinizing Crypto Exchanges Ahead of G20 Summit. CoinDesk.
- Japanese Regulator to Host Regular Global Cryptocurrency Roundtable. Bitcoin.com.
- Japanese Crypto Exchange Group Gets Legal Status to Self-Regulate Industry. Coindesk.
- About certification of certified fund settlement company association. Coindesk.
- Japan Has FATF Green Light to Create ‘SWIFT Network’ for Crypto: Report. Coindesk.