Posted on

From Stablecoins to Blockchain Trials: Japanese Players Are Going Crypto as the Local Government Is Overseeing the Market

Last month was particularly eventful for the Japanese crypto ecosystem.

The beginning of the year was particularly eventful for the Japanese crypto ecosystem, which is generally considered to be a major part of the industry. First of all, Japan’s Central Bank (BoJ) issued a study on the role of central bank digital currencies (CBDCs) in the current monetary system, a topic that was widely discussed by the country’s officials last year.

Secondly, major domestic trading company and investment bank, Marubeni Corporation and Daiwa Securities Group, reported blockchain-related advancements in their businesses. Finally, local banking giant Mizuho Financial Group announced the launch of its custom stablecoin.

Time to observe this news closer and see what has been happening with crypto in Japan.

It’s still unclear whether Japan will issue a CBDC

Japan’s authorities have been notably hesitant about the idea of introducing a CBDC, which might seem surprising at first, given that cryptocurrencies can be used as a legally accepted means of payment in the country (although they are not considered “legal tender”).

CBDCs — just like Bitcoin (BTC) and altcoins — are also virtual currencies. The main difference is that they are issued and controlled by a federal regulator. Hence, CBDCs are not decentralized, unlike many digital assets. Basically, they represent fiat money, albeit in digital form. Each CBDC unit acts as a secure digital equivalent to a paper bill and can be powered with distributed ledger technology (DLT).

Consequently, if central bank decides to issue a CBDC, it becomes not only its regulator, but an account holder as well, as people would have to store and access their digital money via this bank. That places CBDC-issuing central banks on a par with private banks.

CBDCs could be seen as central banks’ response to the growing popularity of cryptocurrencies, which bypass regulators’ purview due to their decentralized design. Federally-issued currencies, in turn, aim to take some of the main features from crypto — namely the convenience and security — and combine them with the proven attributes of the conventional banking system, in which money circulation is regulated and reserve-backed.

At this point, the BoJ has publicly criticized the concept of CBDCs twice. First, in April 2018, its deputy governor, Masayoshi Amamiya, declared that such currencies can have a negative impact on the existing financial system. Specifically, he expressed his concern about taking on the role of private banks:

“The issuance of central bank digital currencies for general use could be analogous to allowing households and firms to directly have accounts in the central bank. This may have a large impact on the aforementioned two-tiered currency system and private banks’ financial intermediation.”

Then, on Oct. 20, Masayoshi Amamiya expressed his doubts regarding the effectiveness of CBDCs, adding that his agency won’t be issuing its digital currency in the near future.

Specifically, Amamiya responded to a theory suggesting that CBDCs can help governments overcome the “zero lower bound” — a situation in which interest rates fall to zero and the central bank loses the capacity to stimulate the economy. According to this approach, a CBDC would enable central banks to charge more interest on deposits from individuals and firms, and hence motivate them to spend money and vitalize the financial system.

The deputy governor questioned that theory, claiming that charging interest on central bank-issued currencies would only work if central banks fully eliminate physical money from the local economy. Otherwise, the public would still continue converting digital currencies into cash in order to avoid paying interest.

The elimination of fiat money in Japan is “not an option for us as a central bank,” since cash is a popular method of payment in the country, Amamiya added. Indeed, Japanese society is still mostly cash-based, as about 65 percent of transactions are reportedly done in paper money (which is more than double that of other developed economies).

Japan loves its cash

The BOJ deputy governor continued that thought by stressing that his agency is not planning on creating a CBDC that can be widely used by the public for settlement and payment purposes. The shift to bank-issued crypto from the existing sovereign currencies seems to be “quite a high hurdle,” as crypto assets are often associated with speculative investments and do not represent a stable means of payment, he noted.

Further, the central bank examined the role of CBDCs in the current monetary system in a report released on Feb. 19. The paper was written by representatives of the University of Tokyo and the BoJ.

The report divided possible CBDCs into two categories, the first being those accessible to the general public for daily transactions instead of banknotes and the other as those limited for large-value settlements.

Interestingly, after explaining that CBDCs of the latter kind wouldn’t bring a lot of new features to the monetary system — as it has already been digitized — the report’s authors focused on the first category throughout most of the document. The report stressed that DLT could be applied to such token-based CBDCs.

The working paper noted that blockchain-based CBDC could lower the level of anonymity of its users, as cash money cannot be tracked and hence is used for criminal activities. Here, the authors referenced the example of the People’s Bank of China (PBoC), which announced its intent to issue a digital currency to curb tax evasion back in 2016.

Notably, the document doesn’t necessarily reflect the official views of the BoJ and was published to stimulate further discussion on the topic, which suggests that Japanese officials have not given up on the idea of issuing a CBDC.

The FSA continues to apply scrutiny toward the local crypto industry

The Financial Services Agency (FSA), the national financial regulator, is known to have a tight grip on local digital asset exchanges. It comes as no surprise, given that the country has witnessed the two largest crypto hacks in history: namely, last year’s outlandish $532 million Coincheck hack and the notorious crash of Tokyo-based Mt. Gox. In the wake of those security breaches, the watchdog has introduced numerous precautions, including on-site inspections of exchanges’ offices and mandatory risk management system reports.

As per Japan’s Payment Services Act, amended in April 2017, all digital currency exchanges in the country are required to be registered with the FSA. The agency has granted the most compliant players with licenses. Currently, the pool of exchanges cleared to serve the Japanese market currently is represented by 17 platforms: Money Partners, Liquid (previously known as Quoine), Bitflyer, BitBank, SBI Virtual Currencies, GMO Coin, Btcbox, Bitpoint, Fisco Virtual Currency, Zaif, Tokyo Bitcoin Exchange, Bit Arg Exchange Tokyo, FTT Corporation, Xtheta Corporation, Huobi and Coincheck. The latter managed to secure its license just recently, almost a year after it suffered from a major hack.

Notably, the agency’s tough supervision has prompted some major players to quit the Japanese market. Thus, Binance, one of the world’s largest crypto exchanges that had once opened an office in the country, turned to Malta — the famously crypto-friendly country — after the Japanese regulator had slapped it with a warning in March 2018. Similarly, local social messaging app Line has also decided to exclude the domestic market prior to the launch of its cryptocurrency exchange, citing local regulatory difficulties.

Nevertheless, the FSA’s severity hasn’t scared everyone off. As many as 190 exchanges are reportedly pending the agency’s approval to enter the local market. Perhaps the most notable example here is United States-based Coinbase, which has made positive remarks about Japan’s crypto regulatory climate in the past, saying that the FSA’s intense focus on security is “good for us.” Given that Coinbase originally planned to establish its operation in Japan within 2018, the financial agency is likely to approve or decline its application at some point in the next few months.

Moreover, the Japanese arm of the internet giant Yahoo will reportedly open their own crypto exchange “in April 2019 or later.” Other players that will potentially open a crypto exchange in Japan include Mitsubishi UFJ Financial Group, the largest domestic bank, and Money Forward, the company behind a popular financial management application.

In December 2018, the FSA published a draft report that introduced the new regulatory framework for cryptocurrencies and initial coin offerings (ICOs) in the country. In it, the agency continued to strengthen security requirements for local crypto exchanges, focusing on private keys management, among other things. Further, the FSA urged players to join the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory body comprised of domestic industry participants. Moreover, the financial watchdog suggested that ICOs might become subject to securities regulation in the future. Indeed, previously, local media reported that the agency was going to introduce new ICO regulations to protect investors from fraud.

One of the FSA’s potential next steps is to regulate unregistered firms that solicit investments in cryptocurrencies. According to Cointelegraph Japan, there is a loophole in the country’s existing regulatory framework that allows unidentified companies that collect funds in crypto rather than fiat currencies to stay in a gray zone, and the watchdog intends to close it.

Industry players have asked to reduce the current tax rate

In February 2019, the Japan Association of New Economy (JANE), a business industry association led by Hiroshi Mikitani, the CEO of Japanese e-commerce giant Rakuten, asked the FSA to reduce the current tax rate for crypto trading income.

Specifically, JANE inquired whether it was possible to tax crypto in compliance with progressive taxation instead of general taxation.

According to Cointelegraph Japan, income from trading cryptocurrencies is currently taxed at 55 percent in Japan. Imposing progressive taxation on crypto gains would reduce it to 20 percent — the same rate that is applied to stocks and forex markets in the country. The association has also asked the FSA to impose no tax on crypto-to-crypto transactions.

Previously, in October 2018, local news agency Sankei reported that the Japanese National Tax Agency was planning to adjust the tax filing system for cryptocurrencies in order to corroborate that local traders report their gains.

Currently, such profits are classified as “miscellaneous income” in the country. Basically, Japanese crypto holders have to pay between 15 and 55 percent on gains declared on their annual tax filings. The top amount applies to people who earn more than 40 million yen ($365,000) annually.

Stablecoins and bank-controlled digital currencies are on the rise in Japan

Over the past few months, at least two major digital currencies developed by Japan’s major banks and IT-industry players have received important updates, , the origins of which – as well as a detailing of related projects – was covered in a separate Cointelegraph article.

J-coin

Japanese banking giant Mizuho Financial Group, which has over $1.8 trillion in total assets, will reportedly launch its bespoke stablecoin for payments and remittance services as soon as March 1.

Dubbed “J-Coin,” the new digital currency platform aims to directly link existing bank accounts with digital wallets. According to reports, the project is being developed in a partnership with around 60 counterpart financial institutions — which host around 56 million user accounts combined.

The currency will reportedly be managed by a dedicated mobile app, J-Coin Pay, which uses QR codes at checkout to complete retail payments. As per local financial newspaper Nikkei Asian Review, the currency will resemble a stablecoin fixed at a price of 1 yen (~$0.01) per unit, while transfers between bank accounts and J-Coin wallets are set to be free of charge.

GYEN

In February, domestic IT giant GMO Internet confirmed its plans to launch a yen-backed stablecoin called GYEN this year.

There are few details about the project at the moment. The company’s representatives has so far only revealed that the firm has set up a subsidiary and appointed a person responsible for GYEN operations to issue the stablecoin in 2019.

The company had to shut down some of its other crypto-related operations, however. In late December, GMO announced it was quitting the Bitcoin mining hardware sector, citing “extraordinary loss” in Q4 last year. In Q3, GMO’s cryptocurrency projects reportedly brought the company around 2.6 billion yen ($22.8 million) despite “the harsh external environment.”

Japan’s largest firms are actively tapping blockchain for their business

Numerous Japanese private firms — including banks, brokerages, trading giants and IT players — have announced blockchain-related news within the past few months, cementing Japan’s reputation as one of the most technology-focused countries. Here are the main companies, along with their projects:

Banks and brokerage

Sumitomo Mitsui Banking Corporation (SMBC), Japan’s second-largest bank

In February, SMBC completed a proof-of-concept (PoC) using blockchain consortium R3’s Marco Polo trade finance platform. Marco Polo is a Corda-powered venture developed by R3 and Irish tech firm TradeIX, connecting banks via a trade network.

SMBC, which is currently the only Japanese bank participating in the Marco Polo scheme, said it had partnered with Mitsui & Co. — one of the largest “sogo shosha” (general trading companies) in Japan — to enhance efficiency in trade processes.

“[The] PoC was conducted between SMBC and Mitsui & Co. which aims to improve productivity in its trade operations, by testing modules such as Receivable Finance and Payment Commitment (Payment Undertaking),” the press release explained, adding:

“SMBC expects to commercialize Marco Polo in the first half of FY2019 [the financial year 2019] after verification of the PoC.”

Daiwa Securities Group, Japan’s second-largest securities brokerage

Daiwa Securities had also announced the completion of a blockchain PoC.

The pilot project, dubbed “JPX Proof-of-Concept Testing for Utilization of Blockchain / DLT in Capital Market Infrastructure,” allegedly involved 26 companies, including financial institutions, system providers and institutional investors. The reported goal of the pilot was to increase the efficiency of blockchain tech in the post-trade process.

According to the results of the trial, the blockchain system is expected to reduce operational costs and allow for the easier development of new products and services.

SBI Holdings, the first bank to own a cryptocurrency exchange in Japan

SBI Holdings has also struck an agreement with R3 to work in Japan, purportedly to develop local use of its Corda blockchain platform.

According to the official announcement, the new joint venture will “support provision and introduction of the Corda license, arrange schemes for its actual use beforehand, as well as promote collaboration with overseas offices of R3 and other Corda partners.”

Mitsubishi UFJ Financial Group (MUFG), the world’s fifth-largest bank

On Feb. 20, MUFG announced it will launch a new blockchain-based payment system in collaboration with U.S. content delivery network Akamai.

Titled the “Global Open Network,” the platform aims to utilize MUFG’s payment industry reach to strengthen its position in the increasingly competitive blockchain payments market. The project is scheduled to launch in the first half of 2020.

Previously, MUFG had revealed its initiative to establish a remittance corridor with Brazil using Ripple (XRP).

IT

Itochu, one of the five-largest companies in Japan

On Feb. 1, Itochu announced the start of a PoC aimed to develop a blockchain traceability system, in which buyers and sellers can record the date, time, location and other transaction details on blockchain through a mobile app.

The press release stresses that the start of the new trial is contributing “to the achievement of the 17 Sustainable Development Goals listed in ‘The 2030 Agenda for Sustainable Development’ adopted by the United Nations.” It also adds:

“The aim of developing a blockchain traceability system [is to ensure] stable procurement and supply of raw material for our investment companies and trading parties, improving the traceability of its distribution.”

Line, host of Japan’s major messenger app

As 2018 was drawing to a close, Line signed a memorandum of understanding with local financial player Nomura Holdings to form a blockchain alliance.

Nomura — which provides investment, financing and related services to individual, institutional and government customers — Line and LVC Corporation — which oversees messenger’s digital asset and blockchain business units — will reportedly sign a formal contract by the end of March 2019. More details will be announced closer to the date.

As Cointelegraph previously reported, Line is actively involved in developing crypto products. For instance, in January 2018, the company announced it would launch its own crypto exchange and in-app trading space for its 200 million active monthly users.

Energy and utilities

Marubeni Corporation, Japanese trading company that has expanded into the U.S. and Europe

In late February, Marubeni teamed up with U.S.-based blockchain startup LO3 Energy to use the technology to increase automation and efficiency in its renewable energy offerings.

“The Japanese energy sector is in the midst of a drastic transition, and there are increasing numbers of private power producers and suppliers interested in developing new customer offerings particularly in the renewable energy space,” LO3 Energy CEO Lawrence Orsini commented in the press release:

“Initially this project is internally focused, but it is very much driven by the desire from Marubeni to explore the opportunities that blockchain management systems can offer in the transaction of energy throughout Japan.”

Fujitsu, Japan’s IT firm, a Global 500 company

On Jan. 29, Fujitsu reported that it successfully tested a blockchain-based solution to address inefficiencies in electricity surplus management.

Specifically, Fujitsu partnered with local power distribution company Eneres to use the technology to increase the success rates of power sharing, which is administered through a process known as Demand Response (DR).

DR is an agreement between utility companies and consumers, aimed to anticipate periods of peak demand by ensuring surplus power is available to those who need it.

Fujitsu claims that, in its current form, DR is an inefficient mechanism and blockchain has proven to improve it.

“Fujitsu has now devised a system in which electricity consumers can efficiently exchange among themselves the electricity surpluses they have produced through their own electricity generation or power savings,” the press release reads, noting:

“The result was an approximately 40% improvement to the DR success rate.”

Posted on

Japanese Financial Regulator Receives 190 Cryptocurrency Exchange License Applications

The Japanese Financial Services Agency has received 190 cryptocurrency exchange license applications.

The Japanese Financial Services Agency (FSA) received 190 cryptocurrency exchange license applications, an unnamed FSA staff member told Cointelegraph Japan on Dec. 28.

The FSA has given the local crypto industry self-regulatory status, certifying the Japanese Virtual Currency Exchange Association (JVCEA) to oversee the space. The JVCEA is now expected to develop anti-money-laundering (AML) policy and providing guidelines to crypto exchanges.

As Cointelegraph recently reported, such a license was recently granted to cryptocurrency exchange Coincheck. Following a hack at the exchange in January, it received two business improvement orders from the FSA.

Those improvement orders were mainly focused on setting higher standards for customer protection and anti-money-laundering measures. The FSA sent “punishment notices” to seven crypto exchanges in March.

The commissioner of Japan’s FSA said in August that the agency wished the crypto industry to “grow under appropriate regulation.” He further reassured that the agency has “no intention to curb [the crypto industry] excessively.”

As the cryptocurrency and blockchain industries have been growing in Japan, so too as the FSA. In July, the agency underwent a major overhaul in order to better deal with fintech-related fields, including cryptocurrencies.

The Strategy Development and Management Bureau replaced the Inspection Bureau, and will reportedly develop a financial strategy policy and handle issues addressing the digital currencies market, fintech, and money laundering.

The Policy and Markets Bureau will succeed the Planning and Coordination Bureau, and is tasked with developing a legal framework that addresses the rapid growth of the fintech sector.

After introducing regulations that requires cryptocurrency exchanges to report suspicious transactions, the Japanese National Police Agency (NPA) reported a steep increase in such reports. According to the NPA, there have been 5,944 such reports between January and October.

Posted on

Japan’s Financial Regulator to Introduce New ICO Regulations

The Japanese Financial Services Agency is introducing new, stricter ICO regulation to protect investors.

Japan’s financial regulator is set to introduce new Initial Coin Offering (ICO) regulations to protect investors from fraud, local news outlet Jiji Press reported Dec. 1.

According to “informed” sources cited by Jiji, business operators conducting ICOs will be required to register with Japan’s Financial Services Agency (FSA).

The agency is reportedly planning to submit bills revising financial instruments, exchanges and payment services laws to the ordinary parliamentary session that starts in January.

This action has been undertaken “in view of a number of possibly fraudulent ICO cases abroad” as a way “to limit individuals’ investment in ICOs for better protecting them.”

A study reported by Cointelegraph this July identified 80 percent of the ICOs conducted in 2017 as scams.

As Cointelegraph Japan reported last month, the FSA Study Group on Virtual Currency Exchange industry conducted its tenth meeting to discuss ICOs. The tokens emitted during ICOs where classified into three categories: virtual currencies without issuer, virtual currencies with issuer and tokens with issuers that are also obliged to distribute revenues.

According to the report, the first and second token classifications are subject to settlement regulation such as the Financial Instruments and Exchange Act. The third of ICO tokens is subject to investment regulations like the Financial Instruments and Exchange Act.

Posted on

Japanese Regulators Clamp Down On Prospective Crypto Exchanges

Japanese Regulators Introduce New Measures To Protect Consumers

Japan has long been at the forefront of the cryptocurrency/blockchain industry, with innovators and forward-thinkers within the country quickly adopting and developing crypto assets and similar technologies. And although many Japanese citizens see eye-to-eye with cryptocurrencies, regulatory bodies across the country have taken a cautious stance, doing their best to protect consumers from scams, hacks and the like.

As per a report from The Japan Times, a Tokyo-based publication, the country’s Financial Services Agency (FSA) has recently clamped down on one of the most important aspects of this industry — exchanges.

The FSA, which is essentially the Japanese equivalent of the US’ SEC, has tightened the registration process for upcoming crypto exchanges, insiders tell The Japan Times. More specifically, the regulatory body is doing its best to ensure that said exchanges are utilizing the proper risk management and mitigation techniques, methods, and systems. The revised registration screening rules are reportedly an update to Japan’s Payment Services Act, which was instated in April 2017 to protect the average cryptocurrency consumer from financial risk.

Those familiar with the matter noted that the revised act will require each crypto exchange license applicant to answer upwards of 400 questions, or a four-fold increase in potential questions. The Japanese news source elaborated, writing:

The state watchdog has increased the number of questions asked when screening applications to about 400 items, up fourfold, sources said Saturday.

Along with the bolstering of the regulatory questionnaire, the FSA added one more hoop for exchanges to jump through, with the revised act now requiring applicants to submit board meeting minutes. It was noted that via the minutes, the regulatory body intends to certify that there are proper measures in place to “sustain the company’s financial health and ensure the security of its computer system.”

The sources later added that this move to garner these minutes is not only to ensure security, but to also confirm that company executives are legitimately involved in the decision-making process of an exchange’s operations.

The updated screening process will also include a regular review of a crypto exchange’s primary shareholders, to “examine if an internal system is in place to check for links to antisocial groups.”

Unfortunately, analysts expect for this new regulatory move to hamper the development of Japan-based exchanges, as the stricter rules may cause the over 100 prospective exchanges to drop their applications ‘tout suite’.

It is clear that the FSA still has the $538M hack of the Japan-based CoinCheck fresh in their minds, as it is apparent that this move, along with a series of recent regulatory restrictions, is directed at mitigating the future risk of hacks and the subsequent loss of consumer-owned funds.

Regardless, as reported by Ethereum World News last week, Toshihide Endo, a commissioner at the FSA, stated:

We have no intention to curb (the crypto industry) excessively,” he said. “We would like to see it grow under appropriate regulation.

Photo by Alexandre Chambon on Unsplash
Girl in a jacket

loading…

Posted on

Line To Launch “LINK” Cryptocurrency In Expansion Efforts

Although prices throughout the crypto bucket have (somewhat) kicked the bucket, there are still legacy market firms who seem intrigued and excited at the idea of blockchain-backed assets. One such company is Line, a Japan-based internet-centric firm that has become well-known for its messaging app.

As reported by Ethereum World News, the firm announced an in-house crypto-to-crypto exchange, which goes by the name BitBox. Since its release, the exchange has done well, offering its users with low fees, and support for a variety of cryptos via a minimalistic, yet easy-to-use platform.

In a surprising move, the internet giant has shown interest towards expanding its crypto offerings, recently issuing a press release that highlighted its planned “LINK” cryptocurrency. According to The Verge, Line intends to issue the LINK cryptocurrency not via an ICO, but rather, by giving away tokens to users when they use Line services, products or complete specific requests. It wasn’t specified how exactly the payment scheme would work, but one would assume that all users of Line products have a fair chance of receiving this newly-established cryptocurrency.

This may lead you to ask — “What will these tokens be used for?”

Well, Line intends to allow LINK token holders to purchase stickers, “webtoons,” and other services within the firm’s messaging application, in a move to evidently emulate a sort-of premium or loyalty program/service.

Image Courtesy of Line

Although this may be mundane in and of itself, the Japanese firm noted that also intends to offer LINK trading support in the aforementioned Line-owned BitBox crypto exchange. The token has also been likened to Binance Coin, as LINK can be used in the place of the 0.1% fee charged by BitBox’s trading engine.

The firm intends to distribute 800 million LINK tokens over time while keeping 200 million LINK for itself in reserve, which will cap LINK’s circulating volume at a maximum of one billion tokens. It is important to note that for now, that Japan, undoubtedly one of Line’s most important markets, will be unable to access BitBox or LINK, as the Japanese Financial Services Agency (and other regulatory bodies) have not given the go-ahead for these products just yet. As it stands, users in Japan will get virtual points, which can be traded for the firm’s cryptocurrency in the future.

If this LINK venture succeeds, Line intends to eventually use the blockchain behind the LINK token to host decentralized applications (DApps) that will directly connect with the firm’s messaging app.

Speaking with CNET, Youngsu Ko, CEO of Line’s ‘Tech Plus’ subsidiary, explained the social media giant’s aspirations in the cryptosphere, writing:

“The accelerated development of the crypto economy and blockchain technologies has created a wide range of options for new types of businesses. To keep up with these trends, Line has decided to launch our own cryptocurrency and blockchain network. Line intends to be a pioneer in the blockchain/crypto field, using our status as a global mobile platform and a listed company to take the initiative with the first cryptocurrency.”

Photo by Luca Bravo on Unsplash
Girl in a jacket

loading…

Posted on

Japan’s Financial Regulator Wants Crypto Industry to ‘Grow Under Appropriate Regulation’

The commissioner of Japan’s financial regulator the Financial Services Agency (FSA) said that the agency wants the cryptocurrency industry to “grow under appropriate regulation,” in an interview with Reuters August 22.

Toshihide Endo, commissioner of Japan’s FSA, told Reuters he sees the agency’s goal for developing the crypto industry as finding a “balance” between consumer protection and technological innovation. The commissioner added:

“We have no intention to curb [the crypto industry] excessively. We would like to see it grow under appropriate regulation.”

In July, the FSA had been considering changing the legal basis for regulating crypto exchanges to oversight by the Financial Instruments and Exchange Act (FIEA), instead of its current legal foundation, the Payment Services Act.

Earlier this month, the FSA published the results of its on-site inspections of a number of cryptocurrency exchange operators, noting that in the inspections it gives “priority to investor protection.”

Posted on

G20 Crypto Regulations Could Unleash Real Blockchain Change

Jonathan M. Padilla is a Schwarzman Scholar at Tsinghua University where he wrote the dissertation “New Regulations for the New Economy: A Proposal for the G20 on the Regulation of Cryptocurrency,” from which this article was adapted.

He has advised major e-commerce and natural resource companies on blockchain integration and has a background in government and politics.


In March of this year, G20 central bankers and finance ministers met in Buenos Aires to discuss everything from international trade to investment in global infrastructure. Among the topics covered was the regulation of cryptocurrency, which has attracted the growing attention of government regulators and political actors as blockchain adoption becomes more widespread and cryptocurrency markets gain a broader following.

Since then, the G20 has begun to intensely study ways to de-risk cryptocurrency markets and craft regulation that will not stifle the innovative potential of blockchain. While many entrepreneurs and investors in this space fear that compliance with government will hinder future growth, the reality is that engaged cooperation offers the best possible path toward a potential tipping point that accelerates adoption of blockchain technology by major enterprise-grade users and brings in far greater institutional investors.

With central bankers and finance ministers slated to discuss cryptocurrency this summer in Argentina and with the full G20 to meet in late November, action or inaction here will impact cryptocurrency markets. How the blockchain community chooses to engage between now and then has the potential to set the tone of how governments and entrepreneurs develop a long-term relationship.

As Mark Carney, Governor of the Bank of England and Chair of the G20’s Financial Stability Board, noted in March of 2018, blockchain has “the potential to improve efficiency and inclusiveness of both the financial system and the economy,” but unleashing this potential will require substantial work.

An ideal forum

The G20 was originally formed as a forum for finance ministers and central bank governors after the Asian debt crisis of 1997. It’s since become a body for cooperation among heads of state to address challenging economic issues of the time.

In the wake of the Great Recession, the G20 created the Financial Stability Board to better coordinate prevention of and coherent responses to financial instability. Since its inception, the FSB has been critical to enhancing banking regulations through the Basel Accords, an opt-in transnational framework designed to strengthen the resiliency of global financial systems, and to promoting good economic governance policies.

The G20, along with the FSB, provides the best opportunity for a global regulatory framework as they 1)  convene the most relevant stakeholders and decision makers, 2) can craft a framework that is transnational in scope, and 3) are already studying cryptocurrencies and their impacts to a number of different fields.

Any regulatory framework will require cooperation from heads of government who possess the political power to move legislation and balance domestic considerations, from finance and economic ministers who have the technical ability to craft good policy and execute laws, and from central bankers who have a huge impact on the regulation of commercial banking within their respective states.

Additionally, the G20 can ensure whatever framework does take shape is transnational in nature as issues such as tax evasion, money laundering, and investor protection transcend borders. Such a framework would also minimize the risk posed by regulatory arbitrage to nations where firms can exploit loopholes in order to gain advantages based on geography.

Lastly, with G20 member states and FSB staff already working on these issues, there is attention, focus, and a desire to craft policy that will not stifle innovation.

The agenda

Different nations have taken different approaches to the regulation of cryptocurrencies and related fields. While a comprehensive framework is likely years away, there are a few key points that stand out in crafting a regulatory setup.

The simplest issue that the G20 and FSB can mediate is deciding on a working definition of cryptocurrency. Several nations such as Switzerland through FINMA and Israel through the Israeli Securities Agency have taken steps to do this in a way that classifies cryptocurrency into payment tokens, utility tokens, and security tokens.

Clarity on this front will not be easy but defining cryptocurrency will allow entrepreneurs and investors much firmer ground on which to build projects and governments more guidance on how to regulate.

Accepting that all the information required to regulate does not yet exist is another important point. This thought lends support to the creation of sandboxes like what the U.K.’s Financial Conduct Authority is doing on fintech that will provide both flexibility and capacity to evolve to meet the demands of the industry as it matures.

On exchanges, the leadership shown by Japan, with the Financial Services Agency requiring licenses and working with self-regulating organizations (SROs) to help police the space and mainstream cryptocurrency should be lauded.

Exchanges will be critical to figuring out how banks interact with cryptocurrency and how taxes will eventually be collected. As the value of the cryptocurrency market increases more and more attention to know-your-customer (KYC) and anti-money-laundering (AML) compliance will follow.

Industry impact

Collectively, some of the issues above could be woven together to mirror efforts that G20 has taken on banking regulation. A Zug or Valletta Accords, comparable to Basel, could create an opt-in framework where nations agree on basic tenets for regulating cryptocurrency with active input from the industry.

Increased regulation, however, will not mean that blockchain and cryptocurrency projects die. On the contrary, increased regulation, as long as it is done with the cooperation of industry stakeholders and with the aim of de-risking the broader market, will hasten blockchain adoption by large enterprise users and reassure institutional investors.

Numerous large firms have already begun to explore blockchain applications and potential use cases to streamline costs and gain a competitive advantage with their peers. With a regulatory framework in place, the internal and external compliance requirements of publicly traded companies can be met and the true growth stage of the traditional S-curve can begin.

Working with regulators, industry stakeholders can help craft rules where both entrepreneurs and governments win. Such a framework by the G20 could be just the action required to help unleash the long-term creative potential and promise of blockchain.

G20 flag image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Japan's Financial Watchdog Orders AML Shake-Up at 6 Crypto Exchanges

Japan’s financial watchdog has issued business improvement orders to six licensed cryptocurrency exchanges following on-site inspections conducted over recent months.

According to an announcement made by the Financial Services Agency (FSA) on Friday, the regulator is ordering bitFlyer, QUOINE, BTC Box, Bit Bank, Tech Bureau and Bit Point to enhance their internal-auditing and user-protection systems.

As a result, bitFlyer has announced that it has temporarily stopped accepting new customers in order to reexamine the IDs of “certain customers.”

The firm told CoinDesk that “bitFlyer (Japan) is working closely with the FSA and will resume onboarding as soon as possible.”

The exchange has also provided a substantial list of coming improvements to various systems, including user protection, data protection, risk management, new token listing and more, based on the order.

As previously reported by CoinDesk, the FSA launched inspections at licensed platforms in April as part of its increasing scrutiny of domestic exchanges following the $530 million hack on Coincheck earlier this year.

Today’s news confirms suggestions last week that the agency would move to force some exchanges to enhance their anti-money laundering procedures, but, going by the FSA notice, the demands are more wide-ranging.

As a result of the orders, the six exchanges are now required to file a written report to the FSA on the progress of their system improvements by July 23. Until they are able to meet the regulator’s full requirements, the FSA said the exchanges must continue filling additional reports by the 10th of every month.

FSA image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Major Crypto Exchanges Face Action Over Money-Laundering Fears

Japan’s financial watchdog is reportedly planning to force improvements at a number of licensed cryptocurrency exchanges over perceived issues with internal systems, including anti-money laundering (AML) measures.

According to a report from Nikkei on Tuesday, the country’s Financial Service Agency (FSA) intends to ensure full compliance with current AML rules at larger exchanges as their holdings of customer funds rapidly increases. The report suggests at least five exchanges, including bitFlyer, Quoine, and Bitbank, are on the FSA’s list to receive “business improvement orders” this week.

The report said that, based on its recent inspections, the FSA found that some licensed exchanges still do not have sufficient measures in place for spotting suspicious transactions. Further, the agency is also concerned that the firms have not recruited enough staff to cope with the growing volume of transactions on their platforms.

Back in April, the FSA was already raising questions over what it considered a loosely enforced ID-verification process at bitFlyer, after which the firm pledged it would strengthen its procedures.

The agency also issued business improvement orders in March to a number of registered but lesser known cryptocurrency exchanges – including GMO Coin and Tech Bureau – as part of its review of crypto trading platforms following the $530 million Coincheck hack in January.

And, earlier this month, the FSA gave its first-ever license rejection to cryptocurrency exchange FSHO after having issued two suspension orders to the firm over its alleged failure to properly implement security and AML improvements.

The latest move by the FSA comes just days after a Japanese self-regulatory group of cryptocurrency exchanges proposed to strengthen their AML measures by prohibiting member platforms from listing anonymous cryptocurrencies such as monero and dash.

Formed in the aftermath of the Coincheck hack, the Japanese Virtual Currency Exchange Association consists of major exchanges such as bitFlyer, Bitbank and Quoine, and is chaired by Taizen Okuyama, CEO of bitFlyer.

Japanese yen and BTC image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Posted on

Japan Blasts Crypto Exchange Execs in First-Ever License Rejection

Japan has issued its first official rejection of a cryptocurrency exchange application.

The announcement, released by the Financial Services Agency (FSA) on Thursday, confirms a report yesterday that indicated the regulator would move to reject FSHO’s application – its first such refusal – after it sent two suspension orders to the firm in March and April, respectively.

The denial order further explained that the FSA’s decision was made on the basis that the exchange has made no progress during the past three-month suspension period in terms of improving its internal operations.

FSHO’s operation was halted as the regulator found its know-your-customer (KYC) and security measures were lacking and after the FSA launched an on-site inspection over domestic exchanges following the $500 million Coincheck hack in January.

However, the FSA alleged in today’s notice that a large part of the issue stems from FSHO’s unwillingness to cooperate with government officials.

The FSA claimed that it authorized delegated auditors and lawyers to form a new management team for the company on May 6, a move that came after the second suspension order on April 6.

However, the FSA indicated for issues that are “extremely important in terms of management,” the former management team would still move ahead without obtaining the consent of the newly appointed delegates. In effect, the regulator said the former management had still been in control.

Further, the FSA explained the company’s former management also hosted a general shareholder meeting on June 4 where it decided that the formation of the new management team on May 6 was invalid, while the new team was “virtually absent.”

Subsequently, the delegated lawyers and auditors resigned, according to the regulator.

FSA image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.