There has been a wave of hacks and attacks on Japanese crypto exchanges in the past few months, to the point where it has left regulators feeling uneasy. To try and protect investors, regulators are preparing to improve the country’s crypto regulation by adding in more security testing before regulation is issued.
The Japan Virtual Currency Exchange Association (JVCEA) will be amending its rules in the coming weeks, meaning that crypto exchanges need to step up their game quickly or risk becoming unregulated. While these new regulatory changes won’t affect some exchanges – due to the fact they already have similar processes in place – the majority will need to make some changes.
New Caps Coming
The first new changes the JVCEA is implementing will be cap son how much crypto the exchange can hold in reserve. This will be somewhere in the region of 10-20% of total customer deposits. While this might cut liquidity and increase withdrawal times slightly, it will prevent hackers from making off with bundles of cash. This procedure would have protected the Zaif crypto exchange from the attack it faced only a couple of weeks ago. It would also deter hackers from targeting Japanese exchanges due to the fact there isn’t much loot to score from an attack of this nature.
JFSA To Approve New Regulation
Before the new regulation from JVCEA can come into effect, the Japanese Financial Services Agency (JFSA) must sign off on the amendments. In addition to approving the new regulation, the JFSA is also regulating the JVCEA. Essentially the JVCEA is a board that represents 16 government approved crypto exchanges to help improve the public face of the crypto industry in Japan. It is a self-regulatory body – much like the one the Winklevoss twins set up in America – and it too needs to be regulated. To this extent, the JFSA is still plowing through the pile of paperwork the JVCEA had to fill out and submit. It’s still expected to take a few more weeks before the JVCEA gets the final verdict on whether it has achieved regulation status or not.
JFSA Needs More Hands
One of the key reasons behind the JVCEA being set up is to help provide interim support and more detailed regulations for crypto exchanges in the country. This is likely due to the fact that the JFSA has been flooded with requests and simply can’t keep up. In fact, the JFSA has recently gone on a hiring spree to find 12 new employees to help clear the backlog of application requests.
While it could be some time before we see these new regulatory measures actually come into place, it’s a good learning curve for all other crypto exchanges and regulators around the globe. Exchanges can get to work implementing this new regulation to stay one step ahead, with it only helping further serve the crypto community as a result.