Japan is a cryptocurrency trailblazer. It can be argued that no other country in the world has done more to introduce Bitcoin into the mainstream than the Land of the Rising Sun. Amazingly, the country isn’t content with just introducing Bitcoin to the masses, it’s making sure that it’s protecting the Japanese public every step of the way. Recent measures have seen the Financial Services Agency (FSA) enforce strict measures to stamp out exchanges that don’t wish to function within its regulatory guidelines. Ensuring total transparency, the FSA is now publishing the results of its crypto exchange inspections online for all to see.
Cracking Down on Crypto Exchanges
Japan is not taking the arrival or operation of any new cryptocurrency exchange lightly – which quite frankly is great to see. The FSA is clearly implementing a much sterner oversight into new license applications, as it looks to rid the country of questionable and illegal operations. New exchanges will now need to undertake on-site inspections very early on, with a microscope to be placed over business model performance and sustainability. Make no mistake about it, becoming a fixture of the cryptocurrency exchange scene in Japan is now going to be quite the challenge.
Moving Through the Applications
Application statistics show that there are hundreds of crypto-focused companies on the list waiting to be reviewed. This proves that the Japanese market is pretty much unignorable at this point, this also shows that the FSA has quite the challenge on its hands. The FSA’s most recent probe revealed that many exchange operators have been lazy in maintaining internal control systems in the wake of growing transaction volumes. During the closing months of 2017, the cryptocurrency market experienced a global explosion, with Japanese exchanges arguably being under prepared for it. In the eyes of the FSA, this lack of adaptability has to change.
The Crypto Market Continues to Grow
Recent investigations have revealed the staggering size of the exchange market in Japan. Exchange assets have boomed to approximately $7 billion, with Bitcoin’s amazing 2017 being a huge contributor to the growth in public interest. Partner that figure with extremely low running costs, with most exchanges employing on average less than 20 people, it does a create cause for concern. This means that on average a single employee is managing digital assets valued at around $30 million. Lack of manpower can often lead to loss of control, especially when dealing with such large figures.
Changing for the Better
The document released by the FSA is pretty comprehensive – but at this point we wouldn’t have expected anything less. It goes on to identify a whole host of issues in exchanges’ business models related to internal audits, corporate governance, and risk management and compliance. Anti-money laundering practices have also been questioned, but to a lesser extent. By making this report public, the FSA is making it clear that while progress is being made, there is still some way to go until the exchanges active in Japan reach where they need to be in the eyes of watchdogs.
Adopting the Trial and Error Approach
Japan has been faced with a something of a trial and error approach to crypto adoption. Following the earth-shattering hack of Coincheck, which saw $532 million of crypto ruthlessly stolen, the registration of new exchanges in Japan reached a standstill. However, given the current approach adopted by the FSA, faith in the Japanese market has more or less been restored. It’s labeled the new measures as both “substantial” and “necessary,” as it’s going to extremes to ensure that investors are protected, and a hack the scale of Coincheck is never allowed to happen again.
Joining Forces with the JVCEA
It was back in May when the FSA first launched its regulatory stipulations for exchanges, outlining the tough restrictions that all must adhere too. Then in July, changes were discussed to further improve these measures, along with what restructuring would be required for this to become a reality. Working with the newly created Japan Virtual Currency Exchange Association (JVCEA) – a self-regulatory body – the FSA is attempting to streamline and improve its coordination policies.
There’s a Long Road Ahead
This recent report from the FSA might make for alarming reading, as there are clearly still prominent issues within the country’s crypto regulation processes. Yet, the FSA should without question be applauded for its transparency. With problems and procedures now out in the open, investors and traders can only expect Japan’s exchanges to become safer and more secure in the future.