TOKYO -- A self-regulatory body for Japan's cryptocurrency exchanges debuted Monday as the nascent industry seeks to set higher standards in order to rebuild public trust battered by a high-profile theft.
The organization is expected to release trading and disclosure rules this summer. The 16 virtual currency exchanges registered with Japan's Financial Services Agency will join the group, which also plans to open its doors to those operating provisionally while the government watchdog reviews their applications.
"We'll pursue self-regulation to further the market's healthy development and allay uncertainty among cryptocurrency users," said Taizen Okuyama, the organization's chief and president of foreign exchange platform provider Money Partners Group.
Protecting customers will be among the group's three priorities. The revised Payment Services Act, which took effect last April and gave the cryptocurrency industry a legal foundation, requires exchanges to manage customer assets separately from their own. Though such a standard is a matter of course for securities firms and foreign exchange brokerages, compliance has been patchier among cryptocurrency exchanges.
Ensuring an orderly rule-making process will be another challenge. Okuyama said the group wants a proper discussion in order to "get on the same page" regarding issues such as leverage limits for margin trading and management of insider information, including what currencies a given exchange plans to start supporting.
But he said the group would leave regulation of initial coin offerings, a fundraising method in which companies issue virtual tokens, to the judgment of an FSA study group.
Improving disclosure will be the group's third main task. Exchanges rarely provide statistics such as total accounts and assets, leaving consumers with too little information to choose one over another. Online brokerages, by contrast, release this data monthly. Okuyama said he aims to establish a system for timely disclosure.
The creation of a self-regulatory body signals a step forward for governance among cryptocurrency exchanges. The field experienced an influx of new players in its early years, with the total number of accounts swelling beyond 3.5 million as of last month. But the industry lacked the organization of more established fields in many respects, with two rival trade groups forming and many exchanges continuing to operate without official approval.
The theft of more than $500 million in virtual currency from Coincheck in January exposed the exchange's inadequate internal controls, spurring a crackdown by the FSA. Coincheck was sanctioned twice by the agency, while many of the 16 provisional operators have been forced to halt operations or leave the industry. The self-regulatory organization can have a major role in efforts to mend the field's tarnished reputation.
The FSA applauded the group's creation as a welcome, if overdue, move toward reform. Tokyo expects self-regulation to provide more flexibility than government rule-making and foster future growth.
But an immediate stamp of approval by the watchdog remains in question. The FSA has warned multiple exchange operators that its reviews are no mere formality, suggesting that the industry will not be left to its own devices. Agency officials consider public-private cooperation on setting ground rules to be the best option, as the government may be unable to keep pace with technological innovation on its own.