TOKYO -- A draft of Japan's first cryptocurrency regulations call for requiring companies that exchange virtual currencies and real money to register with the government, undergo audits and enact consumer protection measures.
A Financial Services Agency panel will discuss the proposals starting Thursday. Bills to enact the measures and give the agency supervisory power over cryptocurrency exchanges are expected to be introduced during next year's ordinary Diet session.
Virtual currencies are unregulated in Japan. Yet the total value of bitcoins, the most notable of the group, is around $5.2 billion globally, and daily trading in the currency in this country has grown to several hundred million yen, or millions of dollars. Mt. Gox, formerly the world's largest bitcoin exchange, was based here until its bankruptcy. The exchange's demise, which led to the arrest of its chief executive, sparked calls for regulation of the industry to protect users.
According to the draft proposals that the Financial System Council will consider, registered cryptocurrency exchanges would be brought under Japan's anti-money-laundering law, obligating them to verify the identities of those opening accounts, maintain and store transaction records, report suspicious transactions and otherwise behave like more traditional financial institutions.
The exchanges also would be responsible for computer systems to protect users' personal information. Minimum capital reserves and other financial restrictions would be enacted, and the exchanges' books would be subject to external audit. The institutions would manage their own assets separately from customers' assets to ensure clarity in case of bankruptcy. The FSA could inspect the exchanges, issue orders to remedy faults and shut down noncompliant operations.
Other measures to create a strong legal base for financial technology are in the works. The Financial System Council agreed Wednesday to seek legislative revisions to let banks' holding companies own information technology subsidiaries as well. Group companies currently are allowed to run only financial operations. But under the proposals, holding companies could be granted permission to acquire IT startups and other enterprises. Such changes could help Japan catch up to the U.S. and European nations in the growing fintech sector.