TOKYO -- In an effort to step up consumer protections and improve transparency, Japan's cryptocurrency industry has drafted new regulations that prohibit insider trading and the trading of new currencies that cannot be traced easily.
The Japan Virtual Currency Exchange Association, created in March, will vote on the proposal at a meeting on June 27. It seeks to adopt the rules as soon as it is recognized as a self-regulatory body by the Financial Services Agency, a financial watchdog.
The FSA initially refrained from imposing strict rules on the budding industry in hopes of promoting growth. But the theft of over $500 million in mostly NEM coins from cryptocurrency exchange Coincheck in January heightened the need for stronger regulation.
The proposed rules explicitly ban insider trading. Word has leaked previously that a major exchange would start handling a new currency, which led to a surge in the currency's value and left many suspecting market manipulation. Such activity would represent a clear violation of the new rules.
The association also wants to prohibit exchanges from accepting new currencies that cannot be traced to previous sellers, since such currencies could easily be used for money laundering and are hard to monitor. Highly anonymous coins like Monero, Dash and GCash could be forced out of the mainstream.
Cryptocurrency exchanges will also be required to better protect customer assets in order to prevent a repeat of the Coincheck heist. They will have to report audit results to the JVCEA, for example. Customers' private keys, which are needed to complete transactions, must also be managed offline to minimize hacking risk.
The industry group wants to address investor concerns over the way transactions are handled. Exchanges will be required to keep their quoted rates from widely deviating from the prevailing market rates. Exchanges would also need to introduce circuit breakers to halt trading should a currency's value suddenly surge or plunge.
The association has drawn up nearly 100 pages of self-regulatory measures. "We're being subjected to rules almost as tough as the Financial Instruments and Exchange Act," which governs securities companies, an official at one exchange said, voicing concerns about the potential cost of compliance.