While every region has made enough efforts to regulate the crypto economy and reduce risks, somehow the digital space remains uncontrolled by forming loopholes. In Japan, the financial regulators intend to close one such loophole.
Japan’s Financial Services Agency (FSA) is planning to impose regulations over unregistered crypto investment firms, that use cryptocurrency, rather than cash. The agency in the country has made it compulsory for all crypto exchange to obtain a license before starting operations. Although. Unregistered firms which collect funds in digital currency don’t need to get such license. A number of companies are taking advantage of this regulatory loophole to provide their services in the country.
In the current framework of FSA, these type of firms which collect funds in crypto rather than fiat currencies, are considered in a grey area. This is due to the unregistered crypto firms do not fall under FSA’s Japan’s Financial Instruments and Exchange Act. The Act restricts unregistered companies from collecting investment funds in cash, but do not explicitly mention anything about accepting cryptocurrencies.
Reportedly, in last year the Tokyo police arrested eight men suspecting that they were operating a pyramid scheme in the country. The police also found out a total of 7.8 billion yen ($68.4 million) in both cash and cryptocurrency from 6,000 investors across 44 prefectures, including Tokyo. A suspect among them also confessed that the illegal activity would not have come out if they confined to funds in cryptocurrencies only. This scam had opened eyes of the authorities in Japan. The idea of restructuring the regulatory framework for such firms was first considered and then was thrown into relief.
Japan’s financial regulators have been actively working on regulations for the crypto economy since the country has seen massively affecting hacks, such as Mt. Gox in 2014 and Coincheckin early 2018. Following such incidences, Japan has increased its scrutiny over crypto exchanges platforms. Moreover, FSA has recently declared cryptocurrencies into a new legal category termed “crypto-assets,” hoping that traders will no longer buy them believing that they are legal tender recognized by the government.
Notably, Japan is one of the first significant economies in the world to legalize Bitcoin payments.