Japan’s crypto self-regulatory system reportedly falling apart

In 2018, Japan established the Japan Cryptocurrency Exchange Association (JVCEA) to impose self-regulation on the crypto industry. The government wanted industry groups to be able to come up with dynamic policies for the industry and empower them to penalize exchanges.

But less than five years later, JVCEA faces a crisis that threatens its purpose. Financial Times report..

A person close to the industry and government told FT:

“When Japan decided to experiment with the crypto industry’s self-regulation, many people around the world said it wouldn’t work. Unfortunately, it seems possible at this point.”

The Financial Services Agency (FSA) of Japan has criticized JVCEA’s governance and expressed concern about JVCEA’s delays in implementing anti-money laundering regulations, the FT report said.

The minutes of the two board meetings in December 2021 viewed by FT showed that JVCEA received a “very strict warning” from the FSA. The minutes of the board further added to the regulatory agency’s “what the organization is doing, what the decision-making process was, why the situation was current, and board members. What is your responsibility? “

Regulators also emphasized the lack of communication between JVCEA’s directors, its secretariat, and member operators, resulting in poor control of industry associations, the FT report said.

Behind the money laundering prevention rules

According to Masao Yanaga, a board member of JVCEA and a professor at Meiji University, the FSA has made a “very strong request” to introduce a money laundering prevention rule. But the industry is taking the time to tackle it.

Yanagi said that JVCEA has resource constraints that prevent it from functioning quickly. In addition, since most exchanges are small businesses, there is a concern that it will be difficult to implement “advanced measures”, Mr. Yong said.

He said:

“Exchange operators are worried that even if they create these rules, they may not be able to implement them.”

Mr. Yong added that it would be difficult to implement money laundering prevention regulations without an international agreement between exchanges to share customer data.

However, the FT report states that the JVCEA office also has problems with cryptographic recognition. A person near JVCEA told FT that the organization’s offices include most of the retirees from banks, brokerage firms and governments. That person said:

“That’s why no one really understands blockchain and cryptocurrencies. The overall turmoil shows that it’s not a simple governance issue. The FSA is very angry with management as a whole. Is standing up. “

JVCEA told FT that it is working on improvements to address FSA concerns.

Long-term coin screening process

JVCEA is governed by Chairman Satoshi Hasoo, President of Coincheck Cryptography, and representatives appointed by cryptographic platforms and outside experts. Organizations take 6 months to 1 year to approve listing coins. Regulators are responsible for screening all tokens before they are listed on the exchange.

JVCEA has been working to speed up the screening process since the beginning of this year. In March, JVCEA introduced a new’Green list‘The system contains tokens that have already been approved and the exchange can list them without a screening process.

However, the delay continued, causing the anger of Japanese Prime Minister Fumio Kishida, who criticized the process in May.

Then Bloomberg report JVCEA claimed that negotiations were underway to completely abolish the screening process. The report also considers whether JVCEA will make a final call by the end of 2022, restricting only the tokens listed and forcing the exchange to be removed in the event of a problem. I said there is.

According to opponents of Hasua, the delay in the coin approval process is unfairly penalizing new exchanges trying to compete with established players like Coincheck.

JVCEA has admitted to FT that the lack of skilled employees has made the token screening process slow and inconvenient for new exchanges. However, the organization added that there is no bias towards newer exchanges than established ones.