Is self-regulation the answer to Japan’s cryptocurrency woes?
GOVERNMENTS around the world are slowly figuring out that regulating cryptocurrencies is not exactly a walk in the park.
Finding the right formula to protect the consumer interest without confining the growth and innovation of the industry is especially crucial.
Lack of technical and economic understanding of cryptocurrencies has made the task of governing the industry more challenging everywhere.
In Japan, the rights to police and sanction exchanges for violations are now given to Japan Virtual Currency Exchange Association.
This comes after Japan’s Financial Services Agency (FSA) granted its cryptocurrency industry self-regulatory status on Wednesday.
The approval means the industry association will set rules to protect customer assets and issue operational guidelines, as well as audit exchanges for compliance.
Japan has been reviewing its policy on the cryptocurrency industry following two large-scale heists suffered by the sector this year.
A senior FSA official as reported by Reuters said that cryptocurrency as an industry is fast-moving and thus, industry experts are better suited to be making the rules in a timely fashion, instead of bureaucrats.
The self-regulatory method by officially sanctioned body is also employed in other industries, such as security brokerage.
The industry association in responding to the announcement, said, “We will make further efforts to build an industry that is trusted by customers.”
To ensure consumer protection without stifling technological innovation, Japan became the first country to regulate its cryptocurrency last year, requiring all exchanges to be registered with the FSA.
In September, both regulator and the industry drew heavy criticism after a theft of US$60 million at cryptocurrency firm Tech Bureau Corp.
FSA had slapped the company with two business improvement orders just prior to the incident.
Earlier in January, US$530 million worth of digital coins was stolen from Coincheck Inc, a Tokyo based cryptocurrency exchange company.
According to senior partner at law firm Atsumi & Sakai, Yuri Suzuki, self-regulatory body guidelines are stricter than the prevailing law, and she expects this will help the industry to regain public trust.
However, it does not come without challenges.
“The self-regulatory body’s workload is likely to be heavy and there is an issue of whether it can secure enough staff with expertise in crypto exchange business,” she said.
Suzuki is a keen observer of cryptocurrency regulation, both in Japan and worldwide.
FSA on Wednesday also published a set of guideline intended for entities applying to run crypto exchanges whereby about 160 has expressed interest.
Currently, there are 16 approved cryptocurrency exchanges and there has been no new approval since December last year.
An FSA official said that they are looking into more details than before.
“In that sense, the approval process has become more strict.”