The regulation of cryptocurrencies has been difficult for many countries around the world. As these assets offer completely novel opportunities, it is still difficult for the authorities to determine the associated risks. Some countries have chosen to take a safer route and ban cryptocurrency related activities altogether, while others want to attract investors by offering exceptionally liberal approach towards the new technology. Most countries fall somewhere in between as they try to balance the risks and advancement. As the regulators have little experience of dealing with the assets, they have to come up with creative ways to handle the regulations. Self-regulation is one of the solutions that offer the companies involved with cryptocurrencies a chance to curb the risky activities by imposing guidelines and thus be able to operate freely without government imposed restrictions. Japan has been one of the first countries that took up the self-regulatory approach with cryptocurrency exchanges. On Wednesday, Japan’s Financial Services Agency officially granted the cryptocurrency the authority to self-regulate.
“With the acquisition of accreditation, we will continue to make further efforts to create an industry that you trust for everyone who uses virtual currency with its members,” – said Japan Virtual Currency Exchange Association in a statement released on their website. The association unites registered digital currency exchanges in the country. The authority to self-regulates presents a unique opportunity for the industry. First of all, these companies will be able to continue their operations, which is a relief in the world were many regulators around the world are deciding to shut down the companies in the industry for security issues. Of course, in order to stay in the business in the long-term, the companies will have to demonstrate that they are able to control the money-laundering and other issues associated with cryptocurrencies that may represent risks for the society. Self-regulation means that the exchanges will have to set their own guidelines that everyone in the industry will have to follow.
Authorities want to restore investor confidence in cryptocurrency exchanges after a series of hacks
Japan has had a rocky relationship with exchanges. The authorities are clearly in favor of technological advancements and want to encourage the use of digital assets. Japan was one of the first countries to grant official licenses to cryptocurrency exchanges. The exchanges in the country have to register with FSA. 16 companies have already done so. At first, it seemed like the country was on the way of becoming one of the most liberal environments among the big economies with regard to cryptocurrencies. Nevertheless, several issues forced the regulators to take a second look at their approach. Coincheck, a Japanese exchange was hacked in January as the hackers got away with $530 million worth of digital assets making it one of the largest hacks in the cryptocurrency history. A series of minor incidents followed including a $60 million ‘heist’ from Zaif, a digital asset exchange owned by Osaka-based company.
With the self-regulation, the government is trying to restore the investor confidence in these exchanges. The exchanges will have to come up with a framework that reduces risks associated with cryptocurrency related activities significantly. This will not be an easy task and according to analysts, will result in regulations that are much tougher than what is currently in place. “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 told Reuters.” – explained Yuri Suzuki, a senior partner at law firm Atsumi & Sakai. FSA also published guidelines for companies who wish to enter the cryptocurrency exchange business. According to sources, there are over 160 such companies in Japan.