Japan’s financial regulator, the Financial Services Agency (FSA), has reportedly authorized a digital currency exchange association to operate as a self-regulatory industry organization.
In an official announcement on Wednesday (October 24th) the FSA said it had given permission to the Japanese Virtual Currency Exchange Association (JVCEA) to operate as a "certified fund settlement business association."
Authority To Take Action Against Rule Violations
This type of business status will allow the JVCEA to establish set rules, and standard operating procedures, for Japan's digital currency exchanges. The self-regulatory agency will also have the authority to take action against firms that are in violation of these policies.
At present, the JVCEA has not announced, or publicly proposed, any rules, however, Reuters reported that the agency might require local crypto exchanges to keep separate accounts for handling bank deposits and government-issued bonds.
The JVCEA may have made this recommendation in order to make sure exchanges have adequate funds to compensate customers in case their platform is hacked. Currently, the FSA has authorized 16 digital asset exchanges to provide trading services in Japan.
Increased Onsite Inspections
Japan’s regulators have been monitoring the operations of local crypto firms more closely, particularly exchanges, because of the serious nature of security breaches - such as the Coincheck hack which resulted in over $530 million worth of NEM tokens being stolen.
Last month, Osaka-based crypto exchange, Zaif, was hacked and $60 million worth of cryptocurrency was stolen. The damaging security breach forced the exchange to hand control of its operations over to another local company as it was unable to compensate its users due to hack.
In order to provide a more reliable regulatory framework and enhance consumer protection, the JVCEA had proposed that authorities perform regular audits. Japanese regulators appear to be acting on this recommendation as they have reportedly performed numerous onsite inspections of local crypto exchanges.
Questions About Margin Trading, Trading Pairs, Funds In Reserve
As covered, 160 new digital currency exchanges had submitted an application to Japan’s authorities as they are interested in providing their services to the nation’s residents. One of the requirements for applying is to fill out an 83-page Q&A form which asks businesses the amount of funds they have in reserve, the trading pairs they wish to offer, and the maximum leverage ratio they will provide for margin trading.
Questions related to how the new exchanges have implemented security features on their platform are also included in FSA’s document.