Crypto Should be Regulated Just Like Banks Say Japanese Authorities Making a Global Push

Japanese authorities are tightening the noose over cryptocurrency regulations. The regulators in the country want global regulators to team up and regulate the cryptocurrency industry in the same way they regulate banks.

Japan wants crypto regulated like banks

The events that happened in the cryptocurrency market over the past year have attracted regulatory scrutiny over the cryptocurrency market. Japan now wants more rigid rules to be enforced in the sector after the collapse of Sam Bankman-Fried’s crypto empire, FTX, and its sister company, Alameda Research.

Mamoru Yanase, an executive at the Financial Services Agency, Japan’s financial market watchdog, has noted that the crypto industry has grown significantly. Therefore, the only way of implementing effective regulations in the sector was by regulating the industry in the same manner that regulators regulated and supervised traditional financial institutions.

The collapse of FTX and several crypto firms in 2022 awakened the need for the fast implementation of a clear regulatory framework in the digital asset space. In Japan, regulators have formulated strict rules that protect investors. For instance, the users of FTX Japan, a subsidiary of FTX, will be able to withdraw funds from their accounts next month as the entity was a separate entity from FTX International.

Yanase further said crypto itself is not to blame for the recent scandals that have plagued the industry. Instead, the failures seen last year should be attributed to the lack of proper governance, inadequate internal controls, and the lack of supervision and regulatory scrutiny.

To ensure a uniform regulatory framework for the crypto industry, Yanase said that other global regulators in Europe, the United States, and other countries needed to subject crypto exchanges to the same supervisory framework as the one used by banking institutions and brokerage platforms.

Japan’s proposals on crypto regulations

Japan regulators have been working with the Financial Stability Board, a global entity working to create a global regulatory framework for digital assets. Through the FSB, Japan has been making its plans for the crypto market known globally.

According to Yanase, crypto regulations should focus on preventing money laundering and protecting investors. He also recommended that countries demand that cryptocurrency exchanges have the right frameworks, including solid governance, auditing, disclosure, and internal controls.

Regulatory officials should also be hands-on when ensuring compliance in the industry. This could be achieved through on-site visits of these firms to ensure they manage client assets properly through offline wallets.

He also recommended that it could become necessary that countries work together to create a resolution mechanism that will come in handy when the largest crypto firms fail, like what happened with FTX. The main focus on regulating the digital asset industry would be consistency to ensure that all countries have a uniform crypto regulatory framework.

US regulator, the Securities and Exchange Commission (SEC), has shown interest in formulating a clear crypto regulatory framework as it came under the spotlight after FTX’s bankruptcy. In Europe, the Markets in Crypto Assets (MiCA) regulations could help bring clarity.

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