Japan Urges for Bank-Level Regulations of Crypto Exchanges Worldwide

Japan Urges for Bank-Level Regulations of Crypto Exchanges Worldwide

Japan has reportedly urged regulators worldwide, including the US, to regulate crypto exchanges along the lines of traditional financial institutions such as banks and brokerage firms. A top official at the Financial Services Agency (FSA), Japan, explained that the recent FTX implosion is the result of "loose governance, lax internal controls, and the absence of regulation and supervision," and not the crypto technology.

FSA Calls for Stronger Regulations and Supervision

Bloomberg reported on Monday that Japan's Financial Services Agency (FSA), the country’s top financial regulator, has urged regulators globally to subject cryptocurrency exchanges to bank-level regulations. Mamoru Yanase, deputy director-general of the FSA’s Strategy Development and Management Bureau, was quoted as saying:

"If you want to implement effective regulation, you have to do the same as you regulate and supervise traditional institutions."

The FSA has called for stronger crypto regulation following the collapse of crypto exchange FTX and subsequent fraud charges filed against its former CEO, Sam Bankman-Fried (SBF). The FTX meltdown has badly impacted the cryptocurrency sector, highlighting gaps and differences in worldwide regulations.

Japan’s tough regulatory framework for crypto assets has provided a measure of protection for local investors, as they are expected to withdraw their funds next month from two Japanese crypto exchanges linked to FTX.

Commenting on the failure of FTX, Yanase said:

"What’s brought about the latest scandal isn’t crypto technology itself. It is loose governance, lax internal controls, and the absence of regulation and supervision."

Need for Consistency in Regulations Worldwide

The FSA has "begun to urge" their counterparts in the US, Europe, and other regions of the world to subject cryptocurrency exchanges to the same level of oversight as traditional financial institutions, like banks and brokerages, Yanase said.

Noting that countries may need to establish a multinational resolution mechanism to coordinate when large crypto firms fail, Yanase stressed on the importance of achieving consistency in regulations worldwide.

The FSA official emphasized that countries "need to firmly demand" measures from crypto exchanges to ensure consumer protection, curb money laundering, and implement robust governance, internal controls, auditing, and disclosures. He also added that regulators should have the authority to conduct enforcement actions to ensure that crypto firms are effectively managing clients’ assets.

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