Japan has reportedly urged other countries, including the US, to regulate crypto exchanges like they do banks. A top official at the Financial Services Agency explained that the recent FTX implosion wasn’t brought on by crypto technology but by “loose governance, lax internal controls, and the absence of regulation and supervision.”
Bank-Level Cryptocurrency Regulations
Japan’s Financial Services Agency (FSA), the country’s top financial regulator, has urged regulators globally to subject cryptocurrency exchanges to bank-level regulations, Bloomberg reported Monday. Mamoru Yanase, deputy director-general of the FSA’s Strategy Development and Management Bureau, was quoted as saying:
If you like 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 dealt a severe blow to the cryptocurrency industry, highlighting gaps and differences in regulations worldwide.
Japan’s tough regulatory framework for crypto assets has provided a measure of protection for local investors, as they are expected to be able to withdraw their funds next month from two Japanese crypto exchanges linked to FTX.
Commenting on the failure of FTX, Yanase opined:
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.
According to Yanase, the FSA has “begun to urge” their counterparts in the US, Europe, and other regions to subject cryptocurrency exchanges to the same level of oversight traditional financial institutions, like banks and brokerages, are subject to.
Noting that countries may need to establish a multinational resolution mechanism to coordinate when large crypto firms fail, Yanase stressed 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 added that regulators should also have the authority to take enforcement actions, such as onsite inspections, to ensure that crypto firms are adequately managing clients’ assets.
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