Japan has reportedly invited other countries, including the US, to regulate crypto exchanges like banks. A top official at the Financial Services Agency explained that the recent FTX boom was not brought about by crypto technology but by “lax governance, lax internal controls, and a lack of regulation and oversight.”
Bank Level Cryptocurrency Regulation
Japan’s Financial Services Agency (FSA), the country’s top financial regulator, has urged regulators around the world to subject cryptocurrency exchanges to bank-level regulation, Bloomberg reported on Friday. 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 need to do the same as you manage and monitor traditional institutions.
The FSA is calling for stronger crypto regulation following the collapse of crypto exchange FTX and fraud charges brought against former CEO Sam Bankman-Fried (SBF). The FTX crash has dealt a heavy blow to the cryptocurrency industry, highlighting regulatory gaps and differences around the world.
Japan’s tough regulatory framework for crypto assets has provided a measure of protection for local investors, as expected withdraw funds next month from two Japanese crypto exchanges linked to FTX.
Commenting on the FTX failure, Yanase stated:
What has caused the latest scandal is not the crypto technology itself… It is lax governance, lax internal controls and a lack of regulation and oversight.
According to Yanase, the FSA has “started urging” partners in the US, Europe, and other regions to comply with cryptocurrency exchanges to the same level of supervision traditional financial institutions, like banks and brokerages, comply with.
Noting that countries may need to create multinational resolution mechanisms to coordinate when large crypto companies fail, Yanase stressed the importance of achieving consistency in regulations worldwide.
FSA officials stressed that countries “must vigorously demand” measures from crypto exchanges to ensure consumer protection, prevent money laundering, and implement strong governance, internal controls, audits, and disclosures. He added that regulators should also have the authority to take enforcement actions, such as on-site inspections, to ensure that crypto companies manage their clients’ assets adequately.
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