The “Experiment” With Crypto Self-regulation in Japan Has Failed

Since 2018, the Japan Virtual Currency Exchange Association (JVCEA), was tasked with developing regulations for the nation's crypto industry.

According to reports, JVCEA, a self-regulating entity, has been issued strong warnings to get its act together as the Japanese Financial Services Agency pushes for the group to accelerate the deployment of its AML regulations.

Local government officials and business professionals claim that Japan’s self-regulation “experiment” for the cryptocurrency sector is not succeeding as anticipated.

Since 2018, the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory organization, has been tasked with developing regulations for the nation’s cryptocurrency industry. At the time, there were claims that the organization might be more equipped than a government body to handle crypto regulation.

An unnamed source “close to both industry and government,” however, claimed in an interview with the Financial Times (FT) on July 18 that the current framework for cryptocurrency regulation is failing:

 

“When Japan decided to experiment with self-regulation of the cryptocurrency industry, many people around the world said it would not work. Unfortunately, right now it looks as though they may be correct”

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What is JVCEA, and Why Was It Created?

The group was created in reaction to the $530 million Coincheck exchange theft in 2018. It is authorized to enact and implement regulatory frameworks for regional cryptocurrency exchanges and is recognized by Japan’s Financial Services Agency (FSA).

Numerous well-known local cryptocurrency companies, like Coincheck, BitFlyer, Rakuten Wallet Co., and the Japanese affiliates of FTX and Coinbase are among its members.

The JVCEA apparently received quite a bit of criticism from the FSA recently for its tardiness in initiating regulation.

The FT claims that the FSA has outlined important problems with the JVCEA, including its failure to implement anti-money laundering (AML) regulations on time and its secretariat’s failure to communicate with directors and member companies which point to poor management.

The report also stated that it was unclear “what kind of deliberations the body was having, what the decision-making process was, why the situation was the way it was, and what the responsibility of the board members was” and that the FSA had previously issued a “extremely stern warning” to the JVCEA in December to get its operations under control.

In June, Prime Minister Fumio Kishida urged the organization to expedite the process for listing digital assets on regional cryptocurrency exchanges while remaining “mindful of the need to protect customers.”

Another unnamed source close to the JVCEA claimed that the group lacks office staff who have a sincere interest in or expertise of crypto.

They claim that the office is mostly made up of retired bankers, brokers, and government employees and does not have any representatives from the crypto member businesses listed on the JVCEA website.

“As a result, nobody there truly comprehends blockchain technology and cryptocurrency. The entire situation demonstrates that it is not merely a governance issue. The entire management has the FSA in a rage.

The JVCEA claims it is currently trying to address the organization’s existing problems and improve. Masao Yanaga, a Meiji University professor and JVCEA board member, also emphasized that the organization lacked the means to move rapidly.

Yanaga added that the lack of international agreements governing the movement of client data between cryptocurrency exchanges has made it challenging to apply AML regulations.

The exchange operators are concerned that they won’t be able to put these rules into effect, even if we create them.

This year, the JVCEA made a small change to its listing requirements for digital assets. The organization is entrusted with evaluating tokens that local businesses want to sell, but it typically takes the JVCEA six months or longer to complete the screening procedure.

By creating a “green list” of 19 assets, including Bitcoin (BTC), Ether (ETH), and Ripple (XRP), the JVCEA relaxed some of its rules in March.

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