Japan, one of the friendliest jurisdictions for cryptocurrency trading, has allowed crypto exchanges to self-regulate through the Japanese Virtual Currency Exchange Association, as reported by Reuters. Japan's Financial Services Agency (FSA) will transfer oversight powers to the industry body.
Standards for running a crypto exchange are yet to be established, and Japan has been the scene of several large hacks, starting with Mt. Gox and more recently, Coincheck and Zaif. Issues remain in relation to technology standards and token security.
Exchanges need oversight in several aspects, including the safety of consumer funds and money laundering prevention. The trade body will also have to come up with operational guidelines.
"It's a very fast-moving industry. It's better for experts to make rules in a timely manner than bureaucrats do," Reuters cited an unnamed senior FSA official as saying.
Until recently, the FSA served as the regulatory body for crypto exchanges. However, most marketplaces in Japan operate with a preliminary permission, pending additional compliance. Exchanges are allowed to handle cash and have banking access, but when it comes to crypto technology, traditional financial regulation has little power.
Legal experts see the rules of the self-regulatory body as stricter compared to financial laws. Still, there are doubts whether the association can secure enough staff and expertise to examine each case. Despite regulation, Japanese exchanges have seen pumps and volatility similar to those in other markets.
The FSA has approved 16 exchanges, none after December 2017.
"We are looking into more details than before. In that sense, the approval process has become more strict," the FSA official said.
At one point, Japan was the hottest spot for Bitcoin trading, pairs with the Japanese yen accounting for as much as 60% of Bitcoin volumes. Since then, the share of yen trading has fallen, and Bitcoin’s price is mostly set through the Tether (USDT) pair.