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Japan’s crypto self-regulatory system reportedly falling apart

In 2018, Japan established the Japan Virtual Currency Exchange Association (JVCEA) and tasked the body with self-regulating the crypto industry. The government hoped that the industry body would be able to come up with dynamic policies for the industry and gave the body the power to penalize exchanges.

But less than five years later, JVCEA is in a crisis that threatens its purpose, The Financial Times reported.

A person close to the industry and government told FT:

“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.”

Japan’s Financial Services Agency (FSA) has criticized JVCEA’s governance and raised concerns about the delays by JVCEA’s in implementing anti-money laundering regulations, the FT report said.

Minutes from two board meetings in December 2021 viewed by FT showed that the JVCEA received an “extremely stern warning” from the FSA. The board meeting minutes further showed that the regulator was not “clear 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 were.”

The regulator also highlighted a lack of communication between JVCEA directors, its secretariat and member operators, resulting in poor management of the industry body, the FT report said.

Lagging behind on anti-money laundering rules

According to Masao Yanaga, JVCEA board member and professor at Meiji University, the FSA has put in a “very strong request” to bring in anti-money laundering rules. However, the industry is taking time to work on it.

Yanaga said that the JVCEA has resource constraints that hinder it from working quickly. Besides, since most exchanges are small operators, there are concerns that these exchanges will struggle to implement “high-level measures,” Yanaga said.

He stated:

“The operators of the exchanges worry that even if we create these rules, they won’t be able to implement…

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