The Financial Services Agency (FSA), Japan’s financial market watchdog, is seeking to regulate unregistered companies providing cryptocurrency investment services, as per a Cointelegraph report.
The watchdog agency has made it mandatory for all crypto exchange in Japan to acquire a license before starting operations. However, no such license is needed for unregistered firms collecting funds in cryptocurrencies. Many businesses are taking advantage of this regulatory loophole to offer their services in the country.
These firms do not come under the purview of the FSA as the Financial Instruments and Exchange Act only restricts unregistered firms collecting funds in fiat and do not explicitly mention anything about accepting cryptocurrencies.
Raising the Alarm
Last year, Tokyo police busted eight men on charges of operating a pyramid scheme in the country. Reportedly, police collected a total of 7.8 billion yen ($68.4 million) in both cash and cryptocurrency from around 6,000 investors across 44 prefectures.
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According to Cointelegraph, one of the suspects confirmed that the illegal operation would not have been exposed if they stuck to funds in cryptocurrencies only. This incident raised the alarms in Japan forcing the authorities to revisit the current laws under which these unregistered firms work.
Japan is one of the first major economies in the world to legalize Bitcoin payments. Unlike most countries, its legal frameworks favor crypto businesses. However, the country has seen some of the largest cryptocurrency thefts. The hack of Coincheck, then Japan’s largest crypto exchange, in early 2018 forced the FSA to revamp its scrutiny of the exchanges’ business model.
Japanese exchanges also gathered after the incident to form a self-regulatory consortium which includes exchanges holding an operating license as well as exchanges in line to get one.
The FSA, last year, also introduced a draft to regulate initial coin offerings (ICO) in the country by making a proper classification of the digital assets.