The Financial Services Agency (FSA) is planning to tighten crypto margin trading in Japan by limiting leverage to a maximum of twice the deposits of traders.
Reported by The Japan Times on Friday, this regulator is looking to enforce such restrictions amid the increasing losses to the traders resulted from the fluctuating price of the digital assets.
Though currently, the FSA does not impose any crypto-specific restrictions on leverage, the local exchanges’ self-regulatory body in the country was maintaining a cap of four times.
Per the anonymous sources of the local publication, the new rules will come into effect in spring as the regulator is planning to include them in a Cabinet Office order linked to the revised Financial Instruments and Exchange Act.
2020 Global Market Outlook: How the “Known Unknowns” Can Affect CurrenciesGo to article >>
The report also outlined that the Japanese watchdog has taken the decision after studying the fluctuations of the crypto prices and the risks for traders, which are magnified by large leverages. The agency is also following the steps taken by its European and United States’ counterparts in regulating the wild industry.
Progressive yet cautious
Japan is one of the most progressive countries towards the crypto industry. It also declared digital currencies as a legal mode of payment.
However, the country took a setback with the cyber attack on Coincheck in early 2018, which resulted in the theft of over $500 million in digital currencies. This also forced the FSA to tighten its grip in the industry, mandating licensing of crypto exchanges.
The market regulator also discussed its worries about the crypto margin leverages with the Japan Virtual Currency Exchange Association, a self-regulatory body of Japan’s crypto exchanges.