Japan has reportedly urged other countries, including the United States, to regulate cryptocurrency exchanges like banks do. A senior Financial Services Agency official explained that the recent FTX implosion was not caused by cryptographic technology, but by “loose governance, lax internal controls, and a lack of regulation and oversight.”
Bank-level cryptocurrency regulations
The Japan Financial Services Agency (FSA), the country’s top financial regulator, has urged regulators globally to subject cryptocurrency exchanges to banking-level regulations, Bloomberg reported on Monday. Mamoru Yanase, deputy director general of the FSA’s Office of Strategy Development and Management, was quoted as saying:
If you like to implement effective regulation, you must do the same as regulating and supervising traditional institutions.
The FSA has called for stronger cryptocurrency regulation following the collapse of cryptocurrency exchange FTX and subsequent fraud charges filed against its former CEO Sam Bankman-Fried (SBF). The FTX meltdown has dealt a major blow to the cryptocurrency industry, highlighting gaps and differences in regulations around the world.
Japan’s stringent regulatory framework for cryptocurrencies has provided a measure of protection for local investors, as they should be able to withdraw their funds next month from two FTX-linked Japanese cryptocurrency exchanges.
Commenting on FTX’s bankruptcy, Yanase commented:
What caused the latest scandal isn’t the cryptographic technology itself… It’s loose governance, lax internal controls, and a lack of regulation and oversight.
According to Yanase, the FSA has “began urging” its counterparts in the US, Europe and other regions to subject cryptocurrency exchanges to the same level of oversight that traditional financial institutions, such as banks and brokerages, are subject to.
Noting that countries may need to set up a multinational resolution mechanism to coordinate in the event of bankruptcy of large crypto firms, Yanase stressed the importance of achieving regulatory consistency around the world.
The FSA official stressed that countries “must firmly demand” measures from cryptocurrency exchanges to ensure consumer protection, curb money laundering, and implement robust governance, internal controls, auditing and disclosure. He added that regulators should also have the authority to take enforcement actions, such as on-site inspections, to ensure crypto firms are properly managing client assets.
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