Japan is planning to regulate cryptocurrency wallet services. Recently the top financial regulator of Japan, the Financial Service Agency (FSA) unveiled its plans to regulate crypto wallet services. The agency has suggested a number of regulatory measures and also proposed the ways to implement them.
In the meeting, the agency discussed the risk associated with crypto wallet services such as wallet failure, cyber attack, money laundering, and other risks related to cryptocurrencies. The regulatory measures which the agency suggested are:
- Maintenance of internal control systems
- Separate management of digital assets to the service providers and customers
- Financial statement audit
- Publication of policies at the time of wallet hack and retaining funds to repay customers
According to the fund settlement law of Japan, the businesses which conduct crypto related activities such as buying or selling of digital assets, have to register as cryptocurrency exchange in Financial Service Agency. Recently the FSA held its ninth cryptocurrency study group meeting. The main agenda of the meeting was to make a plan to regulate the cryptocurrency wallet services and their providers in the country. Cryptocurrency wallets are like bank accounts which store digital currencies. Cryptocurrency wallet service providers handle a large number of virtual currencies like cryptocurrency exchanges. Many cryptocurrency wallets exist only as code, and it is hard to identify the leadership or companies behind them. Till now crypto wallet services and their providers are not targeted by laws and regulations in Japan.
According to Financial Service Agency, current cryptocurrency laws do not apply on crypto wallet service providers as they do not trade the digital assets, they just manage and transfer the cryptocurrencies for their customers. The FSA believes that there must be financial regulations for the crypto wallet services providers since they manage the payments. FSA said that the regulations would be in line with the international standards set by the Financial Action Task Force (FATF) to prevent the terrorism financing and money laundering. The agency is even planning to implement revised FATF standards including their recommendations related to cryptocurrency exchanges, initial coin offerings (ICOs), and cryptocurrency wallet services.
Currently, the main focus of FSA is to regulate the crypto wallet services and their providers. Right now the agency is not planning to regulate software wallet developers and hardware wallet manufacturers. In the transition phase of introducing crypto wallet regulations, the services providers will not be able to add new customers, coins, and business. The service providers also have to post the notice on their website regarding their registration status.