This week, financial regulators in Japan took another step towards building the local blockchain sector after approving two new digital currency associations. The groups, the Japan STO Association and the Japan Virtual Currency Exchange Business Association (JVCEA), will operate as self-regulatory bodies within the space. Importantly, their approval signals the start of further regulation and higher standards of compliance within the country’s blockchain markets.
Importantly, both the Japan STO Association and the Japan Virtual Currency Exchange Business Association focus on different areas of concern within the marketplace. As the name implies, the Japan STO Association focuses on crowdfunding events such as token offerings. The group will ensure that all new STOs adhere to the freshly imposed security token legislation that initiated on May 1. Whereas, JVCEA seeks to provide more protection in the area of exchanges.
Critically, both groups received approval to begin operations from Japan’s highest financial regulators, the Financial Services Agency (FSA). This FSA’s tasks include overseeing licensing and regulating businesses in the financial sector. In this way, its very similar to the SEC. Importantly, the FSA approved a host of new digital asset guidelines earlier in the year. These changes, such as the Certified Financial Instruments and Exchange Associations, will play an important role in defining the future Japanese blockchain sector.
Japan Virtual Currency Exchange Business Association (JVCEA)
To commemorate the official licensing of the JVCEA, the group will change its name on May 1. Moving forward, the group will be known as the Japan Crypto Asset Trading Business Association. Interestingly, the JVCEA emerged in April 2018. The formation of the group was in direct response to a group of high-profile exchange hacks. In one major incident that occurred a month prior, $534 million in NEM tokens was stolen from the Coincheck exchange. Following the attack, the FSA formed the JVCEA to prevent future negligence on the part of exchanges.
Importantly, the JVCEA has the power to create rules and policies for digital currency exchanges. The group advocates for items such as cold storage standards. Currently, the group regulates over 20 digital asset exchanges in the country. Additionally, the group regulates three non-locally based exchanges – Coinbase, Tokyo Hash, and Digital Asset Markets. Consequently, the JVCEA holds incredible influence in the market.
The JVCEA also does a lot of petitioning work on the part of the blockchain sector. For example, the group has been enthralled in negotiations with the FSA of leveraging regulations. The FSA repeatedly pressured the JVCEA to bring the leverage standards in line with other regions of the world. In 2019, the pressure from regulators boiled over and the JVCEA imposed a 4x maximum. Now the FSA wants to see these numbers halved. This change would bring the leverage standard in line with the EU.
These approvals showcase the demand for blockchain-based investments in the country. Japanese regulators want to embrace blockchain tech, without putting investors in a compromised position. The integration of self-regulatory bodies ensures that consumer protections are in place and boosts innovation in the sector. You can expect to see Japan continue to be a blockchain leader in the region for years to come.