Japan to Step Up its Crypto Regulations from June
Japan aims to step up and tighten its regulations for cryptocurrency transactions starting next month to fight money laundering activities better. The move comes as the country’s current legal framework is deemed insufficient by the global financial crimes watchdog Financial Action Task Force (FATF).
Japan to Enforce Stricter AML Rules
On Tuesday, Japan’s cabinet decided to enforce stricter anti-money laundering (AML) regulations to trace all cryptocurrency transactions, including stablecoins, which are cryptocurrencies pegged to a fiat currency, according to local news outlet Kyodo News.
The regulations involve bringing the country’s legal framework in line with the global standards of the FATF. The watchdog has reportedly deemed Japan’s anti-money laundering measures insufficient, thus requiring further legislative action.
One critical aspect of the revised framework is enforcing the so-called travel rule. This will ensure that information on customers who engage in crypto asset transactions is fully disclosed between financial institutions, including their names and addresses.
The rule also requires financially identifiable data to be included in each step of a given transaction. This is expected to make it more challenging to launder money and channel criminal proceeds through legal, financial transactions.
Japan’s new regulations follow the Group of Seven’s (G-7) support for the FATF’s efforts to quicken the global implementation of the travel rule. Earlier this month, the watchdog said it is due to publish a progress report on travel rule implementation, something the G-7 is looking forward to “in light of the growing threats from illicit activities.”
Japan has grappled with the travel rule since 2021 when the country’s Financial Services Agency (FSA) requested virtual asset services providers to implement it. In April 2022, Japan’s Virtual Currency Exchange Association (JVCEA) introduced self-regulatory rules accordingly.
The FATF is an intergovernmental organization combating money laundering and terrorist financing. The watchdog has maintained a “black list” and a “grey list” since 2000. Countries on the grey list face restrictions in the financial services sector, while those on the black list may be subject to economic sanctions by members of the FATF.
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North Korean Hackers Stole Over $700M From Japanese Firms
The move to enforce stricter crypto regulations comes from Japan being the biggest victim of North Korean hackers. As reported, hacker organizations tied to North Korea stole $721 million from Japanese companies between 2017 to 2022, according to an Elliptic study commissioned by Nikkei.
The $721 million stolen from Japan-based businesses is 8.8x bigger than the value of North Korea’s total exports in 2021, according to data from the Japan External Trade Organization. The North Korean hacking groups likely targeted Japan due to the rapid growth of the country’s crypto market and lenient security systems at crypto firms operating there.
According to the report, North Korean hackers targeted at least three cryptocurrency exchanges in Japan between 2018 and 2021. The cyberattacks inflicted significant damage, with the Zaif exchange recording losses amounting to 7 billion yen ($51.4 million) in 2018, which led to its closure.
EU and Hong Kong Approve Crypto Regulatory Regimes
While Japan still struggles with a crypto regulatory regime, other countries have announced rules to regulate the industry. Earlier this month, the European Council adopted MiCA, the EU’s comprehensive package of rules to regulate the nascent crypto sector.
The MiCA is intended to close existing EU financial services legislation gaps. Under the new regulation, crypto exchanges will be required to gain registration in one of the bloc’s member states to operate within the EU.
More recently, Hong Kong also revealed its new crypto rulebook. The new regulatory regime allows retail investors in the city to trade specific “large-cap tokens” on licensed exchanges, given that safeguards such as knowledge tests, risk profiles, and reasonable exposure limits are in place.
Do you think more countries will start to revise their crypto regulatory framework? Let us know in the comments below.