Business 14 January 2019

Erik Gibbs

Japan FSA denies ETF claims, but could accept more exchanges

Last week, rumors started circulating that Japan could soon approve a crypto-based exchange-traded fund (ETF). Those rumors led to many wondering how the global crypto ecosystem would advance and if it could mean that a crypto ETF in the U.S., such as that proposed by the Winklevoss brothers or VanEck, would soon receive approval by the Securities and Exchange Commission (SEC). It would now seem the suggestion that Japan would accept a crypto ETF may have been precipitous and the country’s Financial Services Authority (FSA) is not considering approving a crypto futures product. It could, however, soon allow more crypto exchanges to operate in the country.

According to an FSA representative, “There is no such fact that we are considering approving ETFs which track crypto-assets at present. We are not currently considering approving them.” The spokesperson adds that the FSA doesn’t currently see the need for any crypto-based derivatives products, which could be a bad omen for both ETFs and futures. 

The individual further stated, “Taken it into consideration that it is difficult for us to find constructive and social significance of trading crypto-assets derivatives at present, we think that there is no need for trading crypto-assets derivatives at financial instruments exchanges where many market participants are able to trade.”

While the FSA may not be in favor of crypto ETFs, it is still providing guidance for exchanges in the space. According to a report by Cointelegraph Japan, the agency is now reviewing seven exchange license applications and will issue its decision on all of them within the next two months. 

The licensing procedure is not an easy task. Applicants must provide responses to a questionnaire that contains more than 400 questions and submit to a lengthy review process that can take more than six months. That process includes a review of the company’s business plan and governance, its cybersecurity controls and policies on preventing money laundering and terrorism financing. That part of the process can take as long as four months. 

If the exchange applicant makes it this far without being rejected, the FSA will then enter the last phase of the approval process. This takes around two months, at which time the agency gives the company the green light or dismisses the application. 

There are currently 21 companies looking to offer crypto exchanges in Japan. So far, seven are the only ones to have made it this far. While they have not yet been given approval, the fact that they have passed the extensive background check should give them a fair bit of optimism that they could be operational before summer.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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