The financial regulator in Japan is planning a new round of regulation for the crypto sector, this time targeting firms currently operating on an unregulated basis, according to The Sankei News report.
Currently, firms accepting client funds in crypto, rather that fiat currency, are able to operate outside of the scope of regulation—in effect operating as unregulated firms, in what is otherwise a regulated environment in Japan.
The exception comes from the Financial Instruments and Exchange Act, which requires firms collecting funds in cash to be registered with the Financial Services Authority (FSA).
However, as the law is silent on cryptocurrencies, unregulated companies collecting deposits in cryptocurrency have been able to exist within a regulatory grey area.
The new proposals would close that loophole, and bring unregulated cryptocurrency firms within the remit of the country’s financial regulator for the first time, according to the report.
In particular, the news is a significant development in light of a growing number of crypto scams in Japan and elsewhere.
In recent months, Tokyo police disrupted an alleged crypto pyramid scheme operated by an unregulated firm which saw the arrests of eight men in connection with fraud thought to be worth as much as JPY7.8 billion ($68.4 million), including funds in both cash and cryptocurrency.
The scam, which affected up to 6,000 investors, was flagged by sources close to the case as proof that more regulation of unregulated operators was required, suggesting that had the scam been exclusively confined to cryptocurrency, “there was a possibility that the scheme could not [have been] exposed.”
Japan has also been victim to a number of high profile crypto exchange hacks, including most notably the events in the run up to the collapse of the Mt. Gox cryptocurrency exchange, at one stage the biggest cryptocurrency exchange by volume in the world.
The move from regulators in Japan comes at a time when regulators worldwide are stepping up their efforts to regulate cryptocurrency and businesses in the sector.
With a growing number of investors falling victim to crypto scams and fraudulent investments, such as some ICOs, these calls for regulation will only continue to intensify in the months to come.
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