The true slipshod state of the virtual currency industry is steadily being revealed. The Financial Services Agency, which has been a step behind in dealing with this issue, must quickly readjust its posture to prevent any further wrongdoing and protect virtual currency users.
The agency has issued one-month business suspension orders to two virtual currency exchange operators and business improvement orders to five exchange operators.
The orders were the result of on-site inspections conducted at every operator in the nation following the theft of about 58 billion yen worth of customers' virtual currency holdings from Coincheck Inc., a major exchange operator. Many shortcomings were found in crucial security measures, including systems to take care of customer assets.
It is said that the agency will establish a panel of experts to consider how the industry should be regulated. This response is long overdue. Given the speed with which the industry is changing, the agency must quickly wrap up this work.
The revised Payment Services Law that came into force in April 2017 approved using virtual currency as a payment method like a goods voucher and introduced a registration system for cryptocurrency exchange operators.
This gave the impression of an official stamp of approval for virtual currencies and led to the ensuing rapid expansion in cryptocurrency transactions.
In reality, a virtual currency is nothing more than privately issued electronic data. Virtual currency does not have the endorsement of a government or central bank to legal tender such as the yen.
As things stand, given the ongoing wild fluctuations in the values of virtual currency, it is hard to say in any way that they are acting as a proper currency.
Information disclosure key
Unlike shares, which are traded based on a company's business performance and economic conditions, there is nothing to back up a virtual currency's value.
Virtual currency users are effectively treating it as a target for speculation, seeking profits when the price rises. Any consideration of industry regulations must take this situation into account. The issues to be discussed are wide-ranging, including management systems for operators, rules to prevent improper transactions and measures to protect users.
It also is important to steadily ensure information about exchange operators is disclosed so users can easily compare the reliability and other credentials of these operators.
International regulations on virtual currencies will be discussed for the first time at a meeting of the finance ministers and central bank governors of the Group of 20 major economies to be held in Argentina on Monday and Tuesday. This discussion will focus on steps to prevent crimes and thwart money laundering that exploits the high degree of anonymity afforded by virtual currency transactions.
International cooperation holds the key to regulations for digital currencies that are unfettered by national borders. Japan should actively participate in drawing up these rules.
It is essential that the industry also makes efforts to regain public trust.
Major virtual currency operators have decided to establish a voluntary self-regulatory body. After gaining approval from the government, this body is expected to offer guidance to its member companies and also impose penalties if its rules are broken. The Japan Investor Protection Fund, which the securities industry set up to protect customers if one of its companies went under, could be one model for the virtual currency industry.
It is important for individuals investing in virtual currencies to be well aware of the possibility of steep price rises and falls, and of the risks inherent in the actual state of this immature industry.
(From The Yomiuri Shimbun, March 16, 2018)
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