There is every reason to tighten regulations on digital currency transactions, given the current situation in which such dealings have been turned into money games, combined with the prevalence of slipshod management for them.
An expert committee at the Financial Services Agency has put together a final report on its discussions of how virtual currency exchange service providers should be regulated.
The FSA is set to replace "virtual currency" -- the name used in reference to digital money under the Payment Services Law -- with "crypto asset," the designation being used internationally.
Digital currencies have become solely objects of speculation, and are not practically functioning as currencies. It is reasonable to consider the idea of preventing cryptocurrencies from being misunderstood as being in the same category as such legal tender as the yen or dollar.
The main pillar of the reinforced regulations is to require exchange service providers to secure funds for repayments to customers, in the event of such cases as possible business failure or the potential theft of assets deposited by customers. The FSA is aiming to revise the Payment Services Law and the Financial Instruments and Exchange Law during next year's ordinary Diet session.
Although the course of action set in the new regulatory measures is commendable, there is no denying that the measures seem to have come late. There have already been a succession of such irregularities as the theft of customers' assets. It is essential to swiftly revise relevant legislation while also strengthening the current methods for inspecting and supervising exchange service providers.
Cases of theft in the past include one in which a "hot wallet," connected to the internet for digital money storage, was hacked.
Suspicious cases abound
As a consequence, it has been made compulsory that if exchange service providers store customers' digital money in hot wallets, they should employ a safe method for securing an amount of assets in excess of that money's total value, separately from their hot wallets.
If exchange operators can cover repayments for theft-caused financial damage to customers with their own funds, no losses will be imposed on such investors. The aim of reinforcing protective measures for customers is understandable.
It is also important to have exchange operators disclose their financial conditions, thereby enabling investors to check their financial health.
In a similar manner to securities-related prohibitions, the final report stated a policy of banning pertinent misconduct, including the spread of rumors and market manipulation, from being committed in digital currency transactions.
The measure can be described as necessary for securing the fairness of transactions.
There are violent fluctuations in the prices of virtual currencies that do not have the backing of central governments and banks. The price of a leading digital currency, bitcoin, has fallen to about 20 percent of its peak value. Investors must adequately recognize the risks involved in buying and selling digital money.
Cryptocurrencies are so highly anonymous there have been a conspicuous number of cases in which such money is improperly used for money-laundering purposes.
According to the National Police Agency, there were close to 6,000 cases reported to the national government by exchange operators as suspicious transactions from January to October this year. This means the figure sharply increased -- more than eightfold -- from the April-December period last year, when it was made compulsory to report such cases.
The FSA should make great efforts to monitor possible unlawful transactions in cooperation with exchange service providers and relevant authorities. It is also indispensable to cooperate with the Group of 20 major nations and regions in the endeavor to create international regulations, given that transactions are conducted across borders through the internet.
(From The Yomiuri Shimbun, Dec. 18, 2018)
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