Japan’s top financial regulator, the Financial Services Agency, has unveiled a plan to regulate cryptocurrency wallet services. The regulator has put forward a number of regulatory measures as well as proposing how to implement them.
The Financial Services Agency (FSA) held its ninth cryptocurrency study group meeting on Monday. According to the agency’s published meeting materials, one of the main topics on the agenda was a plan to regulate crypto wallet services and their providers.
Currently, Japan’s fund settlement law requires businesses conducting cryptocurrency-related activities in the country, such as buying and selling, to register as crypto exchanges with the FSA.
“Wallets are like bank accounts that store virtual currencies,” Itmedia publication elaborated. While wallet service providers “handle large amounts of virtual currencies like exchange companies,” the publication noted that “they are not targeted by laws and regulations.”
The FSA explained that the current law does not apply to wallet service providers since they do not buy or sell cryptocurrencies — they merely manage and transfer them for customers. However, since they manage payments, the agency believes that financial regulation is necessary.
The plan unveiled at the meeting focuses on service providers — not software wallet developers or hardware wallet manufacturers. Many wallets exist only as code and are without identified leadership or companies behind them.
The regulations for wallet services will be in line with the international standards for preventing money laundering and terrorism financing set by the Financial Action Task Force (FATF), the FSA detailed. The agency wrote that the “revised FATF standards” must be imposed, including their recommendations relating to crypto exchanges, wallet service providers, and initial coin offering issuers.
The group proceeded to discuss the risks associated with wallet services, such as stolen funds during cyber attacks, wallet failures, money laundering, and other risks shared by crypto exchanges.
Possible regulatory measures include the maintenance of internal control systems, separate management of cryptocurrencies belonging to the service providers and customers, audits of financial statements, publication of policies in the event of stolen funds in a hack and retaining funds to repay customers.
The transition period for introducing wallet regulations was also discussed. During this time, service providers would not be able to add new businesses, customers, or coins supported. In addition, they must post notices on their websites regarding their registration status. Those refusing to register must declare on their websites and “indicate that the business will be abolished,” according to the meeting document.
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