Japan’s crypto self-regulation ‘experiment’ not working

Japan’s self-regulation “experiment” for the crypto industry is reportedly not working as well as intended, according to local government and industry experts.

Since 2018, the Japan Virtual Currency Exchange Association (JVCEA), a self-regulation entity, has been tasked with creating guidelines for the country’s crypto industry, with arguments at the time that the entity could be better placed to cope with crypto regulation than a government body.

However, speaking with the Financial Times (FT) on July 18, an unnamed source “close to both industry and government” said that the current model of crypto regulation is faltering:

“When Japan decided to experiment with self-regulation of the cryptocurrency industry, many people around the world said it would not work. Unfortunately, right now it looks as though they may be correct.”

The organization was forged in response to the $530 million hack on the Coincheck exchange in 2018. It is recognized by Japan’s Financial Services Agency (FSA) and has the power to pass and enforce regulatory frameworks for local crypto exchanges.

Its members include a long list of top local crypto names such as Coincheck, BitFlyer and Rakuten Wallet Co, along with the Japanese subsidiaries of FTX and Coinbase.

Over recent months, the JVCEA has reportedly copped a fair amount of flack from the FSA over its slowness in getting regulation off the ground.

According to the FT, the FSA is said to have highlighted key issues with the JVCEA, including its delays in introducing anti-money laundering (AML) regulation and lack of communication between directors, member operators and its secretariat — signaling poor management.

The report also noted that the FSA had already once issued an “extremely stern warning” to the JVCEA in December to get its operations in order and that it was not “clear what kind of deliberations the body was having, what the decision-making process was, why the situation was the way it was, and what the responsibility of the board members was”.

In June, Prime Minister Fumio Kishida also called on the entity to speed up its listing approval process for digital assets on local crypto exchanges but still be “mindful of the need to protect users.”

Another unnamed source close to the JVCEA suggested that the organization is lacking office staff with a genuine knowledge of, or interest in crypto.

According to them, the office is primarily composed of retired bankers, brokers, and government…