Japan is urging the world’s regulators to treat crypto as strictly as they do banks, adding to the calls for tougher rules following the collapse of Sam Bankman-Fried’s FTX digital-asset exchange.
“Crypto has become this big,” Mamoru Yanase, deputy director-general of the Financial Services Agency’s Strategy Development and Management Bureau, said in an interview. “If you like to implement effective regulation, you have to do the same as you regulate and supervise traditional institutions.”
FTX’s bankruptcy and fraud charges against Bankman-Fried have battered the crypto sector, highlighting gaps and differences in global digital-asset regulation. Japan’s rules have helped to shield investors, who are poised to be able to withdraw their funds from FTX’s local subsidiary next month.
“What’s brought about the latest scandal isn’t crypto technology itself,” said Yanase, who’s also worked on banking supervision. “It is loose governance, lax internal controls and the absence of regulation and supervision.”
Japan’s regulator has “begun to urge” counterparts in the U.S., Europe and elsewhere to subject cryptocurrency exchanges to supervision that’s similar to those faced by banks and brokerages, according to Yanase. The country has been making its voice heard through the Financial Stability Board, an international body that’s working on global regulation of crypto asset activities, he said.
In the U.S., the Securities and Exchange Commission signaled it would step up its crackdown on crypto firms, while Germany’s securities watchdog has called for global rules to ensure financial stability. Singapore’s central bank plans to ring-fence retail customers from the volatile virtual-asset marketplace.
Countries “need to firmly demand” from cryptocurrency exchanges measures to protect consumers and prevent money laundering, on top of having strong governance, internal controls, auditing and disclosure, Yanase said.
Officials also ought to be able to take supervisory steps, such as conducting on-site inspections of these firms to make sure they properly manage clients’ assets using offline wallets, he said.
It may become necessary for countries to create a multi-national resolution mechanism to coordinate when large crypto companies fail, he said. A focus in global regulatory discussions could be how to have consistency, from island nations to countries seen as international financial hubs, he said.
(With assistance from Takaaki Iwabu.)
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This story was originally published January 16, 2023 5:51 PM.