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Japan’s top financial regulator has published the final report outlining proposed rules for cryptocurrency service providers to follow. The rules address areas such as hacking incidents, coin listings, financial and price disclosures, margin trading, and crypto custodial services.
Final Report of Proposed Rules
Japan’s Financial Services Agency (FSA) has published the final report from last week’s study group meeting on crypto exchanges detailing requirements “as a precondition of the proper principle of self-responsibility.” The agency expects crypto service providers to follow these rules either by themselves or under the guidance of a self-regulatory organization (SRO). Currently, only one SRO — the Japan Virtual Currency Exchange Association — has been approved by the FSA.
An FSA spokesperson told news.Bitcoin.com on Wednesday:
Based on the discussion of developing systematic approaches towards various issues on crypto-assets … Taking the perspectives indicated by the final report, FSA has been currently conducting comprehensive consideration on the future approaches, including for revising acts.
The requirements cover areas such as risks relating to thefts of customers’ cryptocurrencies when hacking incidents occur, price fluctuations and speculation. The lack of internal control systems amid rapid business expansion of service providers was discussed, along with measures for crypto transaction types such as margin trading that are not covered by existing regulations.
Rules on Crypto Exchange Operations
The report specifies nine areas that need to be addressed relating to the operations of crypto exchanges and service providers. The first proposed rule reads:
Where private keys of customers’ deposited virtual currency are managed online … service providers [are required] to maintain net assets and funds for reimbursement at the same or greater amount. The funds must consist of the same types as the deposited virtual currency.
Secondly, they must “Develop [a] framework to entitle customers to [a] statutory lien that secures their claim to deposited virtual currency.” They must also disclose their financial statements.
In order to ensure proper business operations, crypto service providers need to disclose information relating to trading prices, the report explains. They are also prohibited from advertising, promoting or encouraging speculative trading. Additionally, they must follow the rules set forth by an SRO. The agency noted that registration of non-SRO members that have not established internal rules equivalent to the SRO’s rules can be refused or canceled.
Furthermore, crypto service providers are prohibited “from dealing in virtual currencies that could impede user protection or proper and reliable business operations,” the report reads. The last requirement under this category is for them to notify the FSA “each change of a line of virtual currencies in advance.”
Rules on Margin Trading
The first proposed condition under this category states that a registration requirement for “foreign exchange margin trading (forex trading)” will be imposed on crypto service providers offering margin trading. The same code of conduct “such as the prohibition of unrequested solicitation” will also apply.
Secondly, a limit will be imposed on each cryptocurrency’s leverage ratio “based on [the] actual virtual currency price fluctuations.”
Service providers will also be required to explain the risks specific to cryptocurrencies and set minimum margin amounts. Lastly, crypto credit will follow similar rules as margin trading since they have similar functions and risks, the report details.
The report also outlines rules for crypto custodial services and “unfair acts” in crypto spot trading. All persons and entities are prohibited “from improper conduct, spreading rumors and price manipulation.”
Cryptocurrency custodial services will also be regulated. Specifically, the same regulations that currently apply to crypto exchanges will apply to the custody of customers’ cryptocurrencies. Furthermore, the report notes:
Virtual currency exchange service providers [are] to monitor transactions and prohibit transactions aimed at profiting based on nonpublic information.
What do you think of these proposed rules? Let us know in the comments section below.
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