Japan’s Japan Virtual Currency Exchange Association was established in 2018 and charged with the regulation of the crypto industry. The government wanted the industry body to be able to develop dynamic policies and penalize any exchanges.
JVCEA finds itself in a crisis five years later. The Financial Times reported.
A source familiar with the industry and government shared their views with FT:
“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.”
Japan’s Financial Services Agency (FSA) has criticized JVCEA’s governance and raised concerns about the delays by JVCEA’s in implementing anti-money laundering regulations, the FT report said.
Minutes from two board meetings in December 2021 viewed by FT showed that the JVCEA received an “extremely stern warning” from the FSA. The board meeting minutes further showed that the regulator 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 were.”
According to the FT report, JVCEA directors, secretariat members and operators were not communicating well, which led to poor management of the industry body.
Lagged behind in anti-money laundering regulations
According to Masao Yanaga, JVCEA board member and professor at Meiji University, the FSA has put in a “very strong request” to bring in anti-money laundering rules. The industry is working on it, however.
Yanaga claimed that JVCEA’s resource limitations prevent it from being able to operate quickly. Besides, since most exchanges are small operators, there are concerns that these exchanges will struggle to implement “high-level measures,” Yanaga said.
“The operators of the exchanges worry that even if we create these rules, they won’t be able to implement them.”
Yanaga said that anti-money laundering regulations can be difficult to implement without international agreements between the exchanges sharing customer data.
According to the FT, there are also problems with crypto awareness in the JVCEA office. A person close to the JVCEA told FT that the organization’s office mostly included retirees from banks, brokerages and the government. According to the person:
“That is why no one there really understands blockchain and cryptocurrencies. This is not just a governance problem. The FSA is very angry about the whole management.”
The JVCEA told FT that they are working on improvements to address the FSA’s concerns.
Screening long-drawn coins
Satoshi Hasuo (president of Coincheck crypto exchange) is the chairman of the JVCEA. He is joined by appointed representatives from external experts and crypto platforms. The organization takes six months to a year to approve a coin for listing — the regulatory body is responsible for screening all tokens before they can be listed by exchanges.
Since earlier in the year, JVCEA has tried to speed up its screening process. In March, the JVCEA introduced a new ‘green list‘ system, which includes tokens that are already approved and exchanges can list them without the screening process.
The delays have not stopped and attracted the ire Fumio Kirishida, the Japanese prime Minister, who in May criticized the process.
The JVCEA is believed to be in discussions to end the screening process. A Bloomberg report stated that the JVCEA was due to make its final call by the end 2022. The JVCEA was also mulling over whether it should regulate only listed tokens or force exchanges to delist tokens in the case of problems.
Opponents of Hasua say that the delays in the approval process for coins are creating an unfair disadvantage for new players who want to compete against established players like Coincheck.
The JVCEA admitted to FT that token screening has been slowing down due to a shortage of skilled workers. This has caused inconvenience for new exchanges. The JVCEA stated that it does not favor new exchanges over existing ones.