Regulators in Japan are looking to introduce stricter rules for cryptocurrency margin trading by 2020, according to a report by regional news outlet from Nikkei Asian Review on Tuesday. Japan, which is one of the largest cryptocurrency marketplaces in the world could see stricter rules for trading starting next year.
According to the report, the executive agency of the government, the Japanese Cabinet has approved a proposal to amend some rules related to financial instruments and payment services regulations in the country, especially those connected to cryptocurrencies.
The first amendment will see the introduction of a maximum amount on crypto margin trading in accordance with forex trading. The regulation would cap leverage on digital currency margin trading at two-to-four times the initial deposit. This implies that traders who borrow money from forex brokers and exchanges to trade an asset would have limited funds to do so.
Secondly, crypto exchanges in Japan that offer margin trading would have to obtain new government registration. The entities are given 18 months to acquire the licenses, and the countdown starts from the date the rules comes into effect, which is expected to be around April 2020. Financial regulators would close crypto exchanges that fail to comply with the new regulations in the country, the report added.
The new registration requirement will exist independent of the existing registry which was established in April 2017 and requires crypto exchanges to obtain a license before they trade cryptocurrencies in the country. The new regulation is expected to boost the country’s earlier framework which recognizes digital currencies as legal tender.
The Japanese regulators pointed out that cryptos previously enjoyed bright prospect as innovative payment methods, but they have so far being used as speculative trading tools. The report, citing the country’s self-regulatory body, the Japan Virtual Currency Exchange Association, revealed that crypto margin trading in the country went up to roughly 8.42 trillion yen ($75.6 billion) in December last year. This figure is alarming since it is much higher than Japan’s crypto to cash conversions of 777.4 billion yen ($6.9 billion).
Nikkei pointed out that the margin trading registration scheme would separate crypto exchanges that offer the service and those who issue tokens via initial coin offerings. The regulators claim the process would protect investors from losing their money to Ponzi schemes while encouraging crypto startups to raise funds via token offerings.
The margin trade limit would give the Financial Services Agency (FSA) the necessary information and tools needed to clamp down on unregistered bodies that deal with cryptocurrencies while their license applications are awaiting approval. At the moment, LastRoots, a crypto exchange in Tokyo is currently offering trading services without getting permission from the regulators. The same goes for Rakuten Wallet, a Bitcoin platform owned by the country’s e-commerce giant, Rakuten.
Earlier this year, the FSA announced that it is working towards bringing unregistered investment companies that request for funds in cryptos instead of cash under the Japanese Financial Instruments and Exchange Act. This is to help curb the rising incidences of crypto pyramid schemes in Japan.
The Japanese financial regulators have been actively regulation the crypto space in the country since the collapse of Mt Gox crypto exchange back in 2014. Japan has lost over a billion dollars to hackers over the past few years via crypto exchanges. To stop that from happening at a massive scale, the FSA introduced a licensing scheme for cryptocurrency exchanges and continuously checked their security measures and their compliance to anti-money laundering regulations.
It is still unclear what the full scope of the new regulation would be or how the crypto community in Japan would respond to it. However, it is clear that the FSA is actively trying to regulate the crypto space and make it safe for investors in Japan.