Japanese lawmakers announced plans to apply stronger anti-money laundering (AML) regulations to the digital currency industry after years of managing it leniently. On June 1, the new set of regulations is expected to proceed into effect.
According to experts, Japan wants to implement tighter anti-money laundering (AML) legislation for digital currencies by June 2023 in order to put the nation’s AML regulations in line with international standards. This action follows a number of high-profile failures in the digital currency industry that has brought attention to the need for more effective AML procedures to stop fraudulent operations.
Japan’s forthcoming regulations will focus primarily on the implementation of the Financial Action Task Force’s (FATF) Travel Rule, which requires comprehensive transaction reporting. Under this rule, digital asset exchanges will be required to provide full details of any transaction involving digital assets that exceed a value of $3,000.
Following the Financial Action Task Force’s (FATF) strong criticism of Japan’s anti-money laundering (AML) regulations in December, the Japanese government swiftly began reviewing its current practices. The FATF had warned that Japan’s AML measures did not meet its standards and threatened to place the country on its “gray list”. The G7 summit held in Japan also played a role in motivating the government to take action, as participating nations pledged to implement the Travel Rule in their respective regions. In light of the collapse of FTX, members agreed to take further regulatory steps to address issues in the digital asset sector and prevent similar incidents from occurring in the future.
FATF President T. Raja Kumar said at the G7 summit in Japan that “G7 countries should lead by example and regulate the crypto sector so that there are no safe havens for illicit crypto transactions.”
Japan has imposed many restrictions on providers of digital currency services, even if its AML regulations may be deficient. Businesses must take appropriate security precautions for the assets of their clients, carry out routine audits, and apply for licenses from the Financial Services Agency (FSA) before beginning operations.
The FSA also lays out many restrictions on the use of leverage and adds the requirement that exchanges retain 90% of client assets in cold wallets.
Multiple jurisdictions are tightening regulations on the digital asset industry. India has introduced strict tax regulations, while other countries are cracking down on illegitimate digital asset mining. The U.S. Securities and Exchange Commission (SEC) has also increased staffing and enforcement actions against non-compliant corporations. However, Hong Kong and Dubai are emerging as cities with a supportive stance towards digital currencies.
