Japan urges global regulators to subject crypto-currency exchanges to bank-level oversight

Japan has reportedly urged other countries, including the United States, to regulate crypto-currency exchanges like they do banks. A senior Financial Services Agency official explained that FTX’s recent implosion was not due to crypto-currency technology but to “weak governance, lax internal controls and lack of regulation and supervision.”

Regulation of crypto-currencies at the bank level

Japan’s Financial Services Agency (FSA), the country’s top financial regulator, urged regulators around the world to subject crypto-currency exchanges to bank-level regulation, Bloomberg reported Monday. Mamoru Yanase, deputy director general of the FSA’s Strategy Development and Management Office, was quoted as saying:

If you want to implement effective regulation, you have to do it in the same way as you would regulate and supervise traditional institutions.

The FSA has called for increased regulation of crypto-currencies in the wake of the collapse of crypto-currency exchange FTX and subsequent fraud charges against its former CEO Sam Bankman-Fried (SBF). The collapse of FTX was a severe blow to the crypto-currency industry, highlighting regulatory gaps and differences around the world.

Japan’s strict regulatory framework for crypto assets has provided a measure of protection for local investors, as they should be able to withdraw their funds next month from two Japanese crypto-currency exchanges linked to FTX.

Commenting on the failure of FTX, Mamoru Yanase said:

What caused the latest scandal was not the crypto technology itself… It was loose governance, lax internal controls, and lack of regulation and oversight.

According to Mamoru Yanase, the FSA has “began to urge“its counterparts in the United States, Europe and other regions to subject crypto-currency exchanges to the same level of oversight as traditional financial institutions, such as banks and brokers.

Noting that countries may need to establish a multinational resolution mechanism to coordinate when large crypto-currency firms fail, Mamoru Yanase stressed the importance of achieving consistency in regulations across the globe.

The FSA official stressed that countries “must firmly demand“measures from crypto-currency exchanges to ensure consumer protection, curb money laundering and implement strong governance, internal controls, audits and disclosures. He added that regulators should also have the authority to take enforcement actions, such as on-site inspections, to ensure that crypto-currency companies are properly managing customer assets.