Japan backs global dialogue on Bitcoin, including at G-20

5 March 2018 12:31pm
Bitcoin with laptop background

28 February 2018. By Tsering Namgyal.

Japan supports plans to create global regulatory guidelines governing Bitcoin and other digital currencies, according to a senior official, as Tokyo prepares to overhaul its own financial regulations to better cope with the rise of new financial technologies.

More discussions at the international level could help prevent regulatory arbitrage and put in place necessary safeguards to curtail various risks imposed by cryptocurrencies, said Kotaro Tanaka, a director at the Financial Services Agency of Japan, at a conference* in Brussels yesterday.

The finance ministers of France and Germany have proposed that the topic of cryptocurrencies be included in the agenda of the G20 summit to be held in Buenos Aires next month. Tanaka said it would be “natural” for the group of the world’s biggest economies to discuss the issue.

Other global bodies such as the World Bank, the International Monetary Fund and the Financial Stability Board could also discuss how best to regulate various aspects of fintech, Tanaka said — though “it is very important to clarify the mandate of each organization.”

Japan has become one of the world’s hottest markets for Bitcoin trading, after the country’s regulators announced a licensing regime for Bitcoin exchanges last year. That decision effectively legalized the digital currency in Japan, in contrast to other countries such as China that have shut down exchanges.

Regulatory overhaul

Japan favors a balanced and “technology-neutral” approach to fintech regulation that helps foster the development of new technology while managing any risks that emerge, Tanaka said.

Consequently, Tokyo supervises Bitcoin exchanges as if they were any other money-exchange business. Most notably, this means applying rules against money laundering and financing terrorism.

More broadly, Japan is currently thinking of ways to move away from an entity-based regulatory framework, to an activity-based system that focuses on functions, he said — as laid out in a plan by finance minister Taro Aso.

Such an overhaul would mean upending banking regulations and would eventually require parliamentary approval, Tanaka said: “It is still at an early discussion stage.” He said no specific timeline is available yet on when the actual reform blueprint will be announced.

Japan amended its banking regulations last year to allow financial institutions to invest in fintech startups. The popularity of Bitcoin had spurred various moves towards digital currencies in the domestic banking sector, including plans by a consortium of banks led by Mizuho Financial Group to issue a digital currency backed by the Japanese yen, dubbed “J-Coin.”

EU-Japan pact

Japan’s regulatory approach, not least its position on money laundering and the licensing regime for Bitcoin, mirrors many of the best practices enshrined in the EU’s financial regulations, Tanaka said.

More collaboration on fintech is likely between the two economies thanks to the EU-Japan trade deal agreed in December, which includes a provision on regulatory cooperation on financial services, he said.

Under this provision, financial watchdogs are expected to notify each other when new financial regulations are introduced.

“Such strong economic ties will surely contribute to the enhancement of ties in the area of fintech,” Tanaka said.

*Fintech and Digital Innovation: Regulation at the European Level and Beyond, Afore Consulting, Brussels, Feb. 27, 2018

Fintech Regulation in 2018