Japan’s Cabinet has implemented stricter anti-money laundering measures to align its legal framework with global standards, explicitly targeting cryptocurrency asset transactions.
The new measures, set to be enforced from June 1, were introduced after the Financial Action Task Force, an international financial watchdog, deemed Japan’s previous anti-money laundering steps insufficient.
As part of the revised laws enacted in December, oversight organizations have intensified their surveillance of crypto assets, which have become increasingly vulnerable to money laundering activities. Money obtained through illicit means can be disguised as legitimate funds by processing them through legal transactions.
A prominent feature of the new framework is introducing the “travel rule,” aimed at bolstering tracing criminal proceeds. Under this rule, financial institutions involved in cryptocurrency transfers must transmit customer information to the subsequent institution, including the sender’s and recipient’s names and addresses.
The crackdown will primarily target stablecoins and cryptocurrencies pegged to major currencies like the U.S. dollar or commodities. Failure to comply with corrective orders from authorities may result in severe criminal penalties.
Lift of ban on foreign-issued stablecoins in 2023
As crypto.news reported in December last year, Japan’s Financial Services Agency (FSA) intended to lift the ban on foreign-issued stablecoins in 2023. The revised stablecoin act aims to regulate all virtual currencies and restrict their issuance exclusively to banks and fund transfer companies that can provide collateral assets.
The FSA’s proposed regulations for stablecoins aim to enable domestic entities to engage in foreign stablecoin transactions, adhering to existing guidelines for asset management and anti-money laundering measures.
In 2019, the FSA introduced comprehensive guidelines for issuing and managing stablecoins, laying the groundwork for robust regulatory oversight in Japan. These guidelines defined stablecoins as cryptocurrencies pegged to fiat currency or other assets, outlining the requirements that stablecoin issuers must satisfy to operate within the country.
Additionally, the FSA granted regulatory approval to several stablecoin projects, including Circle Internet Financial’s USD Coin (USDC), pegged to the US dollar, and Mizuho Financial Group’s J-Coin, pegged to the yen.
However, following the collapse of Terra (LUNA) in June 2022, the Japanese parliament swiftly passed legislation to safeguard crypto investors. The law clarified the legal status of stablecoins, mandating their link to the yen and emphasizing face-value management. The FSA also discouraged the use of algorithmic stablecoins.
Japan’s advancements in the crypto space
Japan has emerged as a frontrunner in cryptocurrencies, making significant strides in this rapidly evolving industry. As early as 2017, the country boldly declared bitcoin a recognized form of payment, placing it among the pioneering nations. This progressive move demonstrated Japan’s proactive approach to embracing digital currencies and fostering innovation.
Notably, Japanese consumers showcased remarkable resilience during the recent tumultuous period that saw the collapse of FTX, previously the world’s second-largest cryptocurrency exchange. Despite the upheaval, Japanese consumers remained largely unaffected, highlighting their strong understanding of the risks and their ability to navigate volatile market conditions.
In a significant boost for the Japanese blockchain industry, a proposal was approved in December, exempting crypto businesses from paying unrealized capital gains tax on their asset holdings. This measure is designed to create a favorable environment for Japanese blockchain enterprises to thrive and attract innovative entrepreneurs to the country.
Moreover, the Japanese government expressed its commitment in October to invest in Web3 services and cutting-edge technologies, such as non-fungible tokens (NFTs) and the metaverse, as part of its comprehensive digital transformation efforts.
Closing out March on a high note, the Bank of Japan announced its readiness to explore the issuance of a central bank digital currency (CBDC) through a pilot program set to launch in April. This initiative places Japan in the global race to establish secure and efficient digital payment systems.
With the implementation of stringent anti-money laundering measures and ongoing efforts to regulate stablecoins while fostering blockchain innovation, Japan demonstrates an unwavering commitment to cultivating a secure and flourishing cryptocurrency ecosystem.