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Japan’s crypto-asset exchanges are set to soon join the likes of Germany, Singapore and France in complying with the travel rule standards.
From April 1, new regulations such as the travel rule will be introduced by the Japan Virtual and Crypto Assets Exchange Association (JVCEA), a self-regulatory body for the Japanese crypto-asset industry, established in 2018.
The association has been formally recognised by the Japanese Financial Services Agency (JFSA) and has the authority to pass and enforce regulations and standards for cryptocurrency exchanges in Japan.
The travel rule is a standard set by the Financial Action Task Force (FATF). It is intended to update existing recommendations regarding domestic and cross-border transactions.
First adopted in 2019, the revised standards require countries to mitigate risks associated with virtual asset activities and set up a licensing regime for virtual asset service providers (VASPs), or crypto exchanges.
They recommend competent national authorities to supervise crypto activities and enforce related anti-money laundering/counter-terrorist financing obligations.
In addition, the standards require crypto companies to undertake customer due diligence in occasional virtual asset transactions above €1,000 or $1,000.
The provision, known as the travel rule, means that crypto firms must obtain, hold and exchange information about the originators and beneficiaries of virtual asset transfers.
FATF warned last year that the lack of global travel rule compliance is holding the private sector back from meeting anti-money laundering standards for virtual assets.
For example, it still is not on the statute books in either the UK or at EU level.
Some member states, such as Germany, have opted to take matters into their own hands by introducing the travel rule before its EU-wide implementation.
Japan’s crypto approach
On the whole, Japanese policymakers have been relatively forthcoming in recognising crypto-assets.
For example, lawmakers passed an amendment to the Payment Services Act in May 2019 that recognises crypto-assets as legal property.
By comparison, such explicit laws do not exist at present in the UK, US or EU, but there are plans to pass such legislation in the near future.
Such protections for crypto-assets is likely the result of the 2018 Coincheck heist. This resulted in the loss of $534m from its network in a hacking attack.
Previously, another Tokyo exchange, MtGox, collapsed in 2014 after admitting that $400m had been stolen from its network.
