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Japan and South Africa are to set new crypto regulations

Jul 20, 2021

Two of worlds global economic giants, Japan and South Africa, are to set new crypto regulations in the scope of recent activities and scandals within the cryptocurrency market.

Japan works on both regulatory and diplomatic levels to introduce Crypto Regulations.

In terms of introducing crypto regulations, Financial Services Agency (FSA), Japan’s financial watchdog, has recently established a new overseeing unit for digital currency regulatory frameworks, while the Ministry of Finance is considering increasing its headcount.

Last Friday, Reuters issued a report citing three anonymous officials, which stated that the move on the part of the Japanese agency and the Ministry came as the country is becoming concerned over the influence of private money on the existing financial system.

“Japan can no longer leave things unattended with global developments over digital currencies moving so rapidly,” one of the officials told the publication.

Also, Japan is planning to deepen its diplomatic dialogs with other global economic giants in regulating the booming crypto-industry.

Stablecoins Are the Real Threat

So-called stablecoins, which are pegged to the fiats or other assets and issued privately, became the real headache for Japanese regulators. Though usage of stablecoins is now limited to trading cryptocurrencies, Facebook’s attempt to launch Diem (previously known as Libra) caught regulatory attention worldwide.

Just like other top monetary regulators, the Bank of Japan is currently working on a central bank digital currency (CBDC), and the proposed regulations on the crypto industry will only complement those actions. The new unit of the FSA, which was launched on July 8, is anticipated to oversee the ‘decentralized finance’ platforms, which is the industry that is being seen as the real disruptor of the traditional finance sector. Though the FSA confirmed the establishment of the new crypto-focused division, it did not elaborate on its scope.

Furthermore, several other countries have ramped up their efforts to regulate the cryptocurrency industry. South Africa, which has seen a couple of high-profile cryptocurrency scams recently, is considering regulating the wild industry.

South Africa Moves to Tighten Crypto Regulation After Scams

South Africa is to set new restriction in terms of overseeing cryptocurrency after a number of scam-scandals. A new regulatory timeline set by the Prudential Authority, South Africa’s banking regulator, foresees finalizing a framework in three to six months. Kuben Naidoo, chief executive officer of the Prudential Authority and also a deputy governor of the South African central bank, has spoken:

“We are trying to put in place the regulatory framework quickly. Our view is that crypto is a financial product and should be regulated as a financial product.”

New regulatory approach could come in effect this year as a result of a jolt of recent Ponzi scheme scandals, which resulted in the disappearance of an estimated $3.6 billion in Bitcoin.

“Now we are defining this as a financial product and if there are scams where the public is being duped, given incorrect or false information, it is certainly a market conduct issue that should be taken seriously,” Naidoo said.

Despite the popularity of the asset class, South African cryptocurrency service providers have been operating without any control from the regulatory powers. Last year, the collapse of Johannesburg-based Mirror Trading International was called the biggest crypto-related scam of 2020 by blockchain data platform Chainalysis.

“We are of the view that cryptocurrencies are risky and we want to ensure that the financial sector is aware of those risks and pricing for those risks properly,” Naidoo said.

Africa’s most developed economy is tightening the screws on the industry as digital currencies move from the periphery of the finance world to the mainstream and face deeper scrutiny worldwide.

In one of the most significant moves to date by a regulator amid a global crackdown, Binance Markets Ltd. was banned from doing any regulated business in the UK by governmental financial watchdog. Also, Huobi, one the most popular cryptocurrency platforms in China, prohibited users from the country to trade derivatives.

Earlier this month, the Basel Committee on Banking Supervision proposed that a 1,250% risk weight to be applied to a bank’s exposure to Bitcoin and certain other cryptocurrencies.

“Regulators in South Africa will first move to establish know-your-customer rules for crypto exchanges and create systems for the surveillance of the asset class in order to prevent money being laundered out of the country,” Naidoo said. “Thereafter, investor-protection guidelines and rules for managing capital risk in the banking sector should come into effect.”

Evolution of Cryptocurrencies

South Africa’s Justice Minister Ronald Lamola gave a speech this Wednesday, stating that an inter-department working group that includes government agencies, the central bank and law enforcement is planning to “closely monitor the evolution of cryptocurrencies.”

According to Lamola, entity created to fight money laundering and terrorism financing, recovered over $28.1 million in the last financial year.

“Cryptocurrencies do not fit neatly within the current regulatory framework,” he said. “One of the unique features of cryptocurrency is its ability to operate without third-party intermediaries or similar safety mechanisms. The consequence though is that the potential financial and consumer risks are quite pronounced.”

Firms offering services related to digital currencies in South Africa have been eager for better rules to take shape- and drive-up trust in the asset class.

“Any incidents of fraud draw attention to the importance of regulation and we hope that the clear guidelines in South Africa -- and globally -- could lead to wider adoption by enhancing stability and trust in the market,” said Marius Reitz, general manager in Africa for Luno.

“Regulations will also raise standards and barriers to entry and weed out bad actors or service providers with a low regard and capability to safeguard customer information and money,” Reitz said.

Despite the different reasons that lead to abovementioned changes in crypto regulations, we can clearly see the same pattern in the activities performed by authorities of two economical giants of the modern world. This may result in significant changes of Laws regulating crypto-activities all over the globe and change the market dramatically, which we are eager to see regardless of effect that it will have on world’s financial system.

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