Japan’s Financial Services Agency (FSA) is reportedly drafting regulations aimed at protecting domestic assets from potential risks tied to foreign-based cryptocurrency exchanges. Following the collapse of the high-profile FTX exchange, which impacted investors worldwide, the FSA seeks to establish a “holding order” under Japan’s Payment Services Act.
The new mandate would restrict cryptocurrency exchanges from transferring Japanese customers’ assets overseas, providing an added layer of security in the event of another exchange failure. The proposed holding order, which would apply to all exchanges registered under the Payment Services Act, represents a shift in Japan’s regulatory approach.
Previously, such restrictions only applied to firms registered under Japan’s Financial Instruments and Exchange Act. However, if the legislation is amended, the FSA could extend asset-protection measures across all crypto exchanges operating within Japan’s jurisdiction, regardless of their headquarters.
The proposed changes come as a response to the FTX crisis where Japanese investors narrowly avoided significant losses due to existing regulations that allowed the FSA to issue a holding order. Currently, 29 exchanges, both domestic and foreign, are registered under Japanese law and must adhere to regulations preventing asset outflows.
With the proposed amendment, the FSA aims to strengthen this framework, ensuring that all exchanges handling Japanese assets keep customer funds within the country’s borders. By establishing a more robust system, Japan’s FSA seeks to protect investors from the fallout of foreign exchange failures.
This will help maintain a secure and regulated environment for domestic cryptocurrency trading.
