A self-regulation ‘experiment’ had been ongoing in Japan for the crypto sector. But, authorities and regulators in the country have declared that this so-called experiment appears to be a failure because it is not working according to expectations. This ‘experiment’ is essentially a self-regulation organization by the name of the Japan Virtual Currency Exchange Association (JVCEA), which is committed to developing guidelines for regulating the crypto industry.

The JVCEA

The JVCEA had first been launched in 2018 and the self-regulatory agency has been operating in the Japanese crypto market since then. Its purpose is to develop regulations for overseeing the cryptocurrency space in the country. When the organization had first been introduced, there had been talking that it was in a better position to regulate the digital asset industry, as opposed to a government agency.

However, a recent report disclosed that government and regulatory authorities have now become concerned that this system does not seem to be working. These fears had also been shared back in 2018 when the organization was first established, as a number of global agencies had highlighted the inefficiencies that are inherent in the self-regulatory aspect.

The background

In 2018, the infamous Coincheck hack had taken place that saw cryptocurrencies worth a whopping $530 million stolen. This resulted in the formation of the JVCEA to regulate the crypto sector. The Financial Services Agency (FSA) in Japan is responsible for overseeing this organization and it has the authority of introducing and enforcing regulations that would apply to the local crypto exchanges in Japan.

There are a number of prominent names that are members of the JVCEA and these include Bitflyer, Rakuten Wallet, and Coincheck. Some other local crypto firms are also part of it. The subsidiaries of renowned companies like Coinbase and FTX are also members. But, the FSA is not happy with the performance of the organization and has gone as far as accusing it of its slow pace in terms of crypto regulation.

Problems with the JVCEA

Several weaknesses of the self-regulating organization have been highlighted by the FSA. It said that the organization had delayed the implementation of critical regulations, such as the implementation of the anti-money laundering (AML) policy. Moreover, its management is also inefficient because there is poor communication between the JVCEA members.

It was further reported that a stern warning had been issued to the JVCEA by the FSA. The former had been instructed to streamline its operations as crypto regulation had several gaps that had not been addressed as yet.

Fumio Kishida, the Japanese Prime Minister, had also asked the JVCEA last month to reduce the time it takes for listing new digital assets on local crypto exchanges. The agency also needs to prioritize the protection of the users while doing so.

Another source disclosed that the staff of the JVCEA did not possess enough knowledge about cryptocurrencies. It said that the staff mostly comprised of government employees, brokers, and bankers, and representatives of companies that were members of the JVCEA were not part of it.