Japan Raises the Bar on Crypto Regulations, Introduces Stricter Anti-Money Laundering Rules
Main Points:
- Japan plans to tighten anti-money laundering (AML) rules in the crypto industry, aligning itself with global standards.
- The new measures, effective from June 1, include the implementation of the “travel rule” for enhanced transaction traceability.
- Financial institutions will be required to exchange relevant information, such as names, addresses, and other identifiable data, at each step of a transaction.
- The move comes after Japan faced criticisms from the Financial Action Task Force (FATF) regarding its previous attempt to adopt AML rules in 2021.
- Japan has been progressively strengthening its crypto regulations over the past two years, responding to public concerns and investor protection.
Tokyo, Japan – In a significant step towards strengthening its cryptocurrency regulations, Japan is set to introduce new anti-money laundering (AML) measures aimed at better tracking crypto transactions. The country’s cabinet plans to enforce these measures from June 1, which will include the implementation of the widely known “travel rule,” according to a report by Japan Today on Tuesday.
The travel rule mandates financial institutions to share specific information between them to enhance transaction traceability. The goal is to prevent, detect, and prosecute money laundering and other financial crimes. This rule will now also apply to virtual asset service providers, bringing them under stricter scrutiny.
Japan’s previous attempt to adopt the travel rule in 2021 was deemed deficient by the Financial Action Task Force (FATF), an intergovernmental organization responsible for enforcing AML rules. This critique, along with other criticisms directed at Japan’s progress in regulating digital assets, led to a significant investor protection bill being approved by the Japanese legislature in June of last year. The bill established a legal framework for stablecoins and classified them as digital currencies.
Under the new law, only recognized financial entities such as registered banks, money transfer agencies, and trust companies are permitted to issue stablecoins. This move aims to create a more secure environment for crypto transactions, ensuring the involvement of trusted entities.
Japan’s commitment to tightening crypto regulations extends beyond AML measures. The country also sought changes to its Foreign Exchange Act, aiming to curb crypto transactions suspected of reaching sanctioned Russian nationalists. By taking proactive steps to address potential risks, Japan aims to establish a robust framework that safeguards its financial system and protects investors.
As Japan bolsters its AML rules, neighboring Hong Kong is expected to relax restrictions on virtual asset providers that were previously banned from serving retail crypto investors. This divergence in approach highlights the diverse regulatory landscape in Asia, with different countries responding to the challenges faced by the crypto industry in their own unique ways.
With these updates, Japan continues to pave the way for robust crypto regulation, ensuring the integrity of its financial ecosystem and aligning itself with global standards.