- Japan’s top banking regulator wants new legislation linked to stablecoins.
- The proposal aims to limit the issuance of stablecoins to safeguard consumers from asset-backed stablecoins
Japan’s Financial Services Agency (FSA) plans to strengthen supervision of stablecoins by putting severe requirements on their issuers. This is according to a publication by Nikkei Asia.
The country plans to implement laws in 2022 that will restrict the issuance of stablecoins to banks and wire transfer firms.
Stablecoins are cryptocurrencies that are linked to an external asset. These assets include fiat currency, gold, or other investments, and they help maintain price stability. Tether is an example of a stablecoin. It was surrounded by controversy in the past. The CFTC penalized it over $40 million in October for past assertions that each token was backed 1-to-1 by its cash reserves. CFTC says Tether reserves were not ‘fully backed’ most of the time.
The FSA will also strengthen restrictions connected to money laundering prevention. According to the publication, the crypto service providers involved in stablecoin transactions, such as wallets, will be brought under its supervision.
Stablecoin issuers will also be required to follow Japan’s law prohibiting the transfer of illegal proceeds. Verifying user IDs and reporting questionable transactions are examples of what this entails.
At the time of writing, the total market capitalization of all stablecoins was almost $160 billion. Tether (USDT), the most popular stablecoin, has a market cap of $77.12 billion, according to coingecko.
While Japan does not yet regulate stablecoins, the Financial Services Agency (FSA) has formed a group. The team will investigate how to keep consumers safe and find solutions to money laundering concerns. “Secure, liquid assets must back stablecoin,” stated Yuri Okina, a panel member, in September. However, he notes that it is debatable whether imposing harsher restrictions like those already in place for banks is the best strategy.
Other countries considering more regulations on stablecoins
Japan isn’t the only country considering enacting severe regulations for stablecoin issuers. Treasury Secretary Janet Yellen requested that regulators in charge of crypto assets in the United States “move rapidly” to regulate stablecoins in July. Following that, the President’s Working Group on Financial Markets (PWG) advised that stablecoin issuers be subjected to bank-like regulation.
This regulatory strategy, however, does not sit well with the community. Governor Christopher Waller of the Federal Reserve Board recently spoke against the PWG’s recommendation. He explained that allowing banks to issue stablecoins is good. But he insists that only banks should be allowed to do so.