Financial Regulators of Japan Take Strict Actions Against Stablecoin Projects

The Financial Services Agency or FSA is the largest financial regulator in Japan. Recently, the FSA has decided to limit the flow of stablecoin projects like Tether in the country with new regulatory restrictions. It is worth noting that stablecoins are cryptocurrencies with their value tied to a paperback like a yen or USD and claim to eliminate the price volatility.

The Financial Services Agency of Japan is currently working on a legislative charter that would limit the issuance of these stablecoins to the banking and wire payment service providers in the region. The change has been invoked by the increasing debt crisis of China Evergrande Group that has reflected the reality of the stablecoin trading risks.

China Evergrande Group as a Case Study

The FSA is using the case of China Evergrande Group as a case study to put a halt to the onslaught of stablecoins in the region. Recently, the management behind Tether or USDT token was sued and resulting in the reveal of shocking facts. The regulatory investigation into Tether discloses that the company did not hold any commercial paper or debt.

Before the investigation report became public, Tether management maintained that it was partially backed by commercial paper debt issued by Evergrande. The FSA plans to address the risk of stablecoin investing by mandating the involvement of insured depository institutions and holding companies. The FSA regulations are in line with the decree of the Office of Comptroller of Currency and Federal Deposit Insurance Corp. keeping in view the regulatory necessities for these types of institutions.

As reported by Nikkei Asia, the FSA is extending its regulatory scope to anti-money laundering legislation. The financial regulator plans to make reporting to the agency mandatory for the digital wallet addresses that hold stablecoins. Furthermore, a criminal code of conduct will be imposed on stablecoin traders that require identity verification and suspicious transaction reporting.

Furthermore, the FSA is also working on a new type of digital currency that will be backed by banking reserves and is likely to go live in 2022. All the major banking institutions of Japan are collaborating on the project, in addition to 70 top financial organizations operating in the region.

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