TOKYO, JP – Japan’s Financial Service Agency (FSA) has formally warned four DEXs (decentralized exchanges) – BitGet, MEXC Global, BitForex, and ByBit – to cease operations in the country until they obtain proper licenses. As a leader in crypto requirements implementation, Japan serves as a bellwether for how regulations will be enforced.

Japanese crypto regulations

Tomoko Amaya, Vice Minister of the FSA, laid out the agency’s regulatory framework focusing on financial stability, user protection, and anti-money laundering (AML). 

1. Financial stability – To mitigate runs on stablecoins, regulatory measures “ensure redemption at par and price stabilization.” 

2. User protection – Safeguarding customer assets and providing all necessary information to customers. Crypto intermediary services and custodians must “maintain proper internal control systems.” 

3. FATF standards – Japan’s Financial Action Task Force (FATF) developed an initial framework in 2015 regarding AML and how enforcement should be carried out. The FSA framework emphasizes the need for global cooperation stating, “it is critical to coordinate the implementation of international standards.”

FSA Deputy Director General for the strategy bureau, Mamoru Yanase, has called for global regulation of DEXs similar to traditional banking laws. Yanase has stressed the importance of effective statutes and blamed the collapse of FTX on loose governance and lax internal controls. 

Unlicensed DEXs in Japan warned

Regarding the four DEXs, the agency states that “stablecoin issuers are required to be licensed as a bank, fund transfer service provider, or trust company and to provide users with clear redemption rights.” 

The unlicensed DEXs in Japan are some of the first in the world to feel the ire of regulators with some of the newest laws on the books. The four DEXs could face fines and legal action if they do not cease operations and become licensed posthaste. Japan first codified crypto licensing requirements in 2020. In the intervening three years, the four DEXs in violation have had more than enough time to become compliant. 

Given the international nature of cryptocurrency trading and investing, the FSA has called on the EU and the US to regulate crypto similarly to traditional financial institutions and markets. These calls have grown louder over the past year with the collapses of Terra UST, FTX, and many other crypto companies. The director has also stated that international cooperation is needed when large companies fall, and this should include the crypto industry.

An example of regulation enforcement 

Other governments in Europe and North America have followed Japan’s example after its 2020 regulations were implemented. ByBit was already cautioned by British and Canadian regulators to comply with licensing regulations in 2021. Last month, Coinbase was fined $3.6 million by the Dutch Central Bank for being unlicensed.

Despite the appearance of a total crackdown on cryptocurrency, Japan is one of the more crypto-friendly countries. Presuming that Satoshi Nakamoto is a Japanese person or entity, it could be said that Japan was the first country where Bitcoin was launched, and crypto began. As such, it is fitting that Japan is a leader in cryptocurrency regulation and a leading example of how its real-world enforcement can play out.