Stablecoins have thrived in unregulated shadows, with tokens in circulation now worth more than $127 billion. Today, these are widely being used for transactions that resemble traditional financial products. For example, bank savings accounts, but perhaps without offering the same level of consumer protection.
Now, it is worth noting that scrutiny has been ratcheting up as stablecoins surge in popularity.
The regulatory recital
*STABLECOINS TO FACE NEW RESTRICTIONS IN JAPAN, NIKKEI SAYShttps://t.co/ePFC78efJv
— *Walter Bloomberg (@DeItaone) December 6, 2021
Japan’s top banking regulator will introduce new legislation in 2022. It will seek to limit the allocation of stablecoins to banks and wire transfer companies, according to a report by Nikkei Asia. The Financial Services Agency (FSA) will regulate the same to restrict the issuance of stablecoins to banks and wire transfer companies.
These steps, the FSA expects, will protect consumers of potential risks from asset-backed stablecoins.
Additionally, the said initiative will also include steps to prevent money laundering via stablecoins. It will do so by giving the agency additional oversight over intermediaries such as wallet providers involved in stablecoin transactions.
Furthermore, the initiative will also satisfy obligations under Japan’s laws. Thus, preventing transfers of criminal proceeds, including verifying user identities (KYC) and reporting suspicious transactions.
Japan intends to follow the same route recently taken by U.S regulators. Just recently, U.S. financial authorities including the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency opined,
“To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions, which are subject to appropriate supervision and regulation, at the depository institution and the holding company level”
On one hand, stablecoins present illicit finance concerns and risks to financial integrity. However, they also hold potential benefits for both businesses and consumers. A lot of interesting developments are taking place across geographies.
However, in light of the fact that Japan has traditionally been fairly cordial towards crypto-assets, reports of such regulations make for an interesting development.