On May 23, the Japanese regulators agreed to implement the Anti-Money Laundering (AML) regulations, commonly known as the travel rule, in Q2. The announcement revealed that all crypto transactions conducted in Japan would require conformity with the global AML standards.
A report captured by Kyodo News revealed that the Japanese parliament would implement stringent AML regulations from June 1. The decision made by the legislators aimed at enabling Japan to uphold conformity with international crypto regulations.
Will Japan’s New AML Measures Fight Money Laundering?
In December last year, the international regulatory agency Financial Action Task Force (FATF) considered Japan’s AML rules insufficient. The FATF observation obliged the Japanese legislators to review and amend the anti-money laundering regulations in the region.
In a previous report, the legislators focused on revising the country’s “Travel Rule.” A travel rule comprises measures implemented to monitor legal action on criminal cases.
After examining the Japanese travel rule, the legislators agreed to incorporate new measures to strengthen the enforcement approach. Such measures force the financial institutions engaging in crypto transactions worth over $3000 to disclose customer information to the relevant entities.
The new rule required financial institutions to provide confidential customer data, including personal details such as name, account information, and sender and receiver information.
Recently the Travel Rule was a center of discussion at the May 17 Group of Seven (G7) Summit held in Japan. After a prolonged discussion, the international leaders agreed to support the adoption of the Travel Rule in conducting crypto transactions.
Significance of Travel Rule
The legislators observed that the Travel Rule aligns with the FATF goal of implementing global standards for cryptos. They admitted that with the travel rule, addressing risks in peer-to-peer (P2P) transactions and challenges in decentralized finance (DeFi) was easier.
A recent report from the FATF team urged the authority to support transparency in crypto transactions. The FATF group noted that lack of transparency encourages the bad players to engage in illegal activities by compromising the corporate structure and legal arrangements.
In their report, the FATF team emphasized the need to grant access to beneficial ownership data. This information acts as a guide during a criminal investigation by providing the probing team with an effective approach to identify crime easily.
Additionally, the FATF official urged the Japanese authority and other crypto-friendly countries to ensure regulators have access to company information, including the customers, and legal arrangements, among others.
Crypto Adoption in Japan
Besides Japan investing in amending crypto laws, that country ranks among the early adopters of digital assets. The attempt to increase crypto adoption in the region and accumulate the endless benefits of digital assets obliges the legislators to toughen the regulation.
Meanwhile, Japan ranks among countries that have adopted strict crypto regulations to safeguard investors and customers from exploitation.
In 2014 the Shibuya-based crypto exchange Mt.Gox suffered massive losses after an unscrupulous player launched a malicious attack heisting with assets worth 740000 Bitcoins. The malicious attack resulted in the liquidation of Mt.Gox in February 2014.
Afterward, hackers breached the security protocols of the popular crypto exchange Coincheck Inc. draining assets worth $500 million from the platform.
Strategies Adopted in Japan to Address Cybercrime
Following a series of cyber crimes battling the Japanese crypto sector, the regulators made implicit moves to safeguard customer and company assets. The FSA formulated new rules which necessitated the crypto exchanges in the region to observe the provided guidelines, such as generating verifiable annual audits.
Besides the FSA rules, the regulators implement security measures to protect user interests. Under the FSA measures, investors are prohibited from borrowing more than their investment in leveraged trades. The FSA requires the licensed crypto exchanges in the region to hold approximately 95% of customers’ assets in their cold wallets.
Beyond this, the regulators in the region have invested in exploring effective ways to boost crypto growth in the region. Last month the Japanese Liberal Democratic Party issued a white paper report outlining the strategies to stimulate the growth of the crypto sector in the region.