Japan will implement stricter rules for exchanges, including the implementation of the FATF travel rule, to combat money laundering and ensure transparency in cryptocurrency transactions.
On May 23, Japan announced that it will implement stricter measures against money laundering (AML) in cryptocurrency transactions starting from June 1, in order to comply with global regulations.
According to Kyodo News, the decision to strengthen the regulations was made after a review of relevant laws in December, when it was determined that the existing measures were insufficient, according to the Financial Action Task Force (FATF), an international financial supervisory organization.
Japan to Implement Stricter Rules for Exchanges
One of the most notable features of the new regulatory framework is the implementation of the so-called “travel rule” issued by the FATF, which requires financial institutions to provide detailed information about their customers’ transactions, including all their registration data such as names and addresses. Those who do not comply with the regulations will face criminal sanctions.
With this measure, Japan aims to combat money laundering and ensure greater transparency globally in cryptocurrency transactions. Additionally, by aligning with global standards, the Asian country will strengthen its position in the cryptocurrency industry, providing greater confidence to both investors and users.
It is worth mentioning that Japan’s cryptocurrency regulations are among the strictest in the world, with rules on segregated holdings, leverage limits, and storage of customer funds in cold wallets. This is because Japan was one of the first countries to legalize the use of cryptocurrencies.
In March 2021, Japan’s Financial Services Agency requested the implementation of the travel rule for cryptocurrency exchanges in response to the hacking suffered by Mt. Gox, which resulted in thousands of people losing billions of dollars.
The FATF Travel Rule Is Stricter than the One Implemented by Japan
The FATF travel rule was issued in 2019 for the G-7, an organization consisting of the world’s seven largest economies, including Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
The controversial rule formally known as FATF Recommendation #16 requires virtual asset service providers (VASPs) to report on user transactions exceeding amounts of $1,000. This threshold may vary depending on each country’s regulations. For example, the reporting threshold in the United States is from $3,000.
The implementation of these stricter rules is related to multiple hacks and market manipulation carried out by various actors in the crypto ecosystem, who have used digital assets to engage in illicit activities such as financing terrorism and sending money to sanctioned countries.
Therefore, the application of the FATF travel rule would help facilitate the tracing of cryptocurrencies by law enforcement, opening the doors to a more uniform global regulation.
However, one of the most significant challenges presented by this regulation is the exposure of user data, so it is crucial to establish security measures that protect those users who use cryptocurrencies on a daily basis as an alternative to fiat money and not for illegal activities.