Japan is considering introducing new, less stringent regulations for cryptocurrency intermediaries that fall outside the scope of traditional exchanges. This move aims to address the regulatory challenges posed by entities such as gaming applications and self-hosted wallets that connect users to third-party crypto trading services.
Japan has been a pioneer in cryptocurrency regulation, implementing legislation for Crypto Asset Exchange Service Providers (CAESPs) in 2017 following the high-profile Mt. Gox exchange hacks. These regulations cover a broad range of activities, including buying and selling crypto, brokerage services, managing funds, and providing custody.
However, the current framework poses challenges for intermediaries that don’t directly operate exchanges. Many such “introducers” don’t consider themselves CAESPs and find the existing regulations overly burdensome. The Financial Services Agency (FSA) presented its proposals for lighter regulations to the Financial System Council Working Group on Payment Services last week.
The FSA provided examples of gaming apps or self-hosted wallets that facilitate access to third-party crypto trading apps. While the FSA might currently classify these operators as intermediaries requiring registration as crypto exchanges, it acknowledges that this is onerous for entities that merely act as introducers and don’t handle funds directly.
The proposed lighter regulations would require these intermediaries to register and adhere to specific obligations, such as providing clear information to users and complying with advertising restrictions. They could also be held liable for damages if issues arise.
The FSA is currently considering how to handle liability for damages. One option is to require a security deposit, similar to regulations for other financial intermediaries not affiliated with larger groups. Alternatively, if the intermediary is connected to a cryptocurrency exchange, the exchange could bear the liability.
