Japan aims to curb fraud by regulating peer-to-peer cryptocurrency transactions. Japanese regulators advise banks on stricter cryptocurrency transfer protocols. The new guidelines could significantly affect Japan’s 19.25 million cryptocurrency users.
Japan is taking bold steps to mitigate the risks associated with crypto assets. With the rising tide of specialized fraud and illegal money transfers through Internet banking, Japanese authorities are considering a crucial shift in financial security protocols.
The National Police Agency (NPA), together with the Financial Services Agency (FSA), believes that a significant portion of these fraudulent activities leverage crypto assets for illicit fund transfers.
Will Regulators’ New Recommendation Destroy P2P in Japan?
The FSA and NPA are putting pressure on banks to improve customer protection. Therefore, they recommend stopping transfers to crypto exchanges if there are issues such as name discrepancies.
They also want better tracking of unauthorized transfers to prevent fraud. FSA wrote the following:
“The Financial Services Agency, in collaboration with the NPA, encouraged financial institutions to further strengthen the protection of their users based on risks, such as the status of transfers to cryptoasset exchange service providers.”
This action comes from an increase in the number of victims of phishing scams who are forced to send money to exchange accounts.
On February 6, 2024, they formally asked the National Bankers Association and others to implement strict measures. This includes blocking transactions with mismatched names and updating transaction monitoring.
The implications for the peer-to-peer (P2P) market could be profound. P2P transactions, by their very nature, involve different names on the sender and receiver.
Therefore, if banks implement the FSA recommendations, they could stop a significant portion of these transactions.
Japanese Regulator Suggests “Stop” Fiat-to-Crypto P2P Transfers
On February 14, the FSA published a request encouraging banks to “further strengthen the protection of their users.” To achieve this, the FSA and NPA refer to several key initiatives.
One of them could significantly disrupt the P2P market. The regulator suggests that “Stop transfers to cryptoasset exchange service providers if the sender name is different from the account name.”
The Japanese version of the press release uses the verb reject, explaining that the suspension of such transfers should include individual and corporate accounts.
The mechanics of these transactions mean that the names of the sender and recipient on the fiat and crypto ends of the transaction are always different. Therefore, if Japanese banks reject any transaction from one individual’s bank account to another’s cryptocurrency wallet, that could seriously compromise the P2P market.
It should be noted that the current FSA request is drafted as a recommendation, and does not require compliance with specific requirements, but rather refers to initiatives. It remains to be seen how exactly banks will react to these recommendations and whether they will disrupt the P2P market. Cointelegraph contacted the FSA for further clarification.
Japan and its History with Cryptocurrencies
While the FSA’s recommendations are currently just that (recommendations), the actual impact on the banking sector and the P2P market depends on how these institutions respond. The guidelines could directly affect Japan’s 19.25 million cryptocurrency users.
The government’s recent move to reform cryptocurrency taxes for businesses, exempting them from taxes on “unrealized gains” from cryptocurrency holdings, underscores the nation’s intricate relationship with cryptocurrencies.
The reform, aimed at redefining taxes for corporations, more closely aligns corporate cryptocurrency taxes with those of individual investors, taxing profits only from selling crypto assets.
However, this progressive stance on cryptocurrency taxes stands in stark contrast to the cautious approach towards P2P crypto transactions.
By Leonardo Perez
