Japan’s Financial Services Agency (FSA) is drafting legislation to regulate the issuance of stablecoins, ahead of the launch of the digital yen, which is scheduled for late 2022.
Nikkei Asia reports that a bill to be introduced by Japan’s Financial Services Agency (FSA) would prescribe restrictions on the issuance of stablecoins for banks and wire transfer companies. The bill should help protect investors’ assets and reduce the risk associated with the use of stablecoins.
The crisis faced by Chinese developer Evergrande Group has drawn attention to the stability of such cryptocurrencies. However, in September, Tether, the largest issuer of stablecoins, announced that the company has no outstanding debt to Evergrande. The drafting of the bill in Japan is among other things concerned with the fact that stablecoins are a direct competitor for central bank digital currencies (CBDC). Japan’s central bank plans to launch a digital yen in late 2022. For the project’s development, a committee has been set up to participate in the testing of the state’s cryptocurrency.
The FSA is set to toughen rules aimed at combating money laundering, including verifying the identity of users and reporting suspicious transactions. A report by the Federal Deposit Insurance Corporation (FDIC) and the US Office of the Comptroller of the Currency (OCC) said:
“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.”
Japan is not the only country planning to introduce strict rules for stablecoin issuers. In early November, the President’s Working Group on Financial Markets (PWG) called on the country’s authorities to expedite the development of regulation for stablecoins. The Group’s concerns stemmed from possible insufficient collateral and lack of transparency in reserves.
In September, Gary Gensler, head of the Securities and Exchange Commission (SEC), spoke out about stablecoins. They are “acting almost like poker chips at the casino right now,” he said.
As you may recall, in November it was revealed that a consortium of 74 Japanese companies planned to issue a yen-denominated stablecoin by the end of 2022, to be used in bank deposits and business settlements.
The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.
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