In a bid to enhance its efforts against money laundering and illicit financial activities, the Japanese government has decided to implement stricter Anti-Money Laundering (AML) measures for cryptocurrency transactions. The decision, made by lawmakers in the Japanese parliament on May 23, aims to bring the country’s legal framework in line with global crypto regulations.
This move comes after the Financial Action Task Force (FATF), the international financial watchdog, deemed Japan’s existing AML legislation insufficient. In response, lawmakers revised the legislation in December to address the shortcomings highlighted by the FATF.
One of the key features of the new measures is the enforcement of the “Travel Rule,” a globally recognized standard aimed at accurately tracing criminal proceeds associated with cryptocurrency transactions. Under the Travel Rule, financial institutions processing crypto transfers exceeding $3,000 will be required to share customer information, including the names, addresses, and account details of the sender and recipient, with the receiving exchange or institution.
The adoption of the Travel Rule by Japan was recently discussed at the G7 meeting held in the country, where global leaders expressed their support for this regulatory measure. The G7 Committee endorsed the FATF’s initiatives to establish global standards for cryptocurrencies, including the Travel Rule, and acknowledged the need to address emerging risks associated with decentralized finance arrangements and peer-to-peer transactions.
Japan, known for being one of the early adopters of cryptocurrencies, has already established stringent regulations governing the sector. Cryptocurrencies were legalized as property in Japan, and the country’s financial regulator, the Financial Services Agency (FSA), has implemented various measures to protect customers in the wake of major exchange hacks, such as the incidents involving Mt.Gox and Coincheck.
To safeguard customer funds, the FSA tightened rules for crypto exchanges, requiring them to hold customer and company assets separately and undergo annual audits to verify holdings. Additionally, leveraged trading on exchanges is limited to twice the amount of the investor’s initial investment, and licensed exchanges must hold at least 95% of customer funds in cold wallets for increased security.
The recent decision to enforce stricter AML measures further emphasizes Japan’s commitment to ensuring a safe and transparent cryptocurrency industry. It aligns with the FATF’s call for leading economies, including the G7 nations, to implement recommended standards to combat illicit financial flows through cryptocurrencies.
This development also reflects Japan’s ongoing efforts to expand its crypto industry. In April, the Web3 project team of Japan’s ruling Liberal Democratic Party released a white paper outlining proposals to support the growth and development of the country’s cryptocurrency sector.
By bolstering AML measures and aligning with global standards, Japan aims to strengthen its position as a leader in the cryptocurrency space while mitigating the risks associated with financial crimes and illicit activities. These new regulations will provide increased transparency and security for cryptocurrency users and foster greater confidence in the market as a whole.