Japan Govt to Regulate Cryptocurrency Margin Trading

November 6, 2018

Tokyo--Japan's Financial Services Agency plans to set an upper leverage limit for cryptocurrency margin trading under law to better prevent investors from incurring huge losses, informed sources have said.

An expert panel of the agency has agreed on the introduction of a legal regulation on cryptocurrency margin trading, through which investors can now trade virtual currencies equivalent to over 20 times the amount of money deposited at exchanges handling them.

Limiting the leverage to two times is an option under discussion by the panel, according to the sources.

At present, virtual currency exchange operators are required to have a capital of 10 million yen or more. The FSA plans to raise the minimum capital level for operators that offer margin trading services, according to the sources.

Another focus is possible regulations for initial coin offering, or ICO, in which a company raises funds by exchanging a cryptocurrency it issues for existing virtual currencies from investors.

For ICO cases that attract investors with dividends, the agency is considering obliging companies raising funds by the method to disclose related information and making investors with poor financial resources, mainly individuals, unable to invest in ICOs, in order to prevent fraud cases abusing the scheme, the sources said.

The FSA will conduct a study on revising the financial instruments and exchange act to introduce these rules.

But it may not be easy to strengthen regulations.

A senior FSA official said it is doubtful that cryptocurrencies can be regarded in the same way as financial products such as stocks and bonds, because the issuers of some existing virtual currencies, including bitcoin, are unclear.

In April last year, the Japanese government put the revised payment services law into effect, introducing a registration system for cryptocurrency exchange operators and obliging them to keep customer assets separately from their own. But no trading rules for cryptocurrencies have been prepared by regulatory authorities.

The Japan Virtual Currency Exchange Association, an industry group, has compiled self-imposed trading rules for member cryptocurrency exchange operators, including setting an upper leverage limit for margin trading at four times the amount of deposits. Jiji Press