Financial Services Agency Reports It ‘Cannot Recognize the Necessity’ of Cryptocurrency Derivative Trading


Japan’s Financial Services Agency (FSA) publicly released a draft report outlining cryptocurrency regulations that it presented at the 11th meeting of the “Study Group on the Virtual Currency Exchange Services” on December 14.

According to the draft report, while derivative trading in cryptocurrencies accounted for approximately 80% of cryptocurrency trades in 2017, there have been many consultations between cryptocurrency exchange users and the agency on the inadequacy of exchange operators’ systems and ambiguity of service content for derivative trading.

The report also indicated that cryptocurrency derivative trading is subject to financial regulation in many other countries, however, it is not yet subject to regulation in Japan. Furthermore, the agency wrote that “there is no precise evaluation regarding the usefulness of cryptocurrency as an underlying asset, and its usefulness is being exacerbated exclusively by speculation. Thus it is difficult to ascertain the positive social significance (of cryptocurrency derivative trading) at present.” The agency also stated, “At the very least, we believe it is fundamental that the same business regulations for other derivative trading should be applied (to cryptocurrency derivative trading) in Japan as well.”

In consideration of the social significance of derivative trading, the report further clarified, “At this juncture, we cannot recognize the necessity of handling (cryptocurrency derivative trading) in the same way as financial instruments exchanges and other venues which allow trade through a majority of market participants.”

On margin rate magnification in margin trading, the agency wrote, “Under present conditions, there are (cryptocurrency exchange) operators that offer leverage of 25 times at maximum. However, considering cryptocurrency value fluctuations are much greater than legal tender, we believe it would be suitable to set an appropriate ceiling in accordance with the actual situation.”

In other regulations, such as for initial coin offerings (ICO), the agency pointed out that in many other countries, clarifications are made in terms of the possibility for items recognized as investable to be subject to existing securities regulations, and administrative measures are being implemented in line with these warnings and regulations. Similarly in Japan, investable items such as those that have expectations towards allocations of business revenue are subject to the Financial Instruments and Exchange Act and the Payment Services Act, with appropriate policies undertaken to address and counterbalance various ICOs, as opposed to prohibitive policies altogether.

*This article was written by Fisco