After passing its landmark stablecoin legislation in June, Japanese regulators are considering supplementing it by restricting algorithmic support for stablecoins. The intention comes as a recommendation from the Financial Services Agency (FSA) and was repeated by the country’s Vice Minister of International Affairs, Tomoko Amaya.
During his speech on crypto assets at a roundtable organized by the Official Monetary and Financial Institutions Forum (OMFIF), Amaya presented Japan’s regulatory framework, emphasizing the factors of financial stability, user protection, and anti-money laundering/financing. of terrorism (AML/CFT). The speech was originally held in November, but the FSA released the full document on December 7.
The 29-page presentation systematizes the Japanese approach to cryptocurrency regulation, shaped by several important pieces of legislation: the Banking Law, the Payment Services Law, and the Financial Instruments and Exchange Law. Someone familiar with the Japanese regulatory environment would not find anything new here, although the emphasis on differentiating between “crypto assets” and “digital money-type stablecoins” offers a different perspective on the approach of local regulators towards the latter.
Amaya’s speech also does not specify specific dates or titles for future legislation. However, at the end of the document, in the “Way Forward” section, the Deputy Minister cites the FSA’s recommendations, supposedly made in October. As quoted:
“The proposed revision states that ‘global stablecoins should not use algorithms to stabilize their value’ and strengthens the guarantee of redemption rights.”
This recommendation would likely be taken into account by legislators in the future, as the current stablecoin regulation, which was approved by Parliament in June and will become law in June 2023, does not cover algorithmic stablecoins.. The law itself came in the wake of a sharp decline in cryptocurrency markets fueled by the collapse of Terra tokens, with algorithmic stablecoin Terra USD (UST) losing its value 1-to-1 against the US dollar in early May.
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