This is why the FSA has come under fire recently for being lax when it comes to regulating the cryptocurrency industry in the country.
The FSA has noted that criticism hurled at them and is reportedly making changes in regulation to address the cryptocurrency industry.
Currently, cryptocurrencies are managed under the revised fund settlement law. The FSA has plans to change this according to reports and will look to move it under the Financial Instruments and Exchange Act (FIEA).
This currently places cryptocurrencies as means of settlement since it is considered similar to electronic money. However, if the FSA does shift to it to the FIEA, it will no longer be considered a financial product similar to stocks and bonds. This shift can make it more complicated for cryptocurrency exchanges. Under the FIEA, companies are supposed to separate company funds from customer funds and to implement stricter protection systems to ensure that everything is legal and above board.
However, these reports on the changes seem to be premature. After contacting the FSA, the agency commented that there were no plans for such changes.
In a statement, the FSA said
If there are such considerations, it will be taken up as an agenda for the study group the said agenda has not been discussed at all in the past 4 meetings…Things that are not on the agenda at all cannot be considered
The FSA refers to the regular research meeting with experts in the crypto industry, wherein important issues are brought up and discussed.
Japan Will Consider Stricter Regulation
However, there is still a legitimate need for a stricter cryptocurrency law. The current revised fund settlement law is what allows cryptocurrency businesses to operate in Japan, with 16 exchanges registered with the FSA. But with the recent Coincheck hack, scrutiny has increased over the cryptocurrency industry and its operators.
An example of this would be the recent business improvement orders sent to Tech Bureau and GMO Coin to improve their internal systems for better protection. This was quickly followed by an additional six business improvement orders to licensed exchanges. This included Bitflyer, which is currently Japan's largest bitcoin exchange.
Incidents like these are part of the reason why the FSA has been criticized for its approval process on licensing crypto exchanges. Many hope that stricter laws would help improve security and safety in these licensed crypto exchanges and provide better protection to Japanese investors.