Japan hesitates to permit regular banks to issue stablecoins, restricting the practice to designated trust banks
The Financial Services Agency (FSA) of Japan has taken a cautious yet progressive approach towards stablecoins, digital currencies pegged to traditional fiat currencies.
Currently, the FSA is comfortable with the three existing stablecoins operating on permissioned blockchains. However, it has yet to decide on the specific implications of these digital assets for licensed deposit institutions.
The FSA is reluctant to allow banks, except trust banks, to issue stablecoins. This stance is due to concerns about the security and stability of these digital assets on permissionless blockchains. Trust banks, on the other hand, are the only institutions currently authorised to issue stablecoins in Japan.
In 2022, Japan passed stablecoin legislation that supports issuance by banks, licensed money transfer companies, and trust companies. The FSA aims to relax the reserve requirements for stablecoins issued by trust banks, a move that could potentially increase their adoption.
The FSA distinguishes between stablecoins issued on permissioned blockchains and those on public blockchains. It is wary of allowing licensed deposit institutions to issue stablecoins on permissionless chains, preferring the controlled environment of permissioned blockchains.
The FSA also wants to impose the travel rule, requiring Know Your Customer (KYC) for transfers of trust bank issued stablecoins. This rule is designed to prevent money laundering and terrorist financing.
It is worth noting that the institution that empowered the FSA to issue stablecoins by law in 2022 was not explicitly identified in the provided search results. No direct mention of the FSA’s legal empowerment for stablecoin issuance in 2022 was found in the sources.
The FSA presented its ideas about cryptocurrency and stablecoins to the Financial System Council Working Group on Payment Services. The agency is contemplating imposing similar regulations for transfers of stablecoins issued by trust banks, mirroring the travel rule for traditional financial transactions.
As the world of digital assets continues to evolve, the FSA's approach underscores the importance of balancing innovation with regulatory oversight to ensure the stability and security of the financial system.
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