The conversation on implementing FATF Travel Rule has been ongoing since March this year, when Japan’s national financial authority instructed local exchanges to begin complying with it.
To make the FATF Travel Rule legally enforceable in the country, a draft amendment will be introduced in parliament’s national diet session on October 3rd, 2022.
Once the proposed amendment is approved, crypto exchanges will have to comply with the Travel Rule from May 2023.
Japan is planning to enact new rules along the lines of the FATF Travel Rule to prevent the illicit use of cryptocurrencies, such as money laundering and terrorism financing. As per local media outlet Nikkei, the aim is to implement the said law by May 2023. A draft amendment will be introduced in Japan’s parliament during the diet session on October 3 to make it happen.
The discussions around sharing customer information with government authorities have been ongoing with the virtual asset exchanges since March this year. This was the time when Japan’s Financial Services Agency (FSA) instructed the country’s virtual asset exchanges to begin complying with the FATF Travel Rule. So, before we dive deeper into it, let’s look at what the FATF Travel Rule actually means.
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The Financial Action Task Force (FATF), an intergovernmental policy-making body, introduced Travel Rules in 2019 for virtual asset service providers (VASPs). The recommendations enforce Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) measures on VASPs.
It mandates financial institutions to share relevant originator and beneficiary information alongside virtual asset transactions.
Once the bill is passed, it will mandate all virtual asset service providers (VASPs) to collect personally identifiable information (PII) like name, address, and other details — as already being done for cash transactions.
Those cryptocurrency exchanges breaking the rules established by the law will face criminal penalties, corrective orders, and administrative guidance.
These new measures are expected to help regulators determine when and where crypto assets are sent. Besides exchange operators and protocol tokens, the law will also apply to stablecoins.
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Over the recent months, Japan has taken several significant steps to regulate crypto, with the parliament passing a law to limit the issuance of stablecoins by non-bank institutions in June. Then a month later, the Ministry of Economy, Trade, and Industry opened a Web3 Policy Office to foster the Web3 business environment.
There are also reports that the Japanese tax authority, the Financial Services Agency (FSA), is considering easing the punishing capital gains rates on crypto after opposition from the industry. All these measures show that Japan is at the forefront of regulating virtual assets.
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In a speech earlier this year, Japan’s new prime minister, Fumio Kishida, said that Japan “will develop an environment for the promotion of Web3, such as blockchain, NFTs, and the metaverse.”
Seeing the country’s friendlier approach to crypto as Japan moves to adopt more Web3-friendly policies and the substantial opportunities to onboard new users, top crypto organizations like Binance are heading back to Japan. Thus, it’s only about time Japan leads in Web3 research and innovation globally, thanks to its business-friendly approach towards the crypto industry.
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