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The Financial Services Agency (FSA), Japan’s financial regulator, is looking to limit the issuance of stablecoins to banks and wire transfer companies. A report unveiled this news on December 6, noting that the FSA intends to propose this legislation in the coming year. These restrictions seek to improve consumer protection.
According to the FSA, banks, and wire transfer firms have a legal obligation to protect consumer assets. Should the FSA’s proposed legislation come into effect, stablecoin issuers like Tether and Circle will not be able to offer yen-pegged coins to Japanese users unless they get registered as banks or wire transfer firms.
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FSA’s proposal also includes a provision that makes it mandatory for stablecoin issuers to back their coins with reserve assets fully. In so doing, the agency hopes to prevent runs from occurring in stablecoin markets. Additionally, the agency intends to toughen anti-money laundering regulations and bring intermediaries in stablecoins transactions under its regulatory scope.
These intermediaries, including wallet providers, will also have to meet obligations under Japan’s law on preventing the transfer of criminal proceeds. Such duties include verifying user identities and reporting suspicious transactions.
Governments across the globe continue clamping down on stablecoins
FSA’s decision to regulate cryptos comes after US regulators and lawmakers voiced similar concerns about stablecoins.
In a September report, the President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, agreed that,
To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions, which are subject to appropriate supervision and regulation, at the depository institution and the holding company level.
Before the US, China moved to ban stablecoins, saying they posed a significant threat to the international monetary system and payments and settlement system.
This news comes after Tether’s denied a short-term debt issued by troubled Chinese real estate developer Evergrande, which failed to deliver on its promises after accruing a $300.00 billion (£227.10 billion) debt. However, it is worth noting that its stablecoin, USDT, is partially backed by commercial paper.
Should an Evergrande-like crisis happen to one of the companies in which Tether holds a short-term debt, USDT would not have full backing. Such an event would mean investors don’t get their investments intact in the event of a run.
Meanwhile the stablecoin industry is expanding rapidly, with the Tether (USDT/USD) and USD Coin (USDC/USD), the two leading stablecoins having market caps of $76,271,356,622.00 (£57,751,527,163.83) and $41,014,612,076.00 (£31,055,649,044.77), respectively.