Authorities in Japan are working on a proposal that could pave the way for the regulation of virtual currency business in the country.
A working group under Japan’s Financial Services Agency (FSA), called the Financial System Council, started holding discussions on Thursday before it draws up a final report that will become the basis of a legal framework for regulating digital currencies—like bitcoin—and exchange operators, Econotimes reported. The legal framework is expected to be tackled during the next Diet session, which is scheduled to start on Jan. 4.
According to The Japan Times, the proposals included in the draft include mandatory registration of operators of virtual currency exchanges with the FSA. In addition, exchange operators must also meet certain conditions, like maintaining a specified amount of capital and managing customer assets separately from their corporate assets.
The group also wants mandatory checks on exchange operators by certified public accounts or auditing firms. And to counter money laundering, the group wants the operators to be obliged to confirm the identities of clients when they open accounts and report questionable trading to authorities, the news outlet reported.
Last month, the FSA announced it was planning to introduce a regulatory mechanism for virtual currencies as early as next year, following the arrest of Mark Karpeles several months ago, which exposed the almost non-existing bitcoin regulation in the country.
The 2014 collapse of Tokyo-based bitcoin exchange Mt. Gox and the subsequent arrest of Karpeles, its CEO, is listed in the draft proposal as a key reason for requiring exchanges to provide detailed information not only to the regulators, but also to their customers.
The 30-year-old Frenchman was arrested in Tokyo last August on allegations of tinkering with company’s data to inflate the balance of his personal account between 2011 and 2013. Japanese news outlets reported that Karpeles transferred ¥20 million ($166,000) in client money to his own bank account.
Authorities alleged Karpeles used the money to pay for his personal expenses and on a good bang with “several women whom he met at venues that offer sexual services.”
Karpeles has been claiming innocence since day one, saying hackers exploited the site’s “transactional malleability” and caused the loss of 850,000 of its bitcoins in 2014. He later announced they had found 200,000 of the missing bitcoins in a cold storage, but it wasn’t clear how much the exchange clients were able to retrieve.