Both the SEC & Japan’s Financial Services Agency (FSA) announced this week new ‘surveillance’ units designed to increase scrutiny in the crypto market place. Interestingly, their announcements highlight very different approaches to regulating crypto currencies and ICO markets.
As reported in the Japan Times, having passed the revised payment services law earlier this year, Japan’s FSA set out operational standards for exchanges, as well as recognizing bitcoin as a form of legal tender. It also established anti-money laundering (AML) and know-your-client (KYC) rules for exchanges as well as enforce security standards to prevent cybercrime or data theft. The law states that all exchanges must report to the authorities by the end of September to confirm they are compliant with the new rules. Japan’s FSA last month also established a specialised surveillance team, reportedly comprised of 30 staff members to monitor the 20+ cryptocurrency exchanges currently in operation. There were over 33 fraud cases, representing more than a half of million dollars-worth of loses, reported in the first seven months of 2017 in Japan. Having learned from the Mt Gox exchange collapse in 2014, Japan’s FSA is taking a proactive approach to regulating the cryptocurrency industry by updating their regulatory framework.
On the other side of the world and regulatory spectrum, the SEC announced it will set up a new cyber enforcement unit to target violations involving distributed ledger technology (Blockchain here we come) and initial coin offerings (ICO enforcement is coming) to fight cybercrime, address market manipulation and the theft of sensitive information in the crypto space. However, without a clear regulatory framework around cryptocurrencies or initial coin offerings, the SEC’s message seems to be that they are focusing on watching, rather than updating securities regulation to address this market.
For example, to explore the ‘dark web’ or to legalise marijuana production brings transparency to markets that have had no legal framework or rules. With ICO market capitalisations rising and more retail investors moving into this space, how much longer can the SEC remain in ‘surveillance’ mode?