The Financial Services Agency adjusts for “Regulation of Virtual Currency Custody Operations”
Indicated in the Financial Services Agency’s (FSA) report “Study Group on the Virtual Currency Exchange Industry,” the direction of custody work was reported in the draft report “Study Group on Virtual Currency Exchange Industry.”
What is custody work?
When dealing with securities trading as investments in securities, the business of storing and managing securities is known as custody. With virtual currencies, if the exchanges or wallets provide customer services, they are defined as not reporting as virtual currency custody businesses.
The Necessity for Restricting Introductions
For “the current state of virtual currency custody business and the necessity of regulation introduction” as it pertains to merchants who carry out wallet businesses, the name ‘virtual currency custody business’ is newly added for businesses who deal with and conduct the buying and selling of virtual currencies with wallets. These regulations do not apply to the virtual currency exchange industry, but when businesses manage customer’s assets and send remittances based on customer’s requests. Matters such as outgoing risk of custody assets and bankruptcy risk of dealers would apply. In summarizing the correspondence with such risks, there is common thought that it is necessary to establish certain regulations and ensure proper and reliable execution of operations.
Money laundering and terrorism financing regulation
Regarding the virtual currency custody business, in October, the FATF (Financial Activity Working Group), which is an intergovernmental organization aiming for international cooperation, will also cover those who conduct virtual currency custody businesses as subject to money laundering and terrorist financing regulations. The revised FATF recommendation to the effect that international cooperation is necessary is indicated because it adopted the revised FATF recommendation for each country.
Introduction to a wallet trader registration system
Not only exchanges, but wallets that perform custodial services will also be subject to a registration system with the following requirements:
•Maintenance of an internal control system
•Separate management of vendor’s virtual currency and customer’s virtual currency
•Separation of management audits
•Financial statement audits
•Publication of response policies at the time of virtual currency outflow
•Retention of funds for repayment
•The right to request return of the customer’s virtual currency that is subject to priority payment
•No dealing with virtual currencies that are deemed to hinder with user protection and proper and reliable execution of work
•Identification of customers and notification of suspicious transactions to administrative authorities