Japan to tighten crypto exchange regulations to enforce Russia-related sanctions

TL;DR Breakdown

• Japan is planning to modify its Foreign Exchange and Foreign Trade Act to bring crypto exchanges under the bank-regulatory scope.
• The proposed change is intended to prevent sanctioned countries from using cryptocurrencies as an alternative.
• Recently Japan ordered crypto exchanges to comply with sanctions against Russia.

The Japanese government is pushing to update its foreign-exchange laws on cryptocurrency exchanges, according to Chief Cabinet Secretary Hirokazu Matsuno. The proposed amendment is being drafted as part of the government’s efforts to implement sanctions against Russia. The Japanese government, led by the new prime minister, Fumio Kishida, has also backed the change and urged coordinated action with Western allies to implement it.

If enacted, the changes would bring digital-asset exchanges under the regulatory scope of the country’s banking laws. The amendment is designed to prevent sanctioned countries from using digital assets to avoid detection.

Currently, there is no specific regulation of cryptocurrency platforms in Japan. The law governing these platforms is based on the Payment Services Act, which was created before the rise of digital assets. Under the new foreign exchange regulations, crypto platforms, like banks, will be required to check and identify transactions linked with prohibited Russian nationals or organizations.

The amendment is still in the early stages of development, and it remains to be seen whether it will be enacted. However, the fact that the government is considering such a move shows that it is taking measures to prevent sanctioned countries from using digital assets to avoid detection.

Japan urges crypto platforms to comply with sanctions against Russia

Japan, like most of its Western allies, has implemented numerous financial sanctions against Russia as a result of its actions in Ukraine. In March, the financial regulatory body in the country issued a notice requiring cryptocurrency exchanges to ban transactions for blacklisted individuals. The move was implemented to prevent Russia from evading sanctions through the use of cryptocurrencies.

However, a legislative amendment would make it a legal obligation for crypto platforms to block transactions for various illicit Russian officials, oligarchs, banks, and other organizations.

Banning Russia from using Japanese cryptocurrency platforms alienates it even more from the global financial system. As a result, the Russian Rouble will continue falling and Russian businesses will have a hard time trading with foreign countries.

Western sanctions force Russia to opt into cryptocurrencies

The concern that Russia is attempting to get around sanctions by utilizing cryptocurrency stems from the state’s growing involvement in the crypto industry, as well as recent remarks made by government officials. Russia is one of the leading countries in mining Bitcoin with other cryptocurrencies. The average monthly hashrate of mining Bitcoin in Russia is around 11.23%.

The East European country has been dealt a devastating blow in recent news, which states that Russia is forced to subsist on its own as other nations continue to sanction it. Although the Ukrainian conflict and invasion are still ongoing, the nation has sustained significant damage. However, in an effort to soften the impact of several sanctions on the nation, Deputy Energy Minister Evgeny Grabchak has urged the government to consider legalizing crypto mining across the country.

The Japanese government’s push to bring crypto exchanges under banking regulations is a response to these developments and is intended to prevent Russia from avoiding financial sanctions. The economic penalties imposed on Russia have necessitated the adoption of alternative payment systems and methods to participate in the global trade market. Experts have dismissed fears about the use of digital assets to skirt trade embargoes as entirely baseless.