Japan’s Financial Services Agency (FSA) is set to make major changes to regulations that could allow Japanese banks to hold Bitcoin and other digital assets for investment purposes, potentially changing the face of Japan’s financial landscape.
If approved, it will be the first time in Japan’s history that banks will be able to directly buy, hold and trade Bitcoin and other digital assets.
The plan is being considered by the Prime Minister’s advisory body, the Financial Services Council, and reportedly could also allow banks to operate Bitcoin exchanges.
According to a report by Japanese media outlet Livedoor News, the Financial Services Agency wants to create a framework that would treat Bitcoin in the same way as traditional financial products such as stocks and government bonds.
The goal is to enable banks to treat digital assets in the same way they treat securities. The FSA believes the time has come to integrate digital assets into the traditional financial system.
Currently, Japanese banks are not allowed to hold digital assets for investment purposes.
The limit was introduced in 2020 after regulators expressed concerns about volatility risks. Rapid price fluctuations in assets such as Bitcoin can jeopardize a bank’s financial stability if not managed properly.
Under the new system, the Financial Services Agency will lift this restriction, but only if strict risk controls are in place. Regulators will impose capital and exposure limits and require stress tests to ensure banks are financially sound even in the face of wild swings in digital asset prices.
Bitcoin is known for its rapid price fluctuations. Holding large amounts of capital can quickly weaken a bank’s financial stability, as it increases the risk of significant losses if the market declines.
To prevent such risks, the Financial Services Agency has designed what is called a robust risk management system. Discussions at the next working group meeting will focus on how banks can manage the unique risks associated with digital asset exposure.
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Analysts say this is Japan’s cautious but progressive approach to financial innovation. Japan’s proactive approach to regulating digital assets has laid the foundation for Japan to engage in more advanced policy discussions.
Another part of the proposal would allow banks to register as official “cryptocurrency exchangers.” Currently, only licensed digital asset companies can provide trading and custody services in Japan. Banks wishing to enter this field will need to set up a separate subsidiary.
If approved, banks will be able to offer Bitcoin trading services to their customers under the same group. This increases the trust and safety of the market as established financial institutions bring stronger compliance and security.
Having banks run digital asset exchanges would make life much easier for retail investors looking to enter the Bitcoin market.
To accommodate this growth, the Financial Services Agency is considering transferring the supervision of digital assets from the current Payment Services Act to the Financial Instruments and Exchange Act (FIEA), which governs securities and investment products.
The regulator indicated that many of the challenges in digital assets are similar to those in the securities sector and that similar investor protection rules may apply.