Japanese Regulator Report Suggests DeFi Regulations Could Be Coming

The top Japanese financial and crypto sector regulator, the Financial Services Agency (FSA), has published a report on DeFi, blockchain and crypto – with its authors concluding that there may be a need for the nation to develop regulations for the decentralized finance sphere.

The report was the second from the FinTech Innovation Hub, a working group created by the FSA in 2018, per Coin Post. The group‘s main aim is identifying new business avenues and trends in the fintech and blockchain space, rather than policy creation, per se – but the report is nonetheless likely to influence the thoughts of the FSA’s policy-forming executives.

The reports main function is to sum up developments and meetings held in Japan or virtually over the past few months – creating a sort of executive summary of key meetings for regulators to access at a glance.

But the group wrote that it was “proceeding with discussions and document formulation” in the DeFi space, and claimed that regulators should understand more about community trends, development of DeFi technologies, governance mechanisms and the prospects for the further progress of decentralization in the space.

The papers authors also added that “future regulations” would likely be imposed and that discussions about the space were ongoing within the FSA. And they added that these regulatory discussions were taking place not only in DeFi deliberations but also in the wider crypto sphere, including the crypto custody sector.

The FSA has explained its stance on DeFi thusly:

“A decentralized financial system based on blockchain technology has the potential to enable peer-to-peer (P2P) financial transactions without the need for intermediaries. Although this kind of decentralized financial system can offer a variety of opportunities and benefits, it could also undermine [policy-makers] ability to enforce existing regulations.”

The FSA began policing the crypto sphere in earnest in 2017, when Japan became one of the first countries in the world to adopt a permit-based system for crypto exchange operators. The agency has since tightened its control over the sector in the wake of the Coincheck hack of early 2018, and holds regular policy-forming sessions – often involving members of the domestic blockchain and crypto industries.