Investigation launched into prominent Chinese blockchain figure Yao Qian

Japan’s Financial Services Agency (FSA) is moving to close gaps in crypto regulation and support a new bank-led stablecoin pilot, as markets watch for a potential Bank of Japan rate hike. Tougher oversight of crypto lending and IEOsAccording to a CoinPost report, at the fifth meeting of its Digital Asset Working Group held last week, the FSA discussed introducing new requirements to bring crypto lending clearly within the regulatory framework. While firms managing or staking crypto must register as exchanges, some operators have avoided registration by structuring services as borrowing schemes, which are not legally treated as asset management.Photo by Possessed Photography on UnsplashThe FSA flagged that users face both credit and volatility risks, yet operators are not required to segregate customer assets or use cold wallets. Some services offer returns around 10% or tie up funds for several years, with weak risk management and exposure to re-lending defaults and staking slashing. Under the new policy direction, operators will need stronger risk management for re-lending and staking, tighter custody controls, and clearer risk disclosures and advertising. Institutional-only borrowing not offered to the public will remain exempt. Some members questioned whether the new requirements would be practical to implement for off-chain operators, noting that staking is fundamentally on-chain. The group also examined initial exchange offerings (IEOs) lacking financial audits, particularly those aimed at retail investors. Members discussed limits similar to equity crowdfunding: investments over 500,000 yen ($3,000) capped at 5% of annual income or net assets, up to 2 million yen ($13,000). Most past domestic IEOs were under 500,000 yen ($3,200). Some warned such caps could be bypassed through secondary trading, where tokens are immediately tradable. Major banks pilot stablecoinAlongside stricter rules, the FSA will support a stablecoin pilot led by MUFG Bank, Sumitomo Mitsui Banking Corporation, and Mizuho Bank. CoinDesk Japan noted the project, the first under the Payment Innovation Project, will include three additional participants. Mitsubishi Corporation will oversee operations, while Progmat and Mitsubishi UFJ Trust and Banking will handle issuance and custody. The pilot, launching this month with implementation targeted within the year, will test whether a joint stablecoin by major banks can navigate regulatory and operational challenges. Rate hike speculation mountsJapan’s calibrated digital asset push comes as speculation grows over a possible Bank of Japan (BOJ) rate hike next month. Minutes from the BOJ’s October meeting, cited by South Korean outlet Edaily, show one board member saying most conditions for a hike have been met and that financial conditions would stay easy even after an increase. The BOJ kept its rate at 0.5% at that meeting. A rate hike was described as likely if firms are seen committing to wage increases ahead of next spring’s labor talks and if no major global shocks emerge. Markets, however, remain cautious, citing uncertainty over U.S. tariff effects and whether newly elected Prime Minister Sanae Takaichi will endorse such a hawkish stance. 

Korean Financial Watchdog Takes Action to Prevent Abnormal Foreign Currency TransfersAccording to yesterday’s press release, the South Korean Financial Supervisory Service (FSS) has undertaken measures to tackle the issue of abnormal foreign currency transactions disguised as cross-border trade transactions. After identifying suspicious transactions of a total of approximately $7.2 billion involving 83 companies, the FSS has collaborated with the Korea Federation of Banks and domestic financial institutions to establish a task force. The objective is to improve the existing system and prevent such occurrences in the future.Photo by Eric Prouzet on UnsplashWeaknesses in internal controlsDuring inspections conducted within the banking industry since June 2022, the FSS uncovered weaknesses in internal controls related to foreign currency transfers. These included instances where banks neglected to verify the required documents for transfers and failed to detect abnormal transactions that had been ongoing for an extended period of time. The abnormal foreign currency transfers primarily involved funds flowing out of Korean virtual asset exchanges and being sent overseas under the pretense of trade transactions.Three-line defense internal control systemTo address these vulnerabilities, the task force has engaged in discussions and decided to build an internal control framework within the banking industry, rather than to add a new procedure. This was to minimize the disruption that the new system can pose to banks regarding foreign exchange transactions. The dedicated group has introduced a three-line defense internal control system.The new internal control system comprises three parts. Firstly, it involves standardizing a checklist of vital checkboxes that must be completed before initiating advance remittance transfers for imports. Secondly, the monitoring system employed by banks will be strengthened. Lastly, a follow-up system will be developed, clearly outlining the roles and responsibilities of banks and incorporating a review process.Implementation and timelineBanks plan to implement these improvement measures in July, following necessary preparations such as guidelines revision and rules update in the second quarter of this year. Since developing a computerized system and devising new procedures may require additional time, they will be gradually introduced in the third quarter.The FSS expects these improvements will ensure the systematic operation of banking institutions’ internal control functions related to cross-border prepayments, thereby preventing suspicious foreign currency transfers and curtailing companies’ risks of violating their obligations.

Report Reveals Global Trends and Online Discourse on Crypto Travel RuleCODE, the only Travel Rule solution provider in South Korea, together with blockchain consulting firm Catalyze Research, published a report that sheds light on global trends in Travel Rule legislation and popular online keywords associated with the Travel Rule. The Travel Rule is a set of guidelines that virtual asset service providers (VASPs) and financial institutions are obligated to observe in order to counteract money laundering and terrorist financing. These guidelines require these entities to share information about both the sender and the recipient of cryptocurrency or financial transactions.The authors of this report gathered online comments related to the Travel Rule from January 1, 2019 to July 31, 2023. They conducted this analysis across news outlets, media platforms, online forums, and various social media channels, encompassing over 200 countries and 150 languages.Photo by Volodymyr Hryshchenko on UnsplashKey events driving discussionsAccording to the report, online discussions concerning the Travel Rule intensified around the time of several key events. These events include the enforcement of the Travel Rule in South Korea in March 2022, the approval of the Markets in Crypto-Assets Regulation (MiCA) and Transfer of Funds Regulation (TFR) by the European Union in April 2023, endorsements of the Travel Rule by G7 countries in Japan in May 2023, and the subsequent implementation of the Travel Rule in Hong Kong and Japan in June 2023.Notably, South Korea, Japan, and France experienced the most substantial surges in Travel Rule-related discussions during the first half of 2023. In South Korea, comments were prompted by a lawmaker’s scandal related to cryptocurrency trading. Meanwhile, Japan and France observed a rise in comments linked to the enforcement of their respective local Travel Rule regulations in the second quarter.Negative market responsesIn addition, markets responded more negatively than positively to the tightening of Travel Rule regulations. The concerns about the market contraction were stronger than the positive outlook on the advantages of preventing money laundering.Lee Sung-mi, CEO of CODE, highlighted the growing significance of Travel Rule solution providers in ensuring the compliance of virtual asset service providers (VASPs) with the regulatory demands of various jurisdictions. Particularly, with the Financial Action Task Force (FATF), G7 nations, and the EU at the forefront, countries have been making noteworthy strides in Travel Rule implementations since 2023, she further noted. Lee emphasized CODE’s commitment to aiding its member VASPs in adhering to Travel Rule regulations by delivering secure and convenient services that align with the evolving global regulatory landscape.