Regulators want tech companies to help them combat a rise in crypto-powered anti-money laundering, experts say, after Tokyo announced it had turned to the business world for assistance.
Japan’s Financial Services Agency said last week it would support private businesses’ efforts to conduct crypto AML-related pilots over the next three months.
“Globally, there is a consistent pattern emerging where the private sector increasingly executes AML operationally because it owns the data, technology, and transaction layers,” Aleksander Gora, the head of identity and digital trust at the security provider Teranode Group, told DL News.
“Governments will continue to define the regulatory framework, while execution shifts toward those closest to the transactions themselves.”
Japanese firms are gearing up for a major crypto pivot in Tokyo, which has indicated it wants to fully integrate crypto into the financial sector mainstream by 2028.
Heavy-hitters join pilots
The FSA says several leading domestic crypto exchanges, including GMO Coin and Bitbank, will take part in the pilots, along with the Japanese branch of blockchain analysis firm Chainalysis.
Other heavyweight firms from the world of Japanese finance are also taking part, including the crypto arms of the retail giant Rakuten and the securities provider Nomura. The conglomerate Hitachi has also expressed an interest in the project.
Several other firms are also working on the pilots, but have asked the regulator to keep their identities a secret.
“These pilots will test the effectiveness and legal compliance credentials of a new framework for private businesses,” said the FSA. “[This will allow firms] to collaborate and share information regarding crypto-related anti-money laundering.”
The companies will work alongside the regulator’s own affiliates to explore AML compliance measures for transactions, including stablecoins and non-fungible tokens.
“Rather than building a massive state-run setup, governments can just set standards and require private entities to implement them,” Shiv Shankar, CEO of the decentralised blockchain marketplace Boundless and the former head of compliance at Coinbase Japan, told DL News.
“In places like Japan, where regulators are a bit more cautious but technologically forward-looking, this model fits quite well.”
Information sharing
One of the participants explained the FSA wants “multiple cryptocurrency exchanges and stablecoin businesses to verify the sophistication and efficiency of AML measures” by sharing information on “wallet addresses suspected of fraud across industries.”
This would allow crypto exchanges to share information with banks about suspicious transactions, and vice versa.
Inter-sector collaboration will become particularly important as Japan looks to deregulate crypto and blur the boundaries between it and the traditional financial sector.
Japanese banks and securities firms have stepped up efforts to launch yen-pegged stablecoins and offer their clients a range of crypto-related financial services in the year ahead.
Nomura is reportedly seeking a Japanese operating permit for its Europe-based crypto exchange this year, with banking rivals Daiwa Securities Group and SMBC Nikko Securities also reportedly mulling similar moves.
